Archive for the ‘Insurance companies’ Category

NBC News Advises Viewers to Get Their Insurance “Go Kits” Ready

Thursday, October 1st, 2015
Insurance Files to Go

Insurance Files to Go

Even if Hurricane Joaquin fails to strike with full hurricane force, it will leave much of the East Coast with severe rains and likely flooding, so it pays to prepare. This evening, NBC News included my advice in its report recommending that viewers have their insurance “go kits” ready in advance. I like the metaphor of the “insurance go kit” because just as your physical “go kit” should be stocked with batteries, bottled water and other supplies, your insurance files should be ready to go on a moment’s notice.

That is because what you do in advance of a disaster will determine if your insurance claim is paid in a timely manner or paid at all. You need to set yourself up for success by ensuring you have appropriate coverage for your risks and that you can substantiate your losses, when needed. You need to have a flood insurance policy for thirty days before coverage takes effect, so if you are not appropriately insured, it may be too late for this storm, but start to put a plan in place for the next one.

Meanwhile, there are some basic steps you can take to be ready. If you have not already done so, give your insurance carrier wire instructions to electronically deposit paid insurance claims into your bank account. In the event of a severe storm, it may not be possible, or even safe, for you to retrieve a paper check and deposit it at your bank. Electronic banking services can reduce the risk of your cash flow disruption and are easy to set up. Thanks to Kristin Wong of NBC News for informative and helpful reporting.

Better Cyber Insurance Products Are Available

Saturday, June 16th, 2012

A recent survey by Chubb Insurance and Marsh found that businesses fail to appreciate cyber risks or integrate their approach to threats to network security into their overall risk management framework.  I agree with that conclusion and would add the following points:

  • There is no substitute for a robust data security protocol. Cyber insurance may reimburse certain of your losses for data breaches, but it cannot restore your business’ reputation.
  • Cyber insurance offers carefully defined policy benefits that may or may not suit your business, so take care in evaluating the policy. The insurer will typically dictate the way your business responds to a data breach, which may be more in the interest of the insurance company and less in the interest of your business. For example, in the event of a healthcare data breach (let’s say your business provides home nursing services), the policy may cover only credit monitoring services for the patients whose information was compromised, when medical identity monitoring would better meet your needs.
  • Also understand that the defined breaches eligible for coverage are often limited. For example, the cyber insurance coverage may not cover a data breach caused by a third party, such as a cloud computing service provider, even through the primary organization, your business, is liable.
  • Finally, review your existing policies carefully as cyber insurance may be duplicate of certain provisions of your existing business owner’s policy.

Airmic’s Review of Recent Developments in the Cyber Insurance Market reported that cyber insurance is now a more cost-effective risk transfer mechanism than it has been in the past. I look forward to reviewing the new provisions for covering cyber risks when my policy comes up for renewal. Meanwhile, I will be continue to be vigilant on network security.

Disability Income for Both Parents

Saturday, October 16th, 2010

I had an interesting conversation the other day with a freelance journalist who writes about parenting topics for a national magazine. We were discussing disability insurance. According to the Society of Actuaries, working Americans between the ages of 25 and 65 years old have a 1-in-5 chance of becoming disabled for a year. Experts recommend having coverage to replace 60% of your income. But what about the value of the work performed by someone who has no income? Imagine that a full-time homemaker becomes temporarily disabled. Her family would incur the expense of replacing the services she provides for free: caring for children, cooking, housekeeping, etc. Many families don’t take the value of those services into consideration when they make their financial plans. Don’t make that mistake. Ensure that your savings plan contemplates the value that both parents bring to the family, not just the parent with earned income.

California Insures Low-Income Drivers

Tuesday, October 5th, 2010

All CoveredCalifornia Governor Arnold Schwarzenegger signed into law the California Low Cost Automobile Insurance Program, which provides affordable liability coverage for low-income drivers with good safety records. The intent behind the program is to facilitate compliance with California law requiring that all drivers be insured. The California Legislature concluded that low-income drivers violate the law as the cost of compliance is prohibitive.  The California Automobile Assigned Risk Plan administers the program, but private insurers underwrite policies.  As with most initiatives, the intent is good, but we are rapidly crowding out the private sector at a time when California is broke. Remember the Robert Plan and other such insurance ventures from the 1990’s? They figured out how to insure non-standard motorists in the private market. We need some private sector innovation.

