Risk & Business

Well the Supreme Court has ruled, Obama care is here to stay. Even if a political shift occurs and the law is modified one thing is for certain, the changes will not favor the insurance distribution system. Business insurance agents who sell health will have to evolve to fee for service. The health insurance companies will have to cut admin costs to make the laws 85 percent of premiums towards health costs rule. The State exchanges will have "service liaisons" To help people enroll. In my State , Delaware, the agents are not even mentioned in the exchange website. Commissions are already at risk as health insurance companies are cutting the pay to agents. The only way to survive is to start charges fees. Some agents are already making this shift. For those who have their head in the sand, look around, change is here. Until next time be careful out there and know your risks. K

Running a business insurance agency these days is messy business. What do I mean?  Well it has everything to do with transactions. In the old days the amount of transactions to handle a commercial insurance account was 1/4 of the transactions compared to personal lines. These days there is very little difference. Populating insurance company data fields or uploading them from your management system has not gotten easier despite massive amounts of money and technology invested by the industry. We have just decided that it is the way the business is. There is hope however, many more data management companies are emerging. To all those with new ideas... HELP.  Until next time be careful out there and know your risks. K

Well most industry experts are saying the hard market remains elusive in the p@c marketplace. The 4 conditions of high losses, lower capacity, tight reinsurance, and underwriting dicipline, is just not there. Yes rates are moving up slightly, but it looks like the industry will most likely slip back into hyper competitive mode very soon. This summer's hurricane season could however be a game changer. If there is a few cats due to hurricanes then the hard market may actually arrive looking like hard markets of old. If however the season is benign then the hardening that is going on now may fade away as fast as a puddle in the hot sun. Stay tuned folks. Until next time be careful out there and know your risks. K

Fitch has announced that they highly doubt that the industry work comp combined ratio will come in under 110. Thats right , they are expecting higher than a 110 combines for the work comp line of business. Well, this is to be expected after the last 5 years of under priced policies that we all experienced. In my State of Delaware the rates were reduced and even rolled back to the point that they were unsustainable. All over the country this was happening and the soft market competition just added fuel to the fire. Now insurance companies are bleeding red ink on work comp. It is expected to get worse over the next two years as reserves were inadequate to cover the "chickens" that have now come home to roost. Most companies are foolishly trying to get all thier premium back in one full swoop with double digit work comp rate increases. Well this strategy won't work because one, clients can't afford it in a recession economy, two, there are companies out there still under...

Captive insurance companies have been around for many years. The use of these facilities for employee benefits has just recently been explored. What companies are finding out is these member owned insurance companies can work quite well for employee benefits, especially health insurance. The set up is usually as follows, the employer becomes the first layer insurer who cedes second layer risk to their own captive. The captive buys reinsurance to cover catastrophes. This arrangement works quite well. The employer sees most of their cost savings in the first working layer. If claims can be reduced by wellness initiatives then this layer can become very profitable. The interesting thing about health insurance captives is that the larger the risk of employees the more predictable this insurance line can be. As many mid market employers begin to understand this, I predict we will see more group employee benefit captives who can control their working layer claims and be able to cut their hea...

In a continuing saga, Wells Fargo Bank is in the hunt for independent insurance agencies to increase their presence in the agent/broker distribution business. Also because of the struggle to grow in a soft market, the strategy to "buy your growth" is more attractive than ever. This is very revealing for all those in this business. The insurance product is mature and shows very little signs of really anything new that can catapult the industry. Therefore the business model of growth can only be accomplished by mergers and acquisitions. Everyone is trying to find the right size to make scale. What do I mean by scale?  It is the size that every insurance agency/brokerage wants to be to gain clout with their insurance company suppliers. The larger the agency is the more clout they can achieve. This helps agencies with retention because they can negotiate pricing more effectively with insurance companies. In addition companies will more likely give the larger agencies preferential...

