The real problem with the economy does not stem from war, politics, or even supply and demand. The problem originates when there is no accountability and inadequate efficiency. This lack of commitment by the companies has created the chasm. A company is created to drive the economy forward, not to create a deficit at the consumers expense. There are several factors to consider before you can seriously understand this economical dilemma. The primary previously mentioned is the lack of commitment.
Commitment has an arguable definition so for the case in point we will use the moral definition. Commitment for this paradigm means the complete dedication to providing the best product or service. The reward for providing these products or services is growth not profit. The companies’ obligation to the consumer should always be the main priority and focus for the company. If the company cannot effectuate to provide the consumer the best product or service possible than the company should be responsible. With the current supply & demand archetype the consumer bears the responsibility with the form of increased taxes to cover government subsidization and / or increased cost of product and /or decrees in influx of income to the economy (this is usually seen in the form of downsizing). This leads me to my second case in point. Who is really at fault or rather who the hell is really accountable?
Accountability is established from the top to the bottom. Since a company is built from the ground up, so are the systems and rules that create the product or services sold. In today’s marketplace of constant acquisitions and management changes accountability is lost. The consumer then pays the price of being forced to purchase products or services that they did not want. This creates a communication gap between the consumer and the entities that were responsible for managing the user. The managing entities new growth now becomes a large liability over all therefore decreasing the value of the whole. In essence the company that acquires a new company assumes the same level of what it acquired not vice-versa. Is this a problem or is this business, or rather, free enterprise? The problem is the solution in this case. Convergence of accountability and commitment are required to stimulate stagnation. That is why we have technology.
The reason technology has changed drastically in recent years is due to consumers requiring new systems to increase efficiency or entertainment. In recent years we have seen the speed of computers increase more then 10 fold. We have also seen other technologies become mainstream like cell phones, pda's, and mobile computing. To support these new technologies software was created to handle the massive amounts of information that was readily available. In addition to software new forms of communication and new languages were created. Several companies capitalized by taking advantage of the technology when it first came out but failed to continue following the technology curve. Hence, new systems and technologies were created to assist the few who realized that this transition would never stop. The old concept of "If it ain't broke don't fix it" is still being practiced widely. Until companies can learn to continually use the new technologies, the economy will remain stagnant and eventually it will crash.
There is a solution to this problem. Wouldn't you like to know it? If your company is not accountable or efficient I want to say "thank you". Your ലക്ക് of understanding will allow me to control your market share.
Friday, March 14, 2008
Saturday, March 1, 2008
Here Comes the Hard Market - Phil Duncan
Here comes the hard market By Phil Duncan 02/29/2008
Yesterday two of the largest and most profitable insurance carriers announced serious financial instability in the insurance marketplace. Warren Buffet, the leader of Berkshire-Hathaway announced that "That party is over,” he wrote. “It is a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise.” He predicted that even with another catastrophe-free year, the industry's profitability will decline. “If the winds roar or the earth trembles, results could be far worse.” (Forbes 2/29/08). Warren Buffet was not the only carrier to feel the effects of the soft market and the housing crisis, even AIG is facing some tough decisions Joseph Cassano, is stepping down after the insurer reported $11.1 billion in losses on contracts sold to fixed-income investors (Bloomberg 02/29/08). Even Insurance Australia Group Ltd., the nation's largest auto and home insurer, said first-half profit dropped 68 percent, its sixth consecutive decline, as financial markets fell and storms increased payouts. The shares dropped the most in a month. Net income slumped to A$110 million ($95 million), or 6.07 cents per share, in the six months ended Dec. 31, from A$345 million, or 21.42 cents, a year earlier, the Sydney-based company said in a statement today. (Bloomberg 02/29/2008).
The prime indicator of a hard market is prime rate. I remember when I used to write P&C products in the last soft market. We were able to offer general liability to a general contractor building 1-2 homes for $500’s (and get paid 15% commission)! When this product was available prime rate was between 8.50 to 9.50% (http://hsh.com). Prime rate dropped to 4.0% in June 2003 and at this point in my career, working in the premium finance, industry my average policy premium for a similar risk was $20,000 (through a risk retention group!).
