Risk & Business

The headlines this morning are buzzing with the news that Nationwide and Harleysville are working a merger deal. This event has generated some real interesting questions. First, will this start a trend of direct writer companies buying into the independent agent marketplace? It just might. Premium growth is difficult right now so if you have the capital then you can buy your competition. Second, how are independent agents going to be treated with the new merger?  This has many agents worried as they may have to become more captive or a direct agent for Nationwide and less independent. This will most likely happen through  their agent contract. Third, What does this say about the P&C marketplace? I think it is fairly self evident, the marketplace is flat and is going to stay flat for some time in the future. Insurance companies growth strategies are only going to be achieved by acquisitions. This may be the first of many to come. Until next time be careful ou...

The Fed today announced a lowering of interest rates by buying up long term treasuries. This will directly affect Life insurers earnings. Life insurers have long term treasuries in their life product insurance portfolios and the Fed move will lower their earnings and put the products at risk. Annuities returns will be less also. It remains to be seen how the insurance companies will react but certainly they will have to down grade their earnings projections. Until next time be careful out there and know you risks. K

The Virginia Supreme Court just ruled that claims under the CGL for damages caused by global warming are not covered under the CGL. The court ruled that there is no trigger for the claims. This case most likely will be a precedent that other insurers will use as these claims arise. Global warming in its own sense is still a highly debated issue, but as insurance claims are brought to insurers, the debates will get more and more heated. Insurance carriers state that the CGL coverage is triggered by an occurrence caused by an accident and that global warming is not either. The Virginia courts agreed. How other States rule on this will remained to be seen. One thing is for certain, it will become a highly litigous issue and will most likely affect insurance coverage or insurance products in the near future. Until next time be careful out there and know your risks. K

There is an increased activity in claims centered around cyber liability. The insurance industry has been slow to react to this risk as insurance products for this coverage are still in their infancy. Sony was the first really big profile claim and their insurer is denying coverage. However small business is being targeted also and there are few coverage forms that can be purchased to cover the claims. The industry needs to really put some effort in  making this coverage more readily available and affordable. As agents we are stuck telling our clients about a high frequency, high severity risk and are not able to get the coverage forms to cover their exposures at a reasonable price. sure there are endorsements that give a little coverage, 10K here and 20K there, but the risk to small business owners that conduct sales with computers and credit card machines makes them highly vulnerable. In addition the data bases they use for marketing and customer info is at risk on thei...

If Congress passes the Flood Modernization act, then flood rates will go up 15% a year for a while in order to get the program in line with actuarial rates. This will most likely cause more people to be uninsured for floods as the premiums rise and people drop the coverage. In the short term this is not a good thing but is the only way to get the NFIP (National Flood Insurance Program) on solid finanical footing. The new act before Congress will also force the program to set aside reserves which is prudent for an insurance entity. I know the timing of increased insurance rates is not good with the economy sputtering, but this is a good move to assure the programs viability into the future. Until next time be careful out there and know your risks. K

I got a email from Progressive insurance company the other day. They were offering premium payment suspensions or deferrals for anyone who was dealing with damage from Hurricane Irene. To me this is an incredible marketing strategy. It creates value for the customer and it is remembered and appreciated. This shows the power of the big insurance companies and their ability to market. All of us in the insurance business try to find ways to create value around the insurance transaction, but it looks like Progressive has thought it out. My hat is off to them for this. Smaller regional companies need to be aware and spend more on creating value through marketing strategies. If not you will contine to lose market share to the big boys. Until next time be careful out there and know your risks. K

I was reading the latest loss reports from some of the major companies in the country and weather realted losses are still topping everything. Everyday we battle underwriting to insure our clients at the most affordable rates. The companies throw at us algorithms that adjust our clients pricing based on their credit score, D&B reports, their consumer history, class of business   etc... and no matter mother nature still causes most of the losses and drive the rates. The insurance industry was created to cover the unexpected losses of nature. Here we are 250 years later and mother nature is still the main reason we are in business. Until next time be careful out there and know your risks. K

Fracking could be the next "gold rush" for the US. There is so much natural gas in the ground that our energy needs could be fulfilled for the next 150 years. However there is a dispute, the process of getting the natural gas out of the rock (Fracking) could pollute ground water, some scientist say. Others say that the process is safe. What a great situation for the science of risk management to be applied. Get the risk specialists around the table with scientists and start the risk management process. Identify the risk, analyze the risk, control tem, and then pay and manage the risk process. Sounds simple right? I know it is not that simple but risk management can really help in this situation. This is a time risk management can be used to strategically help the economy prosper. It could put the science of risk management on the map. Lets see how it plays out. Until next time be careful out there and know your risks. K

