Risk & Business

It was recently announced that the DCRB and the Insurance Department of Delaware have reached an agreement on the increase in Delaware work comp rates. It looks like 14% is the new number for 2014. Business owners may feel somewhat relieved as it was discussed that the rates should go up 40% or more. However 14% is nothing to sneeze at, as most business owners will still have a tough time paying for the increase in a lagging Delaware economy. The work comp rate making game has become an event most Delaware business owners have come to expect. Each year DCRB gives a suggested loss cost rate increase and the Insurance Department pushes back. Sometime after the start of the new year new rate structures are approved. What is problematic with this system is the affect it has on small business and the Delaware economy. Business owners have a hard time planning their budgets for the new year as work comp is a big number on their income statements and has to be factored in. Most of my clients ...

A recent insurance industry study makes is very clear that most insurance buyers are willing to buy insurance from other than agents and brokers. Names like Google and Amazon were top on the list as places consumers would buy insurance from. What does this mean for the traditional model of insurance selling? Change is on the way fellas! Over the last few decades online selling of insurance has continually grown and has dramatically realigned the agent/broker model of selling insurance. Agents and brokers have adapted by having online abilities for consumer buying. However if big marketing companies like Google and Amazon get into the business of selling insurance, agents and brokers may find it hard to compete. Most insurance buyers feel insurance is a commodity, so big marketing budgets could make it hard for traditional sales models. The one saving grace for agents and brokers is the service side. Google and Amazon may find it hard to deliver the one on one hand holding that agents a...

NAHRAB II is still sitting on the shelf in Congress. The modern insurance agency licensing bill, that could easily help agents and consumers alike , has yet to be passed. The bill would allow one license for agents and full reciprocity from States, so multistate insurance needs can easily be handled. Currently, agents must individual licenses in each of the states it needs to write coverage in.This creates major  expenses for agents and hassles for consumers. The house did pass the bill and now the Senate needs to bring it to the floor for a vote. However with all the fiscal problems the country has, insurance licensing is not top priority. Multistate licensing has been on the insurance agents wish list for decades. Lets hope 2014 is finally the year that it happens. Keep your fingers crossed ! Until next time be careful out there and know your risks. G. Kevin Nemith President CNC Insurance Associates Inc. and the Small Business Insurance Center Serving DE, MD, PA, NJ, & VA...

I know this blog post may be jumping the gun a little, but the use of drones will cause some real insurance issues. Now we may be some years away but drones are going to be used in commerce and in business. So how will the insurance industry respond.  Are they insured like autos? Are they covered like property, or airplanes ? What about the liability issues when the drones go rogue or the operators make errors. Can you imagine driving to work and being hit by a wayward drone making a delivery?  What about a competitor using a drone to spy on your best customers and collect data on them. Does this sound out of this world?   Get ready insurance industry, here come the drones ! G. Kevin Nemith, President of CNC Insurance Associates Inc. Serving DE, MD, VA, NJ, and PA www.cncinsurance.com www.bizinsurancetv.org

For many who have lived near flood prone areas and have flood insurance, get ready, your costs are going up. Due to the recently passed Biggert-Waters flood reform act, rates are going to be adjusted to more accurately reflect the risk of flood. For many years flood insurance has been under priced. The Federal program has been subsidizing the rates for years which has given people the affordability to build in coastal areas and have coverage. However, as the program struggles financially, congress was forced to pass legislation to make rates more accurate. Unfortunately for many flood policy holders they are having sticker shock as rates have gone up significantly. Will the increase in rates slow down the residential growth in coastal areas? It might. If home owners cannot afford the protection that flood insurance gives them, then they will be less likely to build homes in areas that are prone to flood. Stay tuned to see how this plays out. ...

Well it is a new year and the data theft at Target stores will most likely test the coverage of the commercial general liability policy. To date Target has not announced their insurance coverage but odds are the claims will be sent to the liability policy. Since data theft claims are relatively new in the insurance industry, the history of legal precedents is very thin. The commercial general liability policy has not been tested as might happen in the Target case. Cyber liability policies have been in force to handle data crimes but they too do not have a lot of claims history. So stay tuned to this story as it may completely set the future precedent on how insurance policies respond to data crimes. Until next time be careful out there and know your risks. G. Kevin Nemith  President of CNC Insurance Associates Inc. Serving Delaware, MD, PA, NJ & VA www.cncinsurance.com www.bizinsurancetv.org

