Hard Market Storm Clouds on the Horizon, Be Ready For It.

Yep, I said it.  I see the clouds starting to billow up in the distance.  In the news today, three insurers released results, and they were about as handsome as The Elephant Man the morning after his bachelor party.  The Hartford posted a $2.6 billion quarterly loss, resulting in a 50% drop in shares, and an all time low.  If you don’t recall, the last hard insurance market hit following 9/11 when insurers took a big hit on their investments on Wall St.  This caused Insurers to focus on underwriting in order to make money on their core business, since Wall St. offered very little.  Prior to that, Insurance companies could lose money on their core business but still make money in a flourishing stock market.  Insurers could have a 120% loss ratio, meaning that losses amounted to 20% more than overall written premiums, but still register profits from investments.  But since 9/11, most insurers have improved loss ratios to well under 100%, many dropping to as low as 80%.

OK, the storm clouds.  I have been reading about underwriting results over the last month or two, and losses are mounting.  Just this week, Risk Management Solutions updated the estimated losses associated with Hurrican Ike  to be $13-21 billion, and reinsurers are starting to talk premium increases.  Add in this morning’s news along with all of the other Wall St. and economic woes, and the picture is looking eerily familiar.  It it quote possible that the soft market is coming to a close and the hard market is approaching, bringing with it increasing premiums and constricting terms and conditions as is typical during such a market.

So, enjoy the sun for a little while longer, but start closing the windows and crank down the umbrellas.  It’s time to roll up your sleeves and put your risk management hats on again.  It’s time to get strategic, have plans in place, and think outside the box.  But don’t wait, because you’ll get very wet if you aren’t ready for it.

The Proximate Cause of Insurance Hate

This week, I have heard more people talk about the fact that they hate insurance.  I try not to take it personal.  Of course, there are people out there that say that they hate anything to do with insurance, including brokers, and well, that is a simple case of throwing the baby out with the bath water.  Hate is really quite blind and it can be cured with a little bit of reasonable thought. 

So you say you hate insurance?  Why is that?  Yes, it costs money.  But so does a vacation to Barbados.  So do you hate Barbados?  No, because it brings you warmth, comfort, and relaxation.  How about that nice steak dinner that you had at Morton’s last night?  That wasn’t cheap, so you must hate it right?  Well, no because it was delicious and it left you feeling satiated.  OK, how about that new Bimmer you leased last month – isn’t that $500 payment boiling the hate from the pit of your stomach?  Oh, so the fine leather seats and the neck spraining horsepower invigorate you and rev up your heart beat, so no hate there.  So why the hate for insurance?

Going through the process of structuring an insurance renewal once a year isn’t much fun.  You have to collect all sorts of information for the underwriters.  You have numerous meetings with funny looking insurance brokers (except for me) and answer the same questions, over and over.  You have to strategize on how you are going to keep the premiums under control while not sacrificing coverage.  You have to meet with loss control inspectors and answer the same questions over and over again, often repeating this for days on end depending on how many insurers are quoting on your insurance.  On top of all of that, you have to spend money on something that isn’t really tangible, other than a stack of paper with a bunch of legal jargon in it.  The monotony, the repetition, the expense!

But when disaster strikes, that stack of paper that was so painful to produce suddenly provides the same enjoyment that you got out of the realxing Barbados vacation, the tasty Morton’s steak, and the sexy Bimmer.  You get a warm feeling that you are going to be OK, and you can relax.  You can feel satisfied because something that you prepared for actually worked for you (and you can still afford a tasty steak).  And you will feel invigorated to know that you win and your company will survive on.

So really, it isn’t insurance that you really hate, even though you don’t know it.  It is the montony, the repetition, and the expense that you hate.  I feel better already.

The Excess Liabilities of AIG

To those in the insurance industry, excess liability is a term for an insurance policy that extends liability coverage above and beyond another policy when the coverage limits are exhausted.  To those outside the insurance industry, excess liability is the risk of having executives at AIG have corporate American Express cards.  These guys went out and dropped half a mil’ on wine, song and dance over a weekend while the rest of the country was nibbling their finger nails back to the cuticles worrying about the economy.  In this day and age of visibility, notwithstanding the fact that AIG is still a front page resident, they should have known that they would get noticed.  Actually, it’s really the fact that they shouldn’t have done it, period. 

I guess it’s going to be a little harder than we thought to change Wall Street and sterilize the greed that permeates the air.   Honestly, it doesn’t surprise me because once you get to the Garden of Eden, you won’t ever want to leave.  Plus, when you leave a group of voracious glutens with boatloads of cake and the utensils with which to eat it, you’re liable to see some excess.

The Common Sense in Loss Control

I read this morning that the engineer that was driving the commuter train that collided with a freight train last month in California sent a text message about 22 seconds before the impact, according to the National Transportation Safety Board said Wednesday.  Sound familiar? A few months ago, a MBTA subway operator in Massachusetts was talking on her cell phone when colliding with another subway car on the tracks in front of her.  In both of these cases, the evidence suggests that both operators were distracted while using their communication devices and missed crucial safety signals that had been transmitted to them.  The moral of the story is that you shouldn’t talk on your cell phone or text while operating a multi-ton train carrying other human lives.  The common sense is glistening on these words like the honey dew on a donut.

This got me thinking about common sense and the trouble that it prevents if you use it.  To paint the picture, here are some of the one’s I thought of:

• Don’t drink and drive (obvious)
• Don’t smoke while pumping gas (Kaboom)
• Don’t leave a metal rake on the ground with the tines facing up (schwapp)
• Smell the milk before you take a big slug (hurl)
• Don’t stick a metal object in an electrical outlet (need hair relaxer)
• Don’t ask when the baby is due unless you know that she is pregnant (dislocated knee from inserting foot in mouth)
• Never run from a growling dog (depends if you want the bite on your front or backside)
• Don’t talk to strangers (can’t avoid this; everyone is strange)
• Don’t gulp-sip a fresh coffee (you’ll need an expensive financial advisor to manage the millions you get in the lawsuit)
• Don’t sign anything if possible (its amazing how the little scribble of your name can knife you in the back down the road)
• Never look a gift horse in the mouth (never really have been sure of this one)

Please pardon the humor in a serious subject, but I needed to get away from the tragic overtone from the train accidents.  Look, ignorance is the villain to common sense, and it feeds on complacency and distraction.  It’s like an invasive plant species that can exist and flourish in the harshest environments and forces out all other species.  Common sense, on the other hand, needs attention and nourishment.  My point is that you have to engage a thought process and use common sense in order to prevent accidents.  If not, ignorance exists by default and someone gets hurt, or worse.  But common sense is oh so transparent, it seems to be human nature to forget that we have it in our holster.  Hey, I just thought of a great money making scheme; I will invent a common sense alarm that reminds us that we have it at our disposal and we should use it in moments of   Of course, common sense tells me that isn’t possible.