Friday, February 5, 2016

Top 11 books for the Insurance Industry



    Liability: The Legal Revolution and Its Consequences - This controversial book describes the transformation of modern tort law since the 1960s, and shows how the dramatic increase in liability lawsuits has had an adverse effect on the safety, health, the cost of insurance, and individual rights







Against the Gods: The Remarkable Story of Risk - In this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today.



Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide - From the collapse of Bear Stearns and Lehman Brothers, the subject of the financial crisis has been well covered. However, the story central to the crisis-that of AIG-has until now remained largely untold. Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide tells the inside story of what really went on inside AIG that caused it to choke on risk and nearly brining down the entire economic system







The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" - A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences. In this groundbreaking and prophetic book, Taleb shows in a playful way that Black Swan events explain almost everything about our world, and yet we—especially the experts—are blind to them. In this second edition, Taleb has added a new essay, On Robustness and Fragility, which offers tools to navigate and exploit a Black Swan world.

Benjamin Franklin: An American Life - In this authoritative and engrossing full-scale biography, Walter Isaacson, bestselling author of Einstein and Steve Jobs, shows how the most fascinating of America's founders helped define our national character.  Benjamin Franklin is the founding father who winks at us, the one who seems made of flesh rather than marble. In a sweeping narrative that follows Franklin’s life from Boston to Philadelphia to London and Paris and back, Walter Isaacson chronicles the adventures of the runaway apprentice who became, over the course of his eighty-four-year life, America’s best writer, inventor, media baron, scientist, diplomat, and business strategist, as well as one of its most practical and ingenious political leaders. 


Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG - A unique insider view into the recent AIG crisis and Hank Greenberg.  For nearly 40 years, Maurice "Hank" Greenberg was one of the most powerful CEOs in America. He built American International Group (AIG) from a second-rate insurer with a great Chinese franchise into one of the world's most profitable companies. But times have certainly changed, and now, in the Second Edition of Fallen Giant, author Ronald Shelp-who worked alongside Greenberg and within the AIG organization for many years-with the help of Al Ehrbar, sheds light on both AIG, the company, and Hank Greenberg, the man.



Risky Business: An Insider's Account of the Disaster at Lloyd's of London - In this fascinating insider’s account, an American woman who became an investor alleges that irresponsibility, incompetence, greed, and fraud at Lloyd’s, the world’s most glamorous insurance enterprise, have caused the company to lose $12 billion in the last ten years.  Lloyd’s of London is not simply an insurance company; it is a society comprising thirty thousand Names.  




 The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel - The greatest investment advisor of the twentieth century, Benjamin Graham, taught and inspired people worldwide. Graham's philosophy of "value investing" -- which shields investors from substantial error and teaches them to develop long-term strategies -- has made The Intelligent Investor the stock market bible ever since its original publication in 1949.





Security Analysis: Sixth Edition, Foreword by Warren Buffett- First published in 1934, Security Analysis is one of the most influential financial books ever written. Selling more than one million copies through five editions, it has provided generations of investors with the timeless value investing philosophy and techniques of Benjamin Graham and David L. Dodd.  As relevant today as when they first appeared nearly 75 years ago, the teachings of Benjamin Graham, “the father of value investing,” have withstood the test of time across a wide diversity of market conditions, countries, and asset classes.



Lloyd's of London - The Risky Business, Colorful History, and Turbulent Future of the World's Most Famous Insurance Group.









Asbestos and Fire: Technological Tradeoffs and the Body at Risk - For much of the industrial era, asbestos was a widely acclaimed benchmark material. During its heyday, it was manufactured into nearly three thousand different products, most of which protected life and property from heat, flame, and electricity. It was used in virtually every industry from hotel keeping to military technology to chemical manufacturing, and was integral to building construction from shacks to skyscrapers in every community across the United States. Beginning in the mid-1960s, however, this once popular mineral began a rapid fall from grace as growing attention to the serious health risks associated with it began to overshadow the protections and benefits it provided.

Thursday, February 4, 2016

Google offering multiple types of Insurance



Google has come out with a new platform for buying auto insurance, motorcycle insurance, Life insurance, health insurance, home insurance, small business insurance, and travel insurance.

According to Compare.com, their site "allows drivers to customize their auto insurance policy using a single online form – guiding them through the process the entire time – and immediately returns multiple accurate, personalized quotes from licensed auto insurance companies."

