Risk & Business

A few years back I was part of a team of authors that wrote a book on credit scoring. The credit scoring model was realatively new and was getting a lot of attention. Our research showed that the alogirithms used were actuarially sound as low income folks with bad credit scores deserved higher rates. However this did not go over well with State regulators. Now, 5 years later , credit scoring is still being used to determine rates. Unfortunatly low income folks are still being adversely rated due to poor credit. Is this fair? just because the math shows higher rates are necessary, does the method discriminate? Is the credit score model putting low income drivers with excellent loss ratios into a basket of bad drivers? The debate is raging and will probably continue over the forseeable future. I thought by this time the argument would be decided, but it looks like time has only made it worse. Lets see what the next few years show. Until next time be careful out there and know your risks.

Dealing with human beings on the job is a real challenge for a risk manager. The recent Federal laws and all the State laws that are in place to protect the employee from bad employer practices, has made risk managers work extra hard to comply. If you are a risk manager by profession you better know the rules and regs of HR. Until next time be careful out there and know your risks. K

The Federal Crop insurance program had record payouts last year. Analyst state that the reasons are increasing weather disasters and the rising costs of getting crop in the ground. The issue at stake is how long can the program exist at record claims. As it is not making an underwriting profit and the cost of planting and growing keeps rising soon the program will become untenable. This resembles the flood program. The NFIP is in trouble and no real solutions have been brought to the table other than funding extensions. As the nation tries to cut its federal budgets,  the crop program could follow suit with frequent funding extensions and no real solutions to make the program work. Time will tell. Until next time be careful out there and know your risks.  K

Solvency II creates a standard of capital requierments for insurance companies to make sure they are stable for future losses. However the law will stretch to captives and how captives are capitalized. If this will hurt the formation of captives will remain to be seen. Many analysts say it could. Captive managers are anxiously waiting to see how regulators will apply the Solvency II laws and how they will address captive organizations. Until next time be careful out there and know your risks. K

In a recent survey of corporations with over 10,000 employees, internal risk management cultures have increased 42% from just a few years ago. i guess the 2008 financial crisis woke everyone up. Unfortunately there are still many businesses that have yet to establish a risk management culture. In addition those that have established one are still centering their strategies around financial or fiscal risk. This will reveal itself over time as short sighted. Many other modern day risks have developed which pose threats to business. Cyber risk, reputational risks and supply chain risks were not on the radar screen just a few short years ago but now are common topics of discussion and pose direct threats to businesses. The practice of risk management is realtively new for bsuiness owners. I would expect that it may take some time for businesses to embrace what may be the most important strategy a firm will need to survive modern day business. Until next time be careful out there and know y

Risk managers across the country are looking at cyber insurance as a major add on to their insurance portfolios. Cyber crimes are growing and the use of cloud and wireless connections are growing which means businesses are targeted more and more. Cyber insurance does cover most of the liability and first party losses as a result of cyber crimes. As time goes on it will remain to be seen if the insurance product catches on more and more with small business owners. Yes it adds to the costs of their insurance protection but it may be a coverage that they can't do without.  Until next time be careful out there and know your risks. K

Currently, states across this great country regulate insurance. For almost  a century, states have done a great job making sure consumers are protected and insurance companies are financially solvent. Now we are starting to see a push for more federal oversight of insurance. The new FIO (Federal Insurance Office) of the government is starting to elicit feedback from the industry on the current state regulation system. What this all means is that state regulation of insurance will change. Here are a two reasons why. State licensing is still a nightmare for agents/brokers and insurance companies. Currently in our agency, we have one full time person just handling the state licensing for the 30 states we are licensed in. The demand for ease of licensing will push a change in insurance regulation. Another reason is the demand from companies to be able to integrate their US products with overseas activities. Obviously the state system cannot handle insurance operations by US companies in ot

With the Affordable Care Act (Obama Care) making it a mandate that health companies include commissions in the medical loss ratio (MLR), brokers find themselves in a troubling predicament. If this is not reversed many companies, in not all health companies, will stop paying commissions. This has already started to happen in big premium cases. This trend also puts a tremor down the spine of P&C agents. I can see big stock companies getting rid of commissions on big premium cases. Large comp policies already have commissions at 3% or less with many companies. The MLR issue is still being argued in Washington and could be overturned or, the trend of not paying commissions in health insurance could continue and over time leak into the P&C industry.  Until next time be careful out there and know your risks. K

In a recent report, 25% of flood claims from hurricane Irene are still not processed and small businesses are suffering. The NFIP is responsible for paying the claims and private insurers are responsible for processing them. Fingers are being pointed at the NFIP because they have yet to fund the claims. Private insurers who process them are not putting their own money to settle the claims. This is another burden on small businesses and shows the inefficiency of the Federally run program. This also gives us in the insurance industry cause for worry as many of our clients are covered by the NFIP. As agents we sell flood insurance to our customers because our job is to protect our clients assets. Our concern however is that the NFIP is like a low rated insurance company who cannot pay claims. Mutiple claims from multiple weather events could force the risk back on agents who have sold the policies. We can only hope that the Fed will finally fix the NFIP and make sure that claims are paid