Risk & Business

The commission studying the bailout of AIG reported that poor oversight and inept risk management caused the insurance giant to meltdown. Also the Federal agency that was supposed to regulate the credit default swaps (insurance) barred States from looking over AIG shoulder. If States were able to regulate they would have made AIG put aside reserves to back up the credit default swaps. With reserves set aside like normal insurance companies then when the mortgages started to fail AIG would have had money to pay the claims. According to AIG reserves were not set aside because they felt mortgages would never belly up in mass and that they would not have to ever pay claims. It just goes to show that even the biggest companies need good risk management and sound business principles. Well its all water under the bridge now. Lets hope we all learn something from this. Until next time be careful out there and know your risks. K

According to S&P bond insurers are not as well capitalized as many of their p&c brethren, especially the companies that post municipal bonds. S&P is looking to possibly downgrade their ratings this year. How this will affect the industry is unclear, but it will surely start some rumblings. Until next time be careful out there and know your risks. K

The days of changing certificates of insurance to match contract requirements or holder requirements are over. First, the new 2010 certificate is copyrighted and agents cannot change the terms or wording. Also many States now have regulations against agents or brokers changing the certificates and insurance professionals could lose their license if caught. So what is the answer going forward? Not really sure. To clients they don't care as long as the certificate holder is satisfied. Saying no to a client that has promised insurance coverages that cannot be delivered is very tough for agents. In addition many clients sign contracts in which insurance terms are not avaialble or impossible. These business owners could face possible breach of contract claims. So it is time for the industry and business to really understand certificates and what they mean. A certificate of insurance is not an insurance policy. Also contracts are going to have to be written so that insurance terms can be

Wake up agents and brokers, the Gen Y kids are growing up and are going to be starting new small businesses. Are you ready for how they are going to buy? Based on a recent study 49% of Gen Y college graduates are going to start small businesses over the few years. The recession has prompted a lot of this readinesss for enterpreneurism. This group also have decided how they want to buy business insurance. The study showed that 80% what to buy, get service, talk to agents, and make payments all online. Yes, all online.  This means that agents and brokers are going to have to completely change the way they operate their businesses. Don't think for a minute that a complicated product like business insurance can't be bought online at any level. Don't think that a complicated product like business insurance can't be serviced by online chat and or video conferencing. Don't think that a complicated product like business insurance can't be taught and the consumer educate

Prior to the recession, the commerical insurance markets were competing heavily for property accounts. I believe that the soft market started with the reduction of property rates. However in the recession the insurance markets are trying to figure how to price and cover all those commercial buildings that are now vacant. These are the same buildings that the insurance companies competed hand to hand to get on the books, and now insurance companies are looking to shed these risks. Clients and agents are scratching their heads saying, hey these are not bad risks. Underwriting says that the risk increases when there are no tenants and landlords lose income. So how is the industry going to handle this. Well companies will stay on these risks but rates will have to go up. So what started the soft market 7 years ago , will most likely start the hard market of 2011 or 2012. Until next time be careful out there and know your risks.  K

When the Concorde blew up on the runway a few years back, it was determined that a piece of metal on the runway from a prior takeoff caused the accident. A Continental jet had a piece of metal fall off during takeoff. The metal caused the Concorde tires to blow and tire pieces get sucked into the engines when the supersonic jet rolled down the same runway for takeoff. A French court just recently ruled that the mechanic who installed the metal fitting would be charged with manslaughter. In addition Continental Airlines was charged too. This is a dangerous precedent in my opinion. There are times that accidents are just that accidents. To charge a company and one of its employees for manslaughter is really scary. First as a risk manager, there is no real way to risk manage this situation other than avoidance. This means companies will stop making airplanes. Second, there is no insurance policy that can cover companies or employees who are convicted of criminal felonies. Again the only c

I have written a few blog posts about how I felt the commission model of paying agents is going to be a thing of the past. Aetna announced that begining Feb 1 it will no longer pay commissions to its agents or brokers on health plans that have greater than 51 people. Aetna will pay a direct service fee based on what the agents do for the clients. I see this as starting a trend that will permeate all through the agents/broker business. It is time for our industry to realize that the commission model is antiquated and will be phased out. Are agents ready for this change? Can agents adapt to charging fees based on services? Are clients ready to fully understand what agents do and pay for those services? Boy things are definitely going to be different real soon. Get ready agents. Until next time know your risks and be careful out there.  K

Due to the tough economic times I have had numerous discussions with my clients on how to reduce insurance premiums for thier business. We look at all aspects of coverage and find ways to cut costs. However very little talking is done about the increasing risk. It's not that I don't try to tell them about how reducing coverage increases risk, I do, but their mind is made up, cut costs ! It is a little concerning to me as a broker the balancing act that all brokers have to do to protect their clients at a premium they can afford to pay, and at the same time not allow themselves to get too exposed on risk that could really hurt them financially. I had one such conversatin today and I was able to convince the client to stay the course on the insurance. I realized that my best sale this week was convincing this client not to cancel his insurance and expose himself to a larger amount of risk even in the face of his budget tightening. There is a fine line and hopefully my years of ex

I usually don't complain but I have to when it comes to State licensing. I am currently licensed throughout most of the U.S. Every year the amount of  fees that has to go to States just to keep those licenses is ever growing. Every State has its own system and requirements, not to mention their own forms and paperwork. Currently it is becoming a full time job just to keep up. This has to be holding back insurance growth across the country. Agents and brokers are most likely electing not to write insurance in some States just to cut down the work load. How many States are loosing premium tax revenue because of this? I would really like to see a study done. Oh, well enough complaining, until next time be careful out there and know your risks. K