IRMI Update—Issue #28
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 7, 2001
In This Issue
Colleague,
It was great seeing our friends and supporters at the Construction Risk Conference
last week. Since we get to interact directly with so many of our good friends,
conference week is always a very special time for all of us at IRMI. Many thanks
if you were among those who attended. I hope you will reserve the dates for
next year's conference (November 11–14, 2002) on your calendar. We will be
in the San Diego Marriott Hotel & Marina situated on the bay in downtown San
Diego.
You may have noticed that IRMI.com received a "Best of the Web" Award for
Excellence from Business Insurance magazine last month. IRMI.com was one of
11 Web sites to receive this recognition from BI. Needless to say, we are proud
to have been included in such an elite group.
We need some risk tips for future issues. Please send us a practical tip
(less than 300 words) for identifying and managing risks, buying insurance,
managing claims, or filling gaps in insurance coverages. Complete the
RiskTip form and we'll
acknowledge your contribution.
Thank you for subscribing to IRMI Update and for recommending it to your
friends and colleagues.
Best wishes,
Jack
Jack P. Gibson
President
IRMI
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We add new Expert Commentary to IRMI.com every week. There are now 217 articles
on IRMI.com, and many more are in production. Below you'll find summaries of
some recent additions with links to the articles.
-
Medical Malpractice
Insurance Trends? Chaos!—Premiums are doubling, deductibles tripling,
and insurers are abandoning the line. Charles Kolodkin explains why the
condition of the market is quite rationale and not surprising.
Year-end is coming fast and the hard market is making January 1 renewals
especially time-consuming. Do you or your colleagues need continuing education
(CE) credit to renew your producer licenses? Get fast and hassle-free CE credit
from IRMI.com.
In most states you can read (or print) the study materials directly from
our Web site and even take the test online. You can also order printed materials,
and a test that we will send you. And you can't beat the price―you can get all
the credit you need in most states for under $50. Check out
IRMI.com CE today!
We ran a poll on the IRMI.com home page during the month of September, asking
whether you thought the U.S. government should set up a terrorism reinsurance
pool. Of the 332 visitors who registered their opinions, 50 percent said they
thought the government should do it, 22 percent believed that it might be a
good idea, and 28 percent said it would be a bad idea.
Here is what some of our readers said about the topic in their e-mails to
us:
- War or terrorism cat loss of the largess of the WTC should be passed
on from consumers to primary insurers to reinsurers and ultimately to the
government. This makes good business and political sense as only our government
has the legal ability to extract compensation from the responsible party.
―Chuck Mazurek
- Terrorism is only one of several risk exposures areas that private insurers
don't want to insure. Most contracts have exclusions for nuclear, war, flood,
earthquake, vaccines, etc. If one of the primary purposes for insurance
is to provide stability, then we as a society can't have gaping holes for
some of the most significant and catastrophic exposures. We need to establish
a federal insurance mechanism that we fund with tax dollars that will cover
exposures generally excluded or not available in the private insurance market.
We will continue to have catastrophes, and we should plan for them in a
fiscally responsible manner.
―Rolf Neuschaefer, Robert E. Harris Insurance Agency,
Inc., Irvine, CA
- The insurance industry's cries of pain over the recent WTC tragedy are
woefully overblown. The industry as a whole is overcapitalized. A conservative
insurer would manage its premium-to-surplus ratio at 2:1. Currently, the
industry as a whole is around .85:1. The industry has over $300bb in surplus
with written premiums of around $250bb. Based on early estimates of the
loss at $30-60bb, industry premium-to-surplus ratio would fall to 1:1, which
still implies significant overcapacity. The fact is, insurance companies
have retained and under-deployed their surplus over the past decade. This
under-deployment is a significant contributor to the industry's poor shareholder
return.
A government bailout or other action would set a dangerous precedent
for any business impacted by a natural or manmade event. Should we extend
the bailout to travel agents? To resorts? Where does it end? The insurance
industry's core competency is the assumption of risk. Savvy, effective insurers
will be able to navigate the risks associated with terrorism and profitably
grow their businesses. Government bailouts should only be considered as
a last resort, and at this point, it's not clear that this step is required.
―Steven G. Boone, Parker Smith Feek, Bellevue, WA
- An important ramification of a little remembered tax change made more
than 2 decades ago was that insurance companies could no longer carry catastrophic
contingency reserves on their books on a pre-tax basis. That change was
thought to be good for the reinsurance industry and government. As primary
insurers eliminated their catastrophe reserves, they had to rely more on
reinsurance to smooth out results. When catastrophe reserves were eliminated,
taxes were paid generating additional tax revenue for government. In hindsight,
after several bad hurricanes, asbestos, environmental issues, and other
catastrophes, this was not a good decision for society. Somehow the basic
tenants of insurance securing against an unknown future was lost because
of a feared tax dodge.