As we know with Google, they are great search and data providers.  Compare's FAQ states the "quotes are a true “apples to apples” comparison because the insurance companies available through Compare.com consider the exact same driver and vehicle information in order to quote a price. Site users can compare the provided quotes, and then one click will allow them to purchase that policy directly from their chosen insurer."

Compare.com is free – consumers do not pay any fees or increased premiums because they found a car insurance policy through the site.  If you find a car insurance policy that’s right for you, Compare earns a referral fee from the insurance company.

Consumers can get quotes for different types of insurance in 48 states.

We are excited to see what this new Google product does to the insurance sector as it will lower expenses and hopefully pass the savings on to customers.   Please Contact Us and let us know if you see good results as we will share the good news with our InsuranceShark followers.

Navigating the future of insurance and reinsurance

The days of scale for the purposes of scale alone are going the way of the dinosaur.  Super large or "too big to fail" insurance (& reinsurance) companies will be like big whales waiting to be harpooned by shareholders or activist investors.  These companies will have all this excess capital and under performing results investors will demand it returned.

See one Too big to fail example and what happens.

The tools of today's day and age will require nimbler and more analytic players.  If you are keeping scale or the purpose of scale alone you are probably a shark that can't keep up with the others and will be devoured.  There are some powerful tools and data that we have failed to collectively analyze and ask for historically - and the pressure will increase unless the game is stepped up.  

As we know, adverse selection is a real issue and if your risk selection is flawed because your team doesn't have the right tools....prediction...there will be blood in the waters..

The future insurers and reinsurers will be expected to achieve positive returns on their capital, not be large floating bond funds with no generation of alpha.  Matching the appropriate risk duration with investors appetite will continue to be an evolving business model on the carrier side.   We are seeing examples of this at Arch, ACE/Chubb, etc.  

Generating Underwriting returns has been and will be the future of the industry, but the competition is getting tougher with the recent entrance of new "total return" players. These hedge fund based players are based upon minimal underwriting returns and maximizing the investment returns or float.

We will see what results these teams have, as if they cant generate strong consistent investment returns, it doesn't sounds like a good long term play.  However, please evaluate each on the basis of both investment and underwriting returns  (expected vs. actual).    

How to land the "big job" in insurance

Hard work and dedication are big inputs to landing the Big job.  Without the appropriate experience and credentials it is tough to keep moving up the ladder.

While you are working your tail off in the office, insurance recruiters are working their tail off finding the big salary and title opportunities.  These leads are tough to find on your own but insurance recruiters have a network of HR, management and other connections that help them identity leads.

InsuranceShark recommends you stay close and well connected with insurance recruiters for many reasons.  First they know who's hiring, they know who's looking to leave and they know the names and reputations of top talent and hiring managers.  

If you are looking for a new career in insurance these valuable resources as well as InsuranceShark's recommendations will be valuable resources.  

If you are already in insurance, recruiters will help you find the next level role, transition to new positions, move to reinsurance, prepare for interviews and help you with any advice for your resume. Our experience with recruiters is that they will also give honest feedback on positions you are over or under qualified.  

Always keep in mind your purpose statement, personal goals, your principles and the things you are looking for in your life/career.  Sometimes the offer of a 20% increase in base pay can blind you from what you are really looking for in your life.   If you make a jump for money alone, you may be on the job hunt again within a year or two.  Not ideal.  

Always stay in touch with previous recruiters who have helped place you in prior jobs, as they are a great resource for opportunities down the road.  For future talent or any waves in your career.   



How often should I shop my insurance?

The short answer is every year.

Either you or your agent should be reevaluating or shopping your insurance pricing every year.  Regardless of losses or not.  Who wants to over pay for insurance?  The long term opportunity cost of over paying $100-$500 a year could be quite expensive to you for your loyalty.  If anything your loyalty should be a discount on your insurance costs.

Using an Opportunity cost calculator to determine your personal situation can help.  Here's an example, if you spend $100.00 on an over expensive insurance product, and you could otherwise invest that money for 30 years, then spending the $100.00 could cost you $231.35 in forgone interest earnings. This would bring the real price-tag of what you are spending your money on to $331.35. So the question you should ask yourself is: Is what I am spending my money on worth $331.35?



