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 c...

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. Ag...

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 ...

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

It has been proven out. Obesity increases work comp loss ratios 5 times. Now with studies estimating that 60% of the american work force is considered over weight, this should be of vital concern to the insurance industry. Work comp loss rates have gone down during the recession. Actuaries are reporting lowering loss trends due to the amount of people out of work. As the economy improves and more unemployed get jobs the expectation is that comp loss trends will start to get worse and rates will have to go up. Now throw in the fact that most of the newly hired will be overweight, and have been very inactive in day to day work because of unemployment, I do not think the actuaries have models to make these predictions. I feel it spells a unpredicted bad comp lose ratios than anyone expected. As I have said in previous blog posts, the worse case scenario for business owners will be a violent reversal of increasing comp rates that will be practically unaffo...

Currently truckers can drive 11 hours a day. If the Feds get their way this will change to 10 hours. Now this doesn't sound like a big change but studies show it could reduce truck fatalities by 2 or 3% . Even this doesn't sound like a big change but certainly any improvement on the fatality rate is worth it. Truck companies say that it will increase costs. Well this might be true but safety is as important as profit. Again risk managment is the key here. Most truck companies using good risk managment are always looking at driver fatigue and monitor their hours on the road. I think all this will work out for the truck companies and the improvement of the fatality rate. Until next time be careful out there and know you risks. K

If the Federal Government passes a new regulation proposed today, it will scrutinize Health insurers pricing over the next few years. Not being able to regulate rates they can certainly put undo pressure on companies that have an actuarial need to raise costs. This is troublesome to me as it opens the door for more and more regulation of pricing. It also opens the door for Federal intimidation on profits. If insurance companies are profitable then they may be criticized on their pricing and could be 'forced" to lower rates to reduce profit. Insurance is becoming more and more a commodity and therefore is starting to fall into a perceived public right. This could no doubt pit the Federal Government and the private business sector of insurance against each other. Stay tuned.  Until next time know your risks and be careful out there. K

Doctors that practice defensive medicine regularly are practicing good risk management, right? Well that depends. Good risk management has to fall into the lines of the organization's goals and budget. So when doctors go over board with testing and procedures then they may fall outside of both goals and budget. However at the same time the doctor may be preventing a large law suit by a patient against themsleves or their organizations. When thinking about this it really shows how the practice of risk management is very difficult to get right all the time. This is where risk professionals that are trained in analysis, identification, control and managment step in. The future for practitioners of risk management in medicine is bright. I see where they are sitting right next to the doctor making decisions on where to take risk and where to not take risk.  Until next time be careful out there and know your risks. K

You have heard it on the Progressvie commercials, name your own price and coverage is catching on with the big insurance companies. The insurance buying public are gobbling this up like candy. Many are cutting their insurance costs in half. I have a big problem with this. Insurance contracts are complicated and coverages are not clear cut. After 27 years in this business I am battling with insurance companies over coverage language weekly and only my experience level gets me through it so I can win more than I lose for the benefit of my clients. Now who is going to fight for the lowly guy who bought a name your own price policy when his coverage and limits are inadequate. I can tell you it will not be the insurance company. Buyers beware, these low priced options may be time bombs waiting to blow up when you have a claim. Buy your insurance from an independent agent. You get free counsel from them and you can be assured they will be in your corner when you have a claim. Until next time...

Watching the metrodome's ceiling fall from the weight of the snow, made me think of a few things. First, how amazing it was that the collapse didn't occur during the game. Second, how the engineering of the dome couldn't handle 17 inches of snow. Third, some unfortunate insurance broker will have a busy Monday morning getting the claim going and talking with insurance adjusters. Luck sometimes beats risk and this situation is a perfect example. Lucky that a game wasn't going on when the collapse occurred. Lucky that the ceiling failure will make the engineers and builders repair it stronger so it doesn't happen again. Finally lucky that the insurance industry is around to fix the damage and move on with life. Yes luck is a formidible foe of risk however it doesn't come around that much. Risk tends to be around all the time, luck shows up every so often. The lesson learned here, use risk management in your business all the time because you cannot count on luck. U...

Watch out all you social media internet users, more and more employers are using what you post as part of the employment record. "How dare they" you say, well get use to it. More and more employers are getting the inside sccop on their employees and how they feel about their jobs by what they post on social media. It is not uncommon for employers to use internet material in job evaluations. Now the question becomes is this legal and or is it right? I guess the courts will sort this out over time. One thing is for sure, if you put it out there on the internet it is fair game. Many of the younger generations do not quite understand this but they will learn real quick as they approach the job market. This also brings up a risk and insurance issue for small business owners. If you have employees and you are monitoring social media of your employees, you better protect yourself from possible backlash with insurance and risk management. You will need to get in place an EPLI policy ...

Master Card's servers were hit by Wikileak supporters after the founder Assange was arrested. This shows that even the big boys like Master Card have not covered all the risk basis against cyber hackers. It may be to much to ask any business owner to do but anyway you look at it, cyber risk management is a must in today's business world. Until next time be careful out there and know your risks. K

The life insurance association MDRT (million dollar round table), lost 1.0 million dollars after they found an IT manager embezzeled the money over a period of time. The scheme was to use a fraudulent IT systems vendor were big payouts were made under the guise of computer services. The fraudulent vendor split the money with the IT manager and no services were rendered. How does this happen to insurance people who are in the business of protection of others, well it goes back to risk managment. We are all guilty of not really being proactive on risk. we run our businesses as reactive to risk situations or events that are caused by risk. However the answer to reducing the drama in our business lives is to be proactive and use risk managment as a day to day discipline. It may take a while but I see the day that business owners will have risk managment meetings more than they have sales meetings. There is so much money that can be saved by risk prevention or reduction that it could be...

If you live in a flood zone or near a flood zone you are required to get flood insurance by most financial institutions. Unfortunately many business owners elect to get the coverage because they do not want to pay the premiums or they think flooding is remote. Well, just look at Nasville a year or so ago when the whole town was flooded. Many of the business owner did not have flood insurance, neither did many homeowners. Now the Federal Government is bailing out the uncovered by buying up homes and business properties that were flooded. So if the government is going to buy up flooded properties then why even require flood insurance at all. It seems to me that the Feds might as well just wipe away the need for policies and premiums and just buy out areas that were flooded. I know this sounds a little ridiculous, but it seems to hold true in all areas where unexpected flooding occurs. Just a thought. Until next time be careful out there and know your risks. K

The commercial general liability policy will cover what the insured is legally obligated to pay due to an occurence. The key trigger here is what is an occurence. There are volumes of case law developed over the years that make that determination. A recent case with the Archdiocese of Milwaukee demonstrates some of the complexity of determining what the policy will cover. The Archdiocese filed a claim against their general liability policy in a case of priest abuse. They made the claim stating that they did not represent that children would be safe under the oversight of priests and thus constitutes an "accident and an "occurence" under the policy. The courts ruled that the abuse does not trigger an accident or an occurence and therefore the Archdiocese cannot use their liability policy for coverage. As you can see unless it is clear cut claim the courts usually determine coverage. Until next time be careful out there and know your risks. K