The next indicator of a hard market is when a California admitted carrier gets downgraded. Lincoln General (Which had an A VII rating this means100-250 million in assets) hit a major bump in the road According to AM Best as of December 18th, 2007, they have been downgraded and under review with a negative implication. They are now B++. HIH and Legion which were similar in financial strength, in fact HIH was Australia’s 2nd largest insurance carrier at the time according to According to the HIH 2000 Annual Report the company had gross premium revenue of $2.8 billion, total assets of $8.0 billion, total liabilities of $7.1 billion, with net assets of $900 million. 1 year later The federal government announces a royal commission into what is Australia's biggest corporate collapse.
Commercial Casualty Insurance Company of North Carolina in Liquidation Commercial Casualty Insurance Company of North Carolina did business in California under the name, “Environmental and Casualty Insurance Company.” The Norcross, Georgia, office of Commercial Casualty Insurance Company of North Carolina in Liquidation was closed effective June 30, 2006. (http://www.radtrust.com/ccic1.htm). ECIC is how our firm made a break in the premium finance world. Premium finance companies are the only entity that truly deals with all of the parties involved in the insurance transaction (For further information please review this article that I authored in 2003 when the hard market hit) http://www.insurancejournal.com/magazines/west/2003/11/03/features/33862.htm).
When any premium finance company or lender places a moratorium or limits your ability to finance a policy it is another indicator of a hard market or carrier insolvency. Our firm was unique because we had multiple lending partners so we were always able to place any premium finance agreement. We began to negotiate with all of our financial partners agreements that allowed us to place these risks, whether it was a RRG or an A Rated admitted carrier that dropped to insolvency in less then a year. The amazing thing was that we were able to maintain a 5% cancellation ratio on this book of business. Which allowed insured’s, brokers and wholesalers to have ample amount of time to place their book of business with the carriers that were accepting this risk. These insured’s that were being moved from under priced policies were backed by the almost bankrupt CIGA, which was also facing a horrendous workers compensation crisis (between 2001-2003 I recall 3 or 4 more admitted carriers going insolvent in the workers compensation field alone).
The solution for this crisis was the Risk Retention Group (http://www.nrra-usa.org/FederalLiabilityRetentionAct.htm). The problem was that most of the insured’s were moving from a $500 policy to a $5000 dollar policy. What complicated the matter is most agreements with the premium finance companies and their lenders required the contracts be between insurance companies with a B++ admitted or better rating. There were only a few RRG’s available at this time that were able to meet the financial requirements of the premium finance agreements so many construction related firms were unable to replace coverage. Even the Federal and State government realized the problem that was about to occur so Senator Burton introduced and passed the SB800 Bill which went into force on Jan 2003 in California. (http://www.leginfo.ca.gov/pub/01-02/bill/sen/sb_0751-0800/sb_800_bill_20020920_chaptered.html). This legislation protected the already fragile CIGA which was being depleted by loosely used underwriting guidelines.
I recommend that you re-evaluate all you clients. Learn to know you risk you are about to face some serious underwriting guideline changes. Good bye soft market!
Yesterday two of the largest and most profitable insurance carriers announced serious financial instability in the insurance marketplace. Warren Buffet, the leader of Berkshire-Hathaway announced that "That party is over,” he wrote. “It is a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise.” He predicted that even with another catastrophe-free year, the industry's profitability will decline. “If the winds roar or the earth trembles, results could be far worse.” (Forbes 2/29/08). Warren Buffet was not the only carrier to feel the effects of the soft market and the housing crisis, even AIG is facing some tough decisions Joseph Cassano, is stepping down after the insurer reported $11.1 billion in losses on contracts sold to fixed-income investors (Bloomberg 02/29/08). Even Insurance Australia Group Ltd., the nation's largest auto and home insurer, said first-half profit dropped 68 percent, its sixth consecutive decline, as financial markets fell and storms increased payouts. The shares dropped the most in a month. Net income slumped to A$110 million ($95 million), or 6.07 cents per share, in the six months ended Dec. 31, from A$345 million, or 21.42 cents, a year earlier, the Sydney-based company said in a statement today. (Bloomberg 02/29/2008).