With new tools out there like Compare.com owned by Google, it will be easier to obtain quotes and compare different carriers pricing.  

Now if you have had good experience with your BOP, personal auto, or homeowners policy and have not filed a claim - you hold the power with your incumbent carrier.  Please note, it is more expensive for a insurance company to acquire new business vs. retaining customers therefore they can't afford to lose you.  

If you have filed claims, you should still have one ear out in the market listening for insurance carriers who feel comfortable with taking your risk for a lower price.  It provides leverage in the negotiations as well as keeps your counter-parties fair.   

Now here's the part where having an agent or broker is helpful, always make sure you have the same limits, terms, coverages, etc.  Financial strength of your carrier is also an issue to explore, for long tail lines- you need to make sure your carrier will be around to pay your claim.  

Whenever comparing quotes.  The qualitative comparison is still something that a computer cannot replace, humans have intuition and experience for where a individual or business can have exposure to loss.  It's this experience that is priceless when procuring insurance, no one wants to be in the position of having to pay for or explain an uninsured loss.  Shareholders, spouses, and bank statements will all suffer in the event of an uninsured loss.  

An insurance consultant is a good option, InsuranceShark partners with the consultants at HMG Consulting and thinks they have the right combination real world expertise and solution oriented thinking in insurance and tax related matters  

Wednesday, February 3, 2016

How to break in to the Insurance Industry

For decades the classic response to the question, "How did you end up in the insurance business?" was:

  • "I have family in the business" or
  • "Insurance was hiring and stable when I got out of college during economic recession" or 
  • "I wasn't sure what I wanted to do and fell into the industry"...

Many of the successful leaders in the business today had similar answers when asked the question.  These are classic examples of how our industry has a serious recruitment and talent management problem - which has been acknowledged and efforts are being made to address.

Let's face it not many kids look up at their parents at age 7 and say "Mom and Dad, when I grow up I want to be in insurance!!"  Frankly, now-a-days most parents would think about sending their children for therapy or medication if that was their answer to "what do you want to be when you grow up?".

Insurance was never the one of the "sexy" industries and didn't have the high power salaries and allure of Investment Banking or other Wall Street jobs.    But many benefits.  It should be a goal to get the high school age or college freshman interested and preparing for a career in insurance as it will only advance the industry farther.  The industry needs to do a better job promoting all the good it does for society and working on its reputation.

Since the recession of 2007-08, we have seen more of the younger generation start exploring careers in the insurance industry and attending schools of Insurance or Risk Management at bachelor and post bachelor education level.  We discussed some of the benefits under Careers in Insurance in a previous article.

Why??  What's changed??

  • Data driven career path - data science and predictive analytics have become a way of the future.  In the age of the "Internet of Things" and data collection being so important, individuals and businesses have also recognized the importance to analyze and mine this data.  The Insurance industry is blessed with tremendous amounts of data and a growing need of professionals with the skills to do it.  
  • Development and growth opportunities-  According to The Insurance Game, "The insurance industry is the hidden gem of the finance industry and it’s shining bright. Think about a job where client entertainment is as much a part of the job as cutting dirty shapes in Excel. You’re out there, wheeling, dealing, building relationships, winning clients, smashing life.  It is true, insurance takes a special sort of person – you’ve got to be fun, switched on, and adaptable."   
  • Work life balance - After reading books like the The Four Hour Work Week, employers and employees are starting to realize there is more to life than the 80 hour work week for $500k salary.   The days of 9-5 are starting to fade with the advance of technology and people are working remotely, overseas, spending more time with family, etc.  
  • Stability is important - after seeing the layoffs in the finance sector during the recession, and seeing how insurance industry went relatively unharmed.  
  • Competitive salaries/benefits - six figure salaries and competitive benefits packages are being earned to retain and attracted talented individuals. 
If you are reading this, you already know the benefits and your asking "Alright, how do I break in?"  I'm not going to try a sell you interview questions, an interview guide or some master plan.  Honestly, I believe there are two simple skills that may require some practice but are very easy and basic.  
  • Read and research
  • Networking
Anyone who has made a career of working in insurance industry will have a tremendous amount of information, resources, and recommendations to share, and most are happy to share it.  Why? If they had one of the top 3 answers or a similar fortuitous reason to explain why they joined the industry and made a 20+ year career out of it.  They love the industry they "fell into" - tap into that emotion and have a informed conversation with the person you know.   