The insurance industry needs to accumulate multi-year generated catastrophe
reserves to prepare for shock losses that happen once in 10, 20, 50, or
more years. The government should stay out of the insurance business and
stimulate appropriate financial solvency for catastrophic events by restoring
the lost tax incentives.
Between a primary insurance company's restored catastrophe reserves and
reinsurance, the insurance industry can survive the worst that either man
or Mother Nature can dish out.
―Dan Sielicki, GeneralRoofing, Fort Lauderdale, FL
IRMI honored two gentlemen at the 21st IRMI Construction Risk Conference
in New Orleans. Mr. T.J. Lyons of Rifenburg Construction, Inc., was honored
with the Construction
Risk Management Best Practices Award for adapting the OSHA Voluntary Protection
Plan (VPP) Accreditation for use in the road construction industry.
In addition, William H. Perkins, an instructor for the Florida Association
of Insurance Agents, was honored with the 12th
Words of Wisdom Award.
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In IRMI
Update #27, Jack Gibson suggested a strategy for dealing with 11th hour
renewal quotes from underwriters. Here is what some readers thought of the strategy:
- You offer a good option, Jack, to get the underwriter's commitment to
extend 90 days if indicated terms end up being not acceptable. That's a
good safeguard for the buyer to require when accepting the indicated rates.
It would have to be done in a way that didn't offer an "out" or to weaken
the commitment of the underwriter to honor his word.
―John Z. Norris, CPCU, Norris Ins. Consulting, Inc.,
Baton Rouge, LA
- I don't know what you are hearing in Dallas, but in Southern California
we are experiencing carriers providing short-term extensions in order to
get their underwriting completed. No market is working on anything more
than 5-10 days in advance of the renewal dates. Another dilemma is the procurement
of reinsurance by the carriers, which is causing more delays. We have been
lucky to get quotes the day of renewal. Ninety days prior to expiration
is not a reality today.
―Tim Rabbitt
- With all due respect, I would caution against making a deal with an
underwriter not to shop the account. I understand your position, but in
this market environment, there are circumstances beyond the control of the
underwriter that may seriously work to the detriment of the client. I DO,
however, recommend not flooding the market and crowding the system. I think
this is best accomplished by carefully identifying companies that are agreeable
to accepting the type of risk, and locating a representative of the company
that will agree to process a timely submission. In addition, on very good
accounts, in specialty markets, many underwriters can easily tell the agent/broker
where their competitive position is. Therefore, I will generally disclose
the markets I am approaching so that those who know they will be uncompetitive
will not waste their time or mine.
Early submissions are, as you pointed out, a must! Also, complete submissions
are important. I am recommending to my agent/broker clients (agency management
clients) that they take this opportunity to get back to basics. Do a thorough
risk management survey of the client, compile needed documents for the underwriters,
and complete fresh applications, based on the risk financing assessment.
All of this requires time. A little preparation goes a long way. The underwriter
SHOULD guarantee you a quote in time to allow the insured to review all
proposals. I think this is 30 days prior. Given that, the underwriter should
also be able to tell me how long it will take to underwrite and quote. Then
I can tell the client the completion date for the submission, and the information
required. For most clients, the process can begin 90 days out. For larger,
more complicated, or distressed accounts, this may be 4-5 months!
―R.W. Thomas, Jr., MBA, CIC, CPIA, ARM, Cordova Risk
Management Services
- Great idea, but I've never been able to make anything work for a timely
renewal quote. It's part of the negotiation strategy; time is a big negotiating
factor. With the fate of reinsurance treaties unknown, I don't think early
renewal quotes will be any easier this year. But that does not mean we shouldn't
try. Thanks for the input.
―Barry Port, PURMA, Southborough, MA
- We are tired of 11th hour renewals and not getting satisfactory answers
and/or service from our broker. This month was the last straw. (Casualty
premiums have increased 300% for an 11/1 renewal, auto rates have doubled
and exclude underinsured and uninsured motorist coverage; we are still waiting
on official word on our property rates with 15 days to go―all from a national
broker who puffs up their chest when in a marketing mode to "sell" how their
size is such a strategic benefit to us). We have been stiff-armed by our
broker in our request to meet with the underwriters. Our relationship with
our current broker will be short-lived once we get through our renewal.
They have not earned their "FEE."
Competing brokers who want our account have suggested your ideas to us
as far back as 5 months ago. We challenged our current broker to provide
this type of service. They did nothing. They will lose an account that they
consider within their top 3 percent in terms of revenue.
―Name withheld by request
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