The prime indicator of a hard market is prime rate. I remember when I used to write P&C products in the last soft market. We were able to offer general liability to a general contractor building 1-2 homes for $500’s (and get paid 15% commission)! When this product was available prime rate was between 8.50 to 9.50% (http://hsh.com). Prime rate dropped to 4.0% in June 2003 and at this point in my career, working in the premium finance, industry my average policy premium for a similar risk was $20,000 (through a risk retention group!).
The next indicator of a hard market is when a California admitted carrier gets downgraded. Lincoln General (Which had an A VII rating this means100-250 million in assets) hit a major bump in the road According to AM Best as of December 18th, 2007, they have been downgraded and under review with a negative implication. They are now B++. HIH and Legion which were similar in financial strength, in fact HIH was Australia’s 2nd largest insurance carrier at the time according to According to the HIH 2000 Annual Report the company had gross premium revenue of $2.8 billion, total assets of $8.0 billion, total liabilities of $7.1 billion, with net assets of $900 million. 1 year later The federal government announces a royal commission into what is Australia's biggest corporate collapse.
Commercial Casualty Insurance Company of North Carolina in Liquidation Commercial Casualty Insurance Company of North Carolina did business in California under the name, “Environmental and Casualty Insurance Company.” The Norcross, Georgia, office of Commercial Casualty Insurance Company of North Carolina in Liquidation was closed effective June 30, 2006. (http://www.radtrust.com/ccic1.htm). ECIC is how our firm made a break in the premium finance world. Premium finance companies are the only entity that truly deals with all of the parties involved in the insurance transaction (For further information please review this article that I authored in 2003 when the hard market hit) http://www.insurancejournal.com/magazines/west/2003/11/03/features/33862.htm).
When any premium finance company or lender places a moratorium or limits your ability to finance a policy it is another indicator of a hard market or carrier insolvency. Our firm was unique because we had multiple lending partners so we were always able to place any premium finance agreement. We began to negotiate with all of our financial partners agreements that allowed us to place these risks, whether it was a RRG or an A Rated admitted carrier that dropped to insolvency in less then a year. The amazing thing was that we were able to maintain a 5% cancellation ratio on this book of business. Which allowed insured’s, brokers and wholesalers to have ample amount of time to place their book of business with the carriers that were accepting this risk. These insured’s that were being moved from under priced policies were backed by the almost bankrupt CIGA, which was also facing a horrendous workers compensation crisis (between 2001-2003 I recall 3 or 4 more admitted carriers going insolvent in the workers compensation field alone).
The solution for this crisis was the Risk Retention Group (http://www.nrra-usa.org/FederalLiabilityRetentionAct.htm). The problem was that most of the insured’s were moving from a $500 policy to a $5000 dollar policy. What complicated the matter is most agreements with the premium finance companies and their lenders required the contracts be between insurance companies with a B++ admitted or better rating. There were only a few RRG’s available at this time that were able to meet the financial requirements of the premium finance agreements so many construction related firms were unable to replace coverage. Even the Federal and State government realized the problem that was about to occur so Senator Burton introduced and passed the SB800 Bill which went into force on Jan 2003 in California. (http://www.leginfo.ca.gov/pub/01-02/bill/sen/sb_0751-0800/sb_800_bill_20020920_chaptered.html). This legislation protected the already fragile CIGA which was being depleted by loosely used underwriting guidelines.
I recommend that you re-evaluate all you clients. Learn to know you risk you are about to face some serious underwriting guideline changes. Good bye soft market!
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