The changes in the health care insurance market due to Obama Care are ground breaking. However these changes are quickly turning away from traditional insurance models. The insurance business is a "for profit" business where actuarial sound rates are charged to many in the hopes to cover the claims of others, with some money left over for profit. This is why the drafters of the new health care legislation put in a mandate. However with the White House exemption of employer plans and now recently, those who have had their current plans cancelled, the Obama Care health insurance model is at risk of collapsing as traditional insurance. Lack of the mandate reduces the spread and increases the risk in the pool. Also, the premium subsidies, delayed premium payments, and forced re-issuance of cancelled policies, put enormous pressure in insurers ability to make profit. Without profit, the health insurance companies that are the back bone of Obama Care will go...

Many business insurance policies have coverage for loss of business income. If the property is damaged or destroyed and the business owner cannot open the doors, then the business income insurance coverage kicks in. However, one of the missed extensions of coverage that has to be added is off premises power outage. When the power goes out across a region, the business could lose income. This is important coverage that has to be endorsed on the business income insurance, it is not automatic. Loss of income when the power goes out can be very costly. In the winter, heavy snowfalls could knock power out for days. In the summer, thunder storms can do the same. Check your commercial insurance coverage and make sure your business income coverage also covers off premises power outage.  Until next time be careful out there and know your risks. G. Kevin Nemith, President CNC Insurance. Associates Serving, DE, MD, PA, NJ, and Va www.cncinsurance.com www.bizinsurancetv.org

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...

As a professional in the insurance business I wanted to comment about the one year anniversary of hurricane Sandy that hit the NJ and NY shores. I wanted to see how the insurance industry has handled the 60 billion dollars worth of damage. The result is not looking to good for the industry. I have read industry articles that 80 to 90 % of the claims have been paid but most of the claimants are not real happy with the industry. Also the Federal Flood program still has many claims that have yet to be resolved which adds to the public disapproval. So how is it that the insurance industry which has settled the majority of claims still is seen as the bad guys.  My take after spending over 25 years in the industry, is the process of the insurance industry is problematic. The process of adjusting insurance claims can be very difficult and usually occurs  during a highly emotional time. The process of selling and buying insurance has given the illusion that insurance is a commodity, w...

The debate has been going on for a while. Are marketing dollars a better investment to gain new business growth, or are commissions to agents still the best way?  Well, a recent study should wake up agents and brokers. The Nomura Equity Research has published a study that GEICO has had better growth results with sales dollars going into marketing and advertising and not commissions to agents. GEICO who traditionally get new customers from direct marketing, is gaining ground on other top direct writer insurance companies, all without the help of agents. Advertising direct to customers has always been a threat to the traditional distribution system. Only recently has this  become more real than us in the agent community want to believe. Insurance is a complicated product and for a hundred years, agents have been the frontline to communication, education and sales of insurance. As insurance products are marketed more and more like commodities, the consumers perceive ins...

The development of wilderness areas in the western part of the US has increased the amount of residential homes in areas of high forrest fire potential. The 62% increase in homes built where wild fires tend to develop, has put thousands of homeowners at risk. The main reason for this growth is the availability of insurance in these areas. So the industry that is paying millions of dollars for home destruction due to fire is actually one of the main reasons homes are being built in high risk areas. This is the same reason why homes continued to be built along the coasts in hurricane prone areas. So why does the insurance industry make policies available in areas where the chance of destruction is great?.  Quite frankly, it is called risk taking (with a twist).  Insurance companies use actuaries to help them take risks. Most of the time these actuaries are pretty good and the insurance companies make money. However sometimes destruction does occur and they lose millions. With p...

The current government shut down is beginning to impact small business. Thousands of businesses work with the government either directly or indirectly. These businesses are starting to be affected. In addition the trickle down economies of large government contracts with the private sector is being substantially impacted. Now the questions is, " how does commercial insurance apply to claims for loss of income due to shutdown"?  Unfortunately most business owners policies and business income coverage forms do not cover this type of event. Small business owners who suffer loss revenues from the shut down will not find any relief from their insurance policies. Special endorsements and coverage forms that respond to contingent loss of income, are the answer. These special policies are becoming more and more relevant as the financial uncertainty of the US economy increases. Also as more entrepreneurs establish business relationships with overseas companies, talk of coveri...