Nationwide buys Harleysville and grows Allied. Allstate is recruiting for independent agents. Progressive and Geico have appointed numerous independent agents across the country. Whats happening?  It is clear, direct writers are edging their way into the independent agent marketplace. They see a lot of new business potential, but can they thrive?  Independent agencies work completely different from direct writers. In the independent world agents move business around within their office to make sure their cleints have the best covrage and price. Direct writer companies are not use to having a work force that has that kind of autonomy. They will have to give up some control in order to get business from independent agents. I am sure of one thing, these large direct writer companies will figure it out and probably become invaluable to independents. Time will tell. Until next time be careful out there and know your risks. K

For those agents who have been a little long in the tooth around the Northeast, Harleysville insurance company has been a featured company in many offices. I started working with Harleysville in the late 1980's where they wrote small commercial and personal lines for our agency. They quickly developed into one of our top companies writing complex middle market commercial risks. They were run with a small family like appeal and we grew significantly with them. Today they officially merged with Nationwide a direct writer company that is moving into the independent world. Boy, things do change. I think companies like Harleysville that grew into a top regional will continue to be aquired by bigger companies. It is the evolution of a maturing industry called insurance. As the insurance product continues to commoditize the price of the product will continue to drop. Only the big companies with scale can survive this trend. Look at grocery chains and store chains, does anyone remember Woo...

As risk management evolves into more enterprise and strategic risk initiatives, CEO's are starting to embrace the risk managers seat in the board room.  As the science of risk materializes into ways to increase profits for companies, risk managers find themselves participating in strategic discussions. CEO's are understanding this value and so are boards. Risk management used to be thought of as the department that bids and watches over commercial insurance. However as the discipline has shown, it is more than that. Risk management process has implications to allow companies to grow and acheive business objectives. In addition the RM process is allowing companies to form captives or self insure to control the working layers of risk and losses. All in all,  Rm's are reducing cost of risk which in turn adds value to the bottom line. Until next time be careful out there and know your risks. K

As the market changes to higher rates the underwriting of a hardening market is also occurring. More carrriers are changing thier underwriting standards and this does not bode well for insureds. The economy is still struggling and business owners will have a hard time paying the increased premiums. It will also be difficult for them to deal with reductions of coverage which is now trending. Insurance companies really need to understand the big picture here. This time the cycle needs to be minimized as much as possible. Business owners just do not have any room for a hard market. Until next time be careful out there and know your risks. K

The severe weather trends continue as March proved very costly to insurance companies. Tornados are the main driver. Many insurance companies CEO's are meeting behind closed doors with weather experts trying to figure if the Nation is in a severe pattern or will the cats finally subside. As of now no one really knows or can explain other than el nino vs el nina.  The insurance carriers need to get a handle on this if it turns out to be a pattern of cats, because their reserving numbers depend on it. In a time with combined ratios in the upper 110 area, companies are very anxious about the weather. Just when you think you have it donn pat, mother nature shows who is boss. Until next time be careful out there and know your risks. K

Mastercard announce this week that they had a major data security breach. Apparently the region around New York city was mostly affected. How does this happen with a company as big as mastercard? Well it shows that every company is at risk from the very dedicated and technically savy crooks. Risk managers have started to really crack down on this problem and risk mitigation techniques are becoming more and more develped. Also many of the commercial insurers are offering insurance coverage for the risk. The policies are being changed and developed as claims are being presented and paid. Computer companies are tackling the problem with more technical and product solutions to avoid data breaches. As anyone can see, the whole business world is doing everything they can to stop the problem, but it still goes on. I guess it is like a bank that spends millions on security but still has a hold up. It is virtually impossible to stop a human being who wants to be a thief and computers a...

With the Hartford announcing that it wants to go back to its P&C roots and relieve itself from the life,  health, and financial service business, one has to think, what do they know that we don't?  This headline started when one of the Hartford's big stock holders made the suggestion. It has to be thought that the Hartford may see a changing landscape and realize they need to make some adjustments. Let me speculate, is the new health and financial services federal laws that are starting to be implemented, putting some "chills" down the spine of insurers like the Hartford?  I have been thinking that these Federal programs are going to push more professionals out of the financial & health and into the P&C side of the business. There is no real room for brokers with the new health law. Well there is,  but no commission based sales. So maybe with the Hartford testing the waters of "majoring" in the P&C business again, the rest of the industry is...