These people will be your biggest allies in getting the job you want and avoiding pitfalls in the business.  You have to be willing to ask questions, take the time and effort to do the research and truly understand who you are as a person. Self Awareness is very helpful to understand which career path in the industry you should start. 

Having this contact/mentor will help tremendously throughout your career.  

If you don't know someone who is in the industry already there are other ways to network.  These are just a few suggestions:
Or for those of you who have no success with any of these recommendations, you can always contact the InsuranceShark and I will be happy to help.  




I'm still long Arch Re after management change

We recently wrote an article that was published and could be found at this link Seeking Alpha .  

Summary

  • Arch Reinsurance Co. has named Jerome Halgan CEO in addition to his current role as president.
  • Tim Olsen will continue to serve as Chairman.
  • Expect no material change to short term stock price.

Tuesday, February 2, 2016

Insurance for Uber and Lyft drivers

As companies like Uber and Lyft continue to expand, insurance companies and insurance regulators are trying to offer products and design regulation that address some of the coverage “gap” issues currently facing the companies and their drivers. A growing group of insurance companies have started to fill the coverage gap by offering “hybrid” insurance products that bring more commercial type coverage into the personal policy.

The last thing a driver or passenger wants to find out is that there is no insurance coverage in the event of an accident.  I anticipate Uber and Lyft to start mandating these new hybrid policies as part of getting referred business.  Insurance.com has also written about this topic.  The term “usage-based insurance” is becoming increasingly popular, so it’s important to understand that not all usage-based programs are the same.

We have a list of companies now offering ride-sharing products. The following insurers:

Erie Insurance

Allstate

Farmers

Progressive

Metromile

Metlife

Travelers

Geico

USAA

State Farm

Mercury Insurance

Unfortunately, there are some limitations to the existing group of products. An example is that regulations vary on a state to state basis.  Insurers are likely to push these products into new states, which should help more drivers fill gaps in their coverage and increase the growth opportunity for insurers.

There are many factors that can affect your car insurance premium, such as driving history, the model of your car or your geographic location. Those are the old ways to predict the probability of an accident.  Many insurance companies have determined driving behavior to be one of the most important indicators since a driver who frequently slams the brakes is likely at a higher risk to be involved in an accident.

It’s also worth mentioning that with the increased coverage, comes increased cost which considering the increase exposure is greater than conventional personal auto policies  More and more insurance companies are better able to track miles driven for the rideshare company vs. miles for personal use, the price of rideshare coverage is likely to decline.  So this space will evolve as time goes on and the ability to capture real time data with new technology advances insurance companies ability to predict accidents.

Monday, February 1, 2016

Impact Of 2 Acquisitions For National General Holdings Corp

National General announced the acquisition of 2 companies this week, Century-National Insurance Company ('CNIC") and Standard Mutual Insurance Company ("SMIC"), both of which primarily write personal lines and commercial auto lines of business in the Western, Southwest and Midwest markets.
These 2 acquisitions add scale and diversification to NGHC, expect long term EPS growth, but a re-underwriting approach will be required for the renewal book.
NGHC is valued 160% P/B. Stock price is 83% of 52 week high. My estimate is earnings for full year 2015 will be $1.50, after the new acquisition my 2016 estimate is $1.80.
These two acquisitions will increase the earnings potential for NGHC and provide synergies/cost savings. The diversification benefit to new customer base will be long term beneficial to earnings growth, however, SMIC and CNIC have both been writing business over 100% combined ratios the last 3 years. There will be a re-underwriting or pricing evaluation strategy for the new acquired business. Retention ratios may drop in the SMIC and CNIC business.
About Standard Mutual Insurance Company 
Based in Springfield, Illinois, Standard Mutual Insurance Company began operations in 1921 and has a financial strength rating of "B+" from A.M. Best. The company predominantly underwrites private passenger automobile and homeowners lines in Illinois and Indiana. SMIC wrote approximately $49 million of direct written premium in 2014, and approximately $37 million through the first nine months of 2015. The company distributes products through approximately 250 independent agents. SMIC policyholders' surplus as of September 30, 2015 was approximately $22 million.
About Century-National Insurance Company 
Based in Van Nuys, California, Century-National Insurance Company began operations in 1956, has approximately 250 employees, and has a financial strength rating of "A" (excellent) from A.M. Best. CNIC wrote approximately $180 million of direct written premium in 2014 and approximately $150 million through the first nine months of 2015. The company is licensed in 41 states with a heavy concentration of business coming from four key states: California (more than two-thirds of premiums), Nevada, Arizona, and Illinois. CNIC predominantly underwrites homeowners, personal auto, and commercial auto liability, but also offers fire and allied lines, earthquake, and commercial multi-peril coverages. The company employs a multi-channel distribution strategy that includes approximately 800 independent agents and brokers, MGAs, lender-affiliated agencies, and direct response marketing.
Valuation
Year EPS ($)
2013 0.65
2014 1.34
2015 Est. 1.50
2016 Est. 1.80