Recently the Delaware Compensation Rating Bureau (DCRB) announced that it is going to be requesting higher work comp rates next year. After getting approval to raise rates 14% last year the DCRB is looking for another whopping 40% increase !  This obviously is going to open up debate in the halls of the Delaware Insurance department and the legislature. The facts  are not looking to good for the State. The insurance companies faced with reduced profits, need rate increases to keep the market viable. The economy in Delaware is ranked as one of the poorest in the nation and small business just can't afford another increase in work comp. So the State's work comp market is on a collision course.The legislature put some reforms in last year to keep rates in line but the effects have yet to show results. Small business absorbed the increase last year but have no ability to take on another increase. It is going to be interesting how this all plays out. I am sure t...

The sad devastation of mountain homes, roads, businesses, and properties in Colorado, shows the unpredictable nature of flooding. Most business owners don't worry about buying flood insurance unless they are near large bodies of water or on the coast. After the events in Colorado, business owners are re-thinking their need for flood insurance. No one could have predicted that 17 to 18 inches of rain would fall so suddenly in the Colorado area. This resulted in massive flooding which caused major damage. The Flood insurance program can cover this type of event. Groundwater and rain runoff are covered by flood policies. The mistake that most business owners make is thinking their property policy would cover this type of event. Unfortunately this is not the case. The same goes with homeowners insurance policies, groundwater and rain water runoff is not covered. Flood insurance should be part of every business and personal insurance portfolio. The unpredic...

The health insurance exchanges begin signing up people October 1. Many of these Federal and State exchanges do not have enough commercial health insurers to write policies with. Now, enter the health Co-Ops.  These non profit health insurers are jumping in the fray in an effort to compete with the big commercial health insurers. Promoting low overhead and quicker reimbursements to physicians,  these Co-Ops are hoping to attract customers, and win over doctors in order to be viable for the long term.  These new mini health insurers will have the financial backing of the Federal government and will be able to take on sicker patients since they are less risk adverse and profit is not the objective. Quite frankly, I see these entities overtaking commercial health insurers over time because they could potentially lose money and still operate. Or maybe these exchanges will run in the black and create a new model for the future of health insurers. Only time will tell. Until next...

Many times in consulting with my clients, the question comes up on how to break down risks in a more understandable way. Though complex there is a way to make sense out of risks by establishing categories.  The four main categories of risk are Property, Liability, Human, and Net Income. Lets talk a little about each of these. Property risks are fairly self evident. Risks of loss to buildings, contents, equipment, fleets, etc..., are easily identifiable and can easily be managed when it comes to risk of loss. Liability is a little more difficult because of the contract issues that businesses can get involved with and the unknown of juries and judges. Human risks are very complex because human beings are complex. This boils down to employee issues on the job and off the job. Finally Net Income risks are the most insidious because it takes professionals, like accountants and finance people to identify net income risks to the organization. For a business owner, by starting with th...

After last years hurricane Sandy, the northeast sustained major damage. The national flood insurance program has paid out billions in claims. Now the federal government realizes that in order for the flood program to continue rates have to go up, especially in coastal areas. Currently the flood zone maps that determine rates are being re-drawn and reconfigured. No doubt this will result in increased premiums. So what can business owners who are close to the shore expect?  The same, higher rates and possibly less coverage.  It is extremely hard to risk manage the powerful forces of a hurricane so the only thing a business can do is buy insurance to protect its property. Too bad the only place to go is the federal flood program.  So the end result is to budget for higher flood insurance costs next year. Until next time be careful out there and know your risks. By G. Kevin Nemith President of CNC Insurance Serving DE, MD, NJ, PA, and VA www.cncinsurance.com www.bizinsura...

In the practice of risk management there are 5 steps that every business owner needs to be familiar with. Once you understand these steps you can use them in just about every application or business situation. Why you ask?, because practicing good risk management can make your business profitable. The 5 steps are used when looking at risks. Step 1 is identifying your risks. There are plenty of methods that are used to get this accomplished. Step 2 is analyzing the risks. Again, the textbooks are filled with tools you can use. Step 3 and Step 4 are controlling and financing the risks, which may mean beefing up safety and buying insurance, but not necessarily. A good risk professional can help you with the proper applications of control and financing. Finally Step 5 is administering and monitoring your risks on an ongoing basis. Sounds like a lot of work doesn't it? Practicing risk management is not easy, but those businesses that do, usually have a competitive advantage. The risk ma...