Vincent Stanford's 7 billion ponzi scheme may cause class actions against third party vendors who did business with Stanford. Victims may pursue class actions and one of the possible targets is Willis. Apparently, the victims contest that Willis gave them a false sense of security by issuing insurance and risk services for Stanford. If these cases go forward it could change case law that defines a brokers relationship to third parties that a policyholder deals with. I will have to keep an eye on this one and report to you later. Until next time be careful out there and know your risks. K

Today a jury found Va. Tech liable for not acting and communicating quick enough during the tragic shooting rampage. This verdict will change risk management approaches on campus and in businesses across this country. The jury made it clear that entities will have to have a quick response and communication risk strategy to save others and prevent further loss and to avoid liability. There is no way to prevent  random acts of violence but this verdict will make it clear that risk managers will have to mitigate further loss by having a mechinism to alarm, protect, and secure others. Until next time be careful out there and know your risks. K

Each day I read another state has changed it's insurance regulations to make it friendly for captive formation. Larger businesses are using captives as part of their risk transfer program. The reason? Control !  Business owners want to control their destiny's and reducing the cost of risk is one what to gain some of that control. Commerical insurers pass on the costs of their administration and profit in the rates and premiums they charge. Business owners want to get a piece of that for themselves at the same time reduce their risk management costs. Direct access to reinsurers is also making it easier for businesses to bypass the traditional commercial insurance market and do it themselves. Captive insurance companies do demand expertise, committment, and discipline to avoid a insurance meltdown of not having enough reserves to pay claims. If structured right, a captive insurance company can significantly reduce the cost of risk for a business. If I am a traditional insurance ...

2011 closed with the majority of commercial insurers with combined ratios in the red and the story continues this year. Already weather disasters have insurers reeling. Loss ratios continue to climb and  we are not even through the first quarter. Talk of hardening rates also continues as insurers are starting to realize they are falling behind the curve. The economy is still however weak and getting a quick turnaround to appropriate rates may be harder than imagined. The scenario that is playing out could be unprecedented for insurance companies. Through out the history of the market,  insurance companies have pretty much gotten their way  however 2012 and going into 2013 may prove one for the record books. Stay tuned !  Until next time be careful out there and know your risks. K

A big PIP fraud case got busted today. The scheme involved doctors and lawyers and many other professional types. The investigators put in the indictment that the scheme milked insurers out of 250 million dollars. The depth of the fraud is amazing. I do not want to go into all the details in this blog, but I am always amazed at how these things get started. Until next time be careful out there and know your risks   K 

Recent surveys by the Big I (Independent Insurance Agents of America) shows the numbers of middle size agents is dropping rapidly. Agents with 10-20 employees used to be the majority in the country. Now, however, this group is becoming the minority.Why is this happening? there are many reasons but experts are saying it is the insurance company demands. In order to meet the production requirements agents have to grow to keep company contracts. This has resulted in the increasing number agents with 30-100 employees. The smaller agents are also thriving because they can act as boutique shops that specialize in custom service and attention. So how does this change the insurance landscape? It remains to be seen but certainly the customers demands will ultimately determine the make up of agencies. Until next time be careful out there and know you risks. K

As commerical insurance rates rise the buying insurance public is not happy. The economy has not really improved much and now public groups are acusing insurance companies of profit gouging. The reason is the amount of capital the insurance industry has accumulated. Commercial insurance buyers are more aware of the capitalization of the industry. As rates increase they are asking why? "You have all that capital on the books so take on more risks and keep my premiums in line", this will most likley be the mantra of 2012.  The insurance industry reply to this will point the fingers at regulators and rating agencies as they force the accumulation of reserves to assure future claims paying. So we have an impasse, the buyers who don't understand increase rates with record surplus and the regulators that say sock away more or else....  Stay tuned.  Until next time be careful out there and know your risks. K