Posts Tagged ‘Uninsured Losses’

Good News and Bad News from the Insurance Industry

Saturday, June 26th, 2010
Better Numbers, But...

Better Numbers, But...

This week the property-casualty industry reported some good news and some bad news. According to the ISO and the Property Casualty Insurers Association of America, the industry returned to profitability, reporting a 6.7% return on policyholder surplus for the first quarter this year, a marked improvement from the 1.2% loss from the first quarter of 2009. The industry-wide results would have been even better, but for steep losses reported by mortgage and financial guaranty insurers.

“This is further proof that home, auto, and business insurers are fiscally sound, that we have been strong and stable throughout the economic downturn of the last two years, and that we are able to pay claims to policyholders during their times of need,” said David Sampson, PCI’s president and CEO. “With experts forecasting an active hurricane season, the $102.9 billion increase in policyholders’ surplus from $437.8 billion at the end of first-quarter 2009 to $540.7 billion at the end of first-quarter 2010 provides us all with an extra measure of confidence that insurers will be able to fulfill their obligations to policyholders when the wind blows. Nonetheless, it only takes one storm like Hurricane Ike in 2008, Hurricane Katrina in 2005, or Hurricane Andrew in 1992 to disrupt millions of lives and cause tens of billions of dollars in property damage. And this means now is the time for all of us — insurers, businesses, public safety officials, elected leaders, and the general public — to prepare for hurricane season to minimize the human hardship and economic loss in the event of a natural catastrophe this year.”

But the news isn’t all good, either for the industry or the businesses they insure. The property-casualty insurance industry returned to profitability, despite continuing declines in premium volume. Premium volumes have declined for twelve consecutive quarters.

“The 1.3 percent decline in net written premiums in first-quarter 2010 reflects the ongoing consequences of a once-in-a-generation economic storm. In first-quarter 2010, seasonally adjusted total private-sector employment fell 2.7 percent compared with its level a year earlier, private-sector wages and salaries dropped 1.4 percent, and the average unemployment rate rose to 9.7 percent from 8.2 percent in first-quarter 2009,” said Sampson. “This challenging economic environment reduces demand for insurance. Nonetheless, our industry remains stable and is financially well positioned.”

I am concerned about declining premium volumes. Understandably, businesses and consumers are looking for ways to reduce expenses in this difficult economy. But foregoing insurance coverage may be shortsighted. I have met homeowners in Rhode Island who stopped their flood insurance once their mortgages were paid off, only to suffer major financial losses when the record floods struck the state earlier this year. If you are buying insurance only to satisfy a lender’s requirements, you need to seriously reconsider your risk management strategy. An uninsured loss will only increase financial stress and it will be too late to go back and reinstate insurance coverage retroactively.