Thursday, January 28, 2016

Rising Stars: Top 40 Under 35 in Intelligent Insurer

We came across future rising stars in the industry, according to Intelligent Insurer these individuals are currently making waves in the industry.  Future InsuranceShark's.

Careers in Insurance

If we had to recommend any industry for young people it would have to be insurance.

It has been estimated that the industry will lose about 500,000 people to retirement over the next 10 years.  According to a study by McKinsey, "Insurers also have greater exposure to the aging workforce than most industries, due to a focus on experienced workers. The number of insurance workers 55 or older has increased by 74 percent in the last 10 years, compared to a 45 percent increase for the overall workforce. This means that 20 percent of the insurance workforce is near retirement age (compared to 15 percent of the broader financial services workforce). By 2018, this number is projected to rise to 25 percent."

This means that the industry should be hiring 50,000 entry level positions in preparation of its departing and aging workforce.  However, the property and casualty insurance industry faces a few challenges in attracting high-quality talent: a poor reputation, a limited understanding among high school and college students of the industry’s career opportunities, and a limited pool of trained talent.

It is a goal of many industry groups as well as this blog to help improve awareness of this issue, improve the reputation, and promote the benefits of a career in insurance.  Some of the benefits of a career in insurance include:


  • The insurance industry has historically been more stability of employment than other financial services.  Certain insurance products are required by law (i.e. workers compensation, auto insurance)and somewhat protected by recessionary pressure, therefore have not felt the impact of the traditional consumer cycle. 
  • This industry has so many options for various personality types, skill sets, and educational/cultural backgrounds.  
  • There are opportunities for introverts and extroverts in areas like actuarial and underwriting respectively.   According to sites like Be an Actuary.org and DW Simpson a career in actuarial science is both lucrative and personally satisfying.  "US News and World Report, the Jobs Rated Almanac, CNN Money, and others all agree: few other occupations offer the combination of benefits that an actuarial career can offer."
  • For those individuals who want to experience all aspects of the industry as well as continue to learn about other industries, businesses, and be more social in their day to day job - Underwriting is a great career path.  Some of the skills required for underwriting include passionate readers, learners, inquisitive individuals, and those who have diverse life experiences. 
  • There are also opportunities and career paths for individuals with passion towards marketing, legal, sales, management, claims, etc.  An individual could work for a claims organization, insurance carrier, insurance broker/agent, reinsurance carrier, reinsurance broker, or even a reinsurer that insurers reinsurers.  
  • Travel - There are insurance and reinsurance hubs all over the world, in New York, London, Zurich, Bermuda, and outside these major hubs there is opportunity to travel across the globe.   
  • Diversity - The insurance industry like most industries experience success when embracing diversity of thought, diversity of individuals, and diversity in risks.   
We have thoughts and tips on How to Break into the Insurance Industry.



Hilary Clinton: 2016 Presidential Election and Insurance industry

An industry known for conservative and historic traditions, may have to consider conservative politics as well, as one of its major hubs is under attack from the leading Democratic candidate.



As reported by Business Insurance, Hilary Clinton recently announced in her tax proposal, ending the "Bermuda Tax loophole".  Politics aside, it is the benefits of this tax policy that allows foreign capital to come to the US through countries like Bermuda and diversifies the risk.  Should all of the US risks be insured by US companies we would lose the diversification benefits associated and large economic and natural disasters could all be borne by the US economy.

Some critics of this attack, claim it is Clinton's domestic insurance donors that are supporting this protectionist policy.

