Risk & Business

I couldn't believe what I was reading. A New York insurance regulator sees the ACA act (Obamacare) as a model for standardizing homeowners insurance. The regulator believes there is room for improving how customers understand the complexities in homeowners policies and the Federal Government is the ticket to get this done. This is absolutely a bad idea. Homeowners insurance is a complex product. Standardizing this insurance product is not going to fix the problem of surprised consumers after claims. Insurance companies market the homeowners policy like it is a commodity. People think they are covered for everything. Agents try to educate by sending out checklists and coverage reminders all the time but consumers are reluctant to spend hard earned money in coverage they think they do not need. In addition the flood versus wind debate after major storms always causes problems because homeowners policies rarely cover flood, but people still think they do. So when t...

Predictive modeling is common in insurance underwriting. Insurance companies use computers to analyze data about each customer, with other variables, to predict the chance of loss. These technical "magic beans" are suppose to help insurance companies become more profitable. However I just looked at insurers combined ratios through 3 quarters of 2013 and there are a lot of insurers not making any a whole lot of money on underwriting. As a matter of fact the majority of insurers are barely breaking even. I have been in the business a long time and today's combined ratios are no better than when underwriters used their experience and expertise to predict losses back in the day.  The predictive models are not really making much of an impact in my opinion. Millions of dollars are being spent by insurance companies to perfect these computer models in hopes to squeeze out more profit. I think the only profit advantage that these predictive models will gi...