Risk & Business

To beat commodization of insurance, agents have been working real hard to create and show value to their customers. By developing services that can be shown to differentiate themselves from the competition, agents hope to secure relationships. However there is a big disconnect in the real world. The transactional processes of dealing with insurance is getting more time consuming. Computers have made work flows smoother and processes more streamlined but transaction amounts have increased. What time efficiencies that were saved by technology, have been lost by the sheer volume of transactions that have to be completed just to do the day to day insurance business. Which brings me to my main point. Agents create added services for differentiation at the risk of their own survival. With transaction amounts increasing and commissions decreasing, adding services could be the straw that breaks the camel's back. The only way services can be done effectively over time is for agents to charg

Even a big corporation like Sony is not covered for cyber crimes by their General Liability policy. Is this a shocker? You bet. As more and more companies get nailed by the cyber hackers, insurance companies are having to adjust claims and  guess what , cyber crimes are just not covered under the GL. Now will the industry respond? It is going to have to. More and more cyber risk is being created with the computer era. The insurance industry will have to create coverage forms and products to help companies transfer cyber risk. Right now is a treacherous time for companies as cyber thieves are rampant and the insurance industry has yet to really develop cyber liability insurance products that are easily assessable.  Fundamental risk management without the ability to transfer risk financially to an insurance company is going to be a challenge for risk managers. Until next time be careful out there and know your risks. K

S&P announced today that they may downgrade some insurers if the debt ceiling is not raised. Mainly because of the high amount of investment capital insurers have tied up in US Treasury bonds. I find this incredibly interesting that an solid operating insurer can be downgraded because the FED cannot get their fiscal house in order. S&P didn't do such a good job back in 2008 when the mortgage backed securities tanked so I am not  inclined to take any S&P's downgrade as relevant. However insurance company execs have to. A downgrade could affect their ability to write business. I am not sure what the solution is here if the debt ceiling is not raised. Stay tuned. Until next time be careful out there and know your risks. K

In the 25 plus years as a broker I usually see a claim occurr where a repeat offender driver is behind the wheel. It is the same ole story, the driver has been put on a watch basis or counseled many times. The owner of the business demands that the driver stay on the driver list because they are "important" to the business. Then the claim occurs and then everyone is pointing fingers, including the insurance company. Well, technology is changing this pattern. Black boxes, GPS and computer assisted engines are allowing owners and insurance companies to see bad driving habits in real time and action can be taken before the big claim. These technological wizards will change fleet loss ratios forever. They will also change driving habits. Loss ratios for fleet and fleet safety will continue to improve. Until next time be careful out there and know your risks. K

I was so glad to see the Big I (Independent Insurance Agents of America) and their exec, Robert Rusbuldt , challenge  GM's" free "auto insurance marketing plan.  As an independent agent and broker it was always taught to me by law that you cannot "lure" customers to buy insurance with offers of "free" or "prizes" etc..   This is called rebating. The insurance departments that reviewed GM's marketing plan said it meets the criteria of acceptable advertising. I have not been privy to the details of the marketing plan but in my opinion this "free" offer should not be allowed. Insurance cannot be free. It is a contract that requires some "consideration" to make it valid. The consumers are paying for the insurance in with the purchase of the car. So hopefully this will be re-looked at and changed. If not it could set a dangerous precedent for the insdustry that could also be bad for the consumer. Until next time be careful

The current discord over the debt ceiling between the President and the Speaker of the House is proving to be a complicated mess. There is no real easy short term answer to the problem. The Fed is spending to much and living beyond it's means. Adding more debt is not the solution, good common sense will tell you that. Insurance company Execs are really looking at this closely. To adequately begin solving the problem, the investment markets will be in turmoil for a while. As interest rates go up ( and they have to) bond yields will go down. In addition the rating of held bonds by insurance company portfolios may be affected. This could drive insurance companies to move their investments out of "secure" bonds and into more "speculative" securities. This strategy could put insurance companies a little behind the "8" ball as they have depended on investments , not underwriting, to make a profit. Lets see how this will play out. Until next time be careful o

In some states with the purchase of a new GM car you can get free car insurance for a year. Free you say?  Yes that is the way it is being advertised. I have to wonder if this is really a legal marketing strategy. Most states that I know of have certain marketing guidelines that prohibit this type of promotion. First and foremost insurance can't be free because of one simple thing. An insurance policy is a contract. In order to have a valid contract you have to have "consideration" which is a transfer of money. So the consumer is paying the auto insurance through the purchase of the car. I think GM 's marketing stratgegy will be looked at closely by state insurance departments. Until next time be careful out there and know your risks.  K

Developing a risk managment culture in small companies is a challenge. Most small businesses are run and managed by the owners who are also the chief risk officer. The day to day work that goes into just keeping the doors open, makes risk management seem unimportant. Also there is a misconception that insurance policies they buy cover everything so they can somewhat relax when it comes to risk. This is the challenge for risk advisors to small firms. These companies have as much risk complexity and exposure , relative to their size, as do the big firms. Educating and implementing risk approaches to problems is an uphill battle for small companies and owners. Risk professionals have to take a more active role in these companies and "drip" the information to them instead of feeding it in large doses. One thing is for sure, in order for small business to thrive and survive in this challenging economy, risk management has to be part of their buisness plan. until next time be caref