Living Dangerously

Monday, October 4th, 2010

It Doesn't Add Up

USA Today completed an analysis demonstrating that insurance markets in the states most vulnerable to natural disasters are on dangerously shaky ground. More than half of our states have state-sponsored insurance plans, dating back to the 1970’s when private insurers stopped underwriting properties in high-risk areas, such as inner cities. After Hurricane Katrina inflicted unprecedented losses in 2005, private insurers reduced their market exposure in the affected states. Abandoned policyholders then fell into the state plans, which began to assume unprecedented liabilities. Since Katrina struck in 2005, the value of property covered under the eight coastal state insurance plans from North Carolina to Texas has doubled from $316 billion to $632 billion. But while private companies are required to maintain reserves sufficient to pay expected losses, the states exempt their own plans from such laws. The result is that the state plans have inadequate reinsurance (third-party capital to backstop their risks) and unfunded liabilities. The eight coastal state plans from North Carolina to Texas have only $6 billion in cash reserves and $11 billion in reinsurance coverage. Should a major hurricane strike, the state plans would have to raise assessments, which are effectively taxes on private policyholders to subsidize the policyholders in the state plans. But even under the most aggressive assumptions, the assessments would not be sufficient to pay claims.

Consider that Citizens Property Insurance, Florida’s state plan, reported that it insures property worth $433 billion. For losses in excess of $15 billion, it would have to levy assessments against state residents carrying any type of policy, from auto to liability insurance, that add 16% to the costs of their premiums, which are already quite high. Texas isn’t in much better shape. Its state plan insures property worth $73 billion along the Gulf Coast (remember, that is just a tiny geographic sliver covering Galveston), but has only $150 million in cash and no reinsurance. Surcharges can generate an additional $2.5 billion to pay claims, but that is it.  Last week, I blogged about the temporary extension of the National Flood Insurance Program, which had expired three times this year. Our liabilities are simply too massive for us to continue this self-deception. We must stop the short-term fixes, Band-Aids and wishful thinking and start serious planning for our financial future.

Whistleblower Alleges Katrina Insurance Fraud

Sunday, October 3rd, 2010

A whistle blower lawsuit filed against the Allstate Insurance Company alleges that the company inflated the amount of flood losses sustained by three clients in connection with Katrina-related homeowners’ insurance claims that Allstate had disputed. The whistle blower is an attorney who represented the homeowners and reports direct knowledge of the allegations, asserting that Allstate fabricated insurance documents to shift its own claims obligations to the federal government. Flood losses are not covered by a standard homeowners policy, but instead are covered when the government’s National Flood Insurance Program provides insurance. Although the whistle blower lawsuit was filed more than three years ago, Allstate was just informed of the matter last week. The whistle blower filed the suit of the government for which he seeks three times the amount of fraud losses plus civil fines and legal expenses. The case will be heard in New Orleans. While the facts of the case have yet to be determined by the court, it is clear that the existence of a government-funded program provides incentives for cost-shifting at taxpayer expense.

Frequent, Low-Severity Losses Take Their Toll

Monday, September 27th, 2010

Moody’s Weekly Credit Report took an in-depth look at the U.S. insurance market. Catastrophe losses for the first six months of this year remained stable at $7.9 billion as compared with $7.7 billion for the same period last year, but still above the $6 billion average over the past ten years. Moody’s writes that while there has not been a severe natural catastrophe in 2009 and 2010 to date, “the underwriting margins of many industry players, particularly those with property coverage concentrations, have suffered significant aggregate losses because of a sharp upswing in the frequency of low-severity perils including tornados, winter storms, hail and covered floods.” In 2010, we have seen epic floods in Tennessee, severe hailstorms in Oklahoma and diverse tornadoes, including those in low-risk areas such as Southern California and New York City.

“In the past, losses from non-hurricane weather-related events were less volatile, allowing insurers to charge sufficient premium to offset exposure to these perils,” Moody’s wrote. “But this recent uptick in volatility is problematic for insurers given the thin underwriting margins in what is largely a commodity business, particularly in the homeowners segment.”  Insurers are also assuming more of these losses on their own balance sheets, Moody’s noted. “Although insurers typically purchase reinsurance protection for hurricanes and earthquakes, these small-scale weather-related losses tend not to trigger reinsurance protections.” As the cumulative effect of these low-severity events is catching up with insurers, it is not surprising that they should respond by filing for rate increases on their homeowners’ coverage. Expect them to follow suit for commercial rates. If you can renew your coverage before rates increase, you would be wise to do so.