I am sitting in my house the day after we experienced a hit from hurricane Irene. Everything came through ok with just some branches down and a messy yard.  Flooding is going to be the ultimate damage maker with this storm. The storm is now in New York hundreds of miles away and we are still getting 50+mph gust here in Delaware. Amazing, the power of this storm and it was only a Cat 1. I think all of us that make their living selling insurance and giving risk advice will need to push clients harder to buy the protection they need from these storms. Flood policies are in the minority in my office despite the massive sales efforts we do each year to get our clients to buy the coverage. Maybe this storm will be a eye opener for many and flood policies will be bought more. Until next time be careful out there and know your risks. K

The tragedy at Indiana State fair is going to be a discussion of risk management. As lawyers for the injured line up with suits and engineers and adjusters do their investigations, the talk will eventually become one of risk control. How was risk managed and what control measures were in place will be the prime factor in the legal outcome. No matter what we do in life, risk is present. In a world as fast paced as ours, risk seems to flourish. If not mitigated, it will grow unabaded and wreak its nasty result.  It is time for the practice of risk management to hold its place along with other professionals in this world. My prediction is that a future risk practitioner will have to have education and testing similiar to the medical, accounting and other professional disciplines. It is important for the world to understand this, because risk will not let up. Until next time be careful out there and know your risks. K

Attention all risk managers, flash mobs are becoming problematic all over the US. How to control these creations of technology is problematic. Risk managers and insurance providers will have to put their heads together to find some risk control mechanisms to curb the destruction of property and personal injury these mobs can bring. Some ideas have been to tap the technology of the wireless companies to give warnings based on texts and mobile communication. Other mechanisms may be to give rewards for those who sniff out a potential flash mob as people know this stufff is going to happen. I will post on this as risk control methodologies develop. In the meantime be careful out there and know you risks.  K

I just finished a conversation with one of my marketing reps from a leading national carrier and he was complaining about their 140% combined work comp loss ratio. We both agreed that the rates are too low, and have been too low for years to absorb any uptick in claims frequency. Well, as the industry is now experiencing, work comp claim frequency is increasing. I see it as a perfect storm brewing against any potential profitability in work comp. Low rates, safety program cutbacks due to the recession, and out of shape work force, and  a recession that has businesses struggling to survive.  The industry knows that work comp can be an never ending claim, however this experience was thrown out the door during the soft market. Work comp rates fell across the country and in some States as nuch as 30-50%. Now the industry is faced with  claims it has to pay from rates that were not adequate to cover the losses. I know this means cha...

Marsh, Aon, and Willis all recently reported organic growth in premium due to overseas insurance sales. Is this the future for small independent brokers in the US?  Most likely. As the US economy sputters and the premium pie gets sliced up more and more, doing business overseas becomes are real strategy. The internet and modern travel effeciencies make having an office in other countries possible even for smaller brokers. How fast this happens will depend on the US economic recovery.  Until next time be careful out there and know your risks.  K

The latest results show that captive insurance companies are showing higher profits and better dividends than standard insurance company results. Why is this?  Well for one the insureds are the owners so they have plenty of skin in the game. Safety and risk management have to be a priority in order to have stellar results. Also every policy holder is engaged in the risk transfer process and understand what losses can do to profits. In standard insurance contracts the insureds don't own the company and usually do not participate in profits. When claims occur the losses are transfered to the insurance company. The insureds allow the company to adjust and pay the claim. The insured is involved by being on the sidelines. In a Captive insurance company the insured's can't afford to be on the sidelines that is why it works.  I believe captives will continue to grow and replace standard insurance contracts in the upper middle market over the next decade. We will see how it shakes ...

I am fortunate to get a real sense of the state of the economy because of my clients. In meeting with small business owners everyday around my area I can sum up the US economic woes in three words, "lack of confidence". Now this is not lack of confidence in themselves as business owners, but in the Federal Government. Most if not all of my clients have no confidence the Federal Government can get it right in changing the direction of debt and spending. This is not a political issue it is a business issue. Small business owners that are still standing had to make the tough choices to cut spending. They had their equivalent policitcal issues and HR issues and entitlement issues and still had to make the decisions. Becuase they went through this pain to be able to survive and the fact that the Government or the country is not willing to do the same, confidence is at a all time low. Until we restore some confidence in the real economic engine, small business, then the country is ...

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 ...