Captive Insurer Formation in Vermont

Sunday, September 19th, 2010

Future Vision

In the first six months of this year, the State of Vermont licensed 17 new captives. The strongest interest comes from the financial services sector, with five captives formed by insurance companies and two by banking companies. Captive insurers offer a cost-effective means to self-insure the risks of their corporate parents. By insuring the risks themselves, large corporations benefit from more favorable tax treatment as well as the possibility to retain better risks rather than pay premiums to cede the risks to a third-party insurer. Vermont is the largest captive insurance domicile in the United States, offering foreign companies the ability to use their local rules in accounting for their captive insurers, as well as a streamlined formation and approval process. Last year, more than $75 billion of captive insurance premiums were written in Vermont, which volume seems likely to increase this year.

So what does this mean for the small business community? Increases in captive formation typically signal expectations of insurance rate increases. Significantly financial institutions represent most of the Vermont captive formations. With the litigation around the financial crisis, directors’ and officers’ coverage is expected to rise in cost. Small businesses should prepare for future rate increases and, if possible, negotiate renewals now.

Lloyd’s of London To Welcome Visitors

Wednesday, September 15th, 2010

Lloyds of LondonA rare treat will be offered to those who happen to be in London this Saturday, the 18th of September: the opportunity to visit the Lloyd’s building. This year Lloyd’s is participating in Open House, London’s celebration of architecture to welcome the general public to visit over 600 buildings across the city, many of which are ordinarily closed to the public. The tours are offered free of charge.  I had the fun of seeing the building when the head of one of the largest managing general agents at Lloyd’s took me on a one-on-one tour to see the Underwriting Room, the Nelson Collection and the Adam Room. I also enjoyed a fantastic view of London from the external glass elevators. Then I observed the process of running a slip to bind an insurance cover, which illustrates the speed and flexibility of what is not only the world’s largest and most entrepreneurial insurance market.

Lloyd’s began in a 17th century coffee house and grew rapidly to meet the increasing demand for ship and cargo insurance required for global trade. Today Lloyd’s is the leading global provider of specialty cover, such as marine and aviation insurance. On one of my recent trips to New Orleans, I met business owners who were insured by Lloyd’s when Katrina struck. Those of us who won’t be in London on Saturday can take the online virtual tour at the Lloyds website.

An Indication That Premiums May Rise

Wednesday, July 28th, 2010
A Peek Into the Future

A Peek Into the Future

In the first edition of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2009), titled Contingency Planning and Disaster Recovery: a Small Business Guide (Wiley, 2002), I wrote to explain how, in the aftermath of a major disaster, insurance premiums rise. However, large corporations eventually reach their threshold for pain and adopt self-insurance, captive and other programs to reduce their costs (p. 171):

Large corporations will become increasingly unwilling to pay such steep insurance premiums and will develop innovative means of insuring their risks. We have seen this phenomenon before, beginning in the 1980’s with the development of the so-called alternative risk transfer market (ART). ART offered a portfolio of tools by which corporations could transfer their risks by means other than standard commercial insurance programs. One such tool is a captive insurance program whereby large corporations insure their own risks through wholly owned insurance companies. They were typically domiciled offshore, in places such as Bermuda and the Cayman Islands, to benefit from the favorable tax treatment and fewer regulations. Captives allow corporations the benefit of tax-deductible premiums to cover their risks while ensuring that profits on the program remain in-house.

Now, some interesting news from Vermont, the leading jurisdiction with laws friendly to establishing U.S. captive insurers. In the first six months of this year, Vermont licensed 17 new captives, with a great deal of interest reported by hospital groups seeking coverage for their professional medical liabilities and financial services companies that face premium increases for their directors and officers liability coverage.

Many market analysts believe that this is a defensive measure in anticipation of further premium increases, in which case the insurance market, where small businesses have relatively little bargaining power, is about to get tougher for us. As I am an optimist, I would like to believe that as demand declines in the traditional market, as large corporations self-insure through captives, we will benefit from declining premium rates. Indeed, that it what I had argued in the first edition of the book. Unfortunately, the world changed with the 2008 banking crisis. I am with the market analysts on this one; I predict rising insurance rates, so if you have an opportunity to lock in coverage now for a multi-year period, it would probably pay to do so.