The current tax policy helps attract capital, as well as maintains lower costs to consumers.  In an environment where loss costs are increasing, health care costs are increasing, severity is rising and decreasing margins, there is only so much left in an Insurance dollar that an insurer or reinsurer can they approach their respective cost of capital.

However, there are some new entrants into the market that have been called into question the intent of their interest in reinsurance.  According to Bloomberg, "Ordinarily, hedge fund investors pay either the 39.6 percent rate for ordinary income on their profits or the 20 percent long-term capital gains rate, depending on how frequently securities are traded.. If they put money into a Bermuda-based reinsurer and have it invested in the hedge funds, any profits go to the reinsurer, which doesn’t owe tax on them. That allows the investors to defer taxes until they sell their stake in the reinsurer. Meanwhile, the money grows tax-free and the savings add up. Investing $100 million in a hedge fund that returns 10 percent annually for five years and paying the top marginal ordinary income rate on profits results in an after-tax gain of $50 million. If a Bermuda reinsurer holds the same investment, the gain is $77 million."

As with any industry there can be players that stretch the letter of the law, but to attack "active" law abiding Bermuda insurance companies could be a costly proposal to consumers and businesses.

More about this issue to follow as we get closer to the election.

Wednesday, January 27, 2016

Shorting Catastrophe Bonds

Catastrophe Bonds are a way for insurers to access capital and secure a portfolio of risk.  Insurers spread their risk to other investors by securitizing the potential obligations to pay out in the form of the CAT bonds. Investors receive a slice of the premiums through coupons, but these bonds' value is decreased in the event of a pay out by the insurer.  There are various triggers and duration of these bonds depending on the underlying business.

Investors are more comfortable with this asset class.  Investor comfort level is signified through the increased duration in the market, according to Artemis.

We are seeing an increased appetite from investors. According to Artemis, we have seen increased demand from the secondary market and investors looking to continue to rollover capital into these securities.  "The catastrophe bond market reached a new high at the end of 2015, with the level of issuance during the year outstripping a record high level of maturities, resulting in the market reaching the end of the year with cat bonds on-risk standing at an all-time high, according to Aon Securities."

We have had an unique period of low Catastrophe loss experience in the recent years, coupled with low interest rate environment which we believe is driving the demand and decreasing spreads.

In these situations we are reminded of the following quote:

  • "Whenever you find yourself on the side of the majority, it is time to pause and reflect" - Mark Twain

With duration of these bonds reaching a 7 year high (~3.61 years)  and spreads over expected losses continuously decreasing, it may present an opportunity for contrarian trading strategy - i.e. shorting individual CAT bonds.

Investors opting to short these securities have to hold their position during the quiet Catastrophe periods but as soon as there is a hint of an event, the price of these bonds can start to drop rapidly as the potential payouts can be multiples of the initial investment (i.e. 6 to 1, depending on the coupon and when the event occurs).  Others have discussed this strategy back in 2011 for example Roger Pielke, Jr.

Valuation of the individual securities is in the eye of the beholder but we ask the following:

  • The question remains what is the value of a CAT bond with no coupon due to loss activity and principle potentially going to pay losses?

Predicting a reversion to the mean of hurricane/CAT activity is a difficult position and a short can be costly when there is a non-event year but as we know, anything can happen with Mother Nature.




Zika Virus and pandemic risks in 2016

We said goodbye to 2015 which had some highs and lows and rang in 2016....Happy New Year!! Unfortunately 2016 is starting off with turmoil in the equity & oil markets, ongoing Flint, Michigan water crisis, Presidential political debates and the Zika Virus.

The Zika Virus presents some recent scare in the media as to how fast and how quickly it can be transmitted.  The number of cases year over year have increased significantly.  We are not here to agree or disagree about whether Zika should be classified as a pandemic.



According to Lloyd's, some have argued historical pandemic impacts would be reduced if they were to recur today. We have:
• Better drugs
• Coordinated response
• Influenza models
• Better communication methods
• Overall Healthier population

However there are counter arguments that suggest the impact could be worse now than in the past:

• Goods, Materials, and Services are traded on a global scale,
• Global travel is greater
• Larger population
• More concentration in cities
• Large pools of sick people

Of course a key factor on the impact of a pandemic is the strength of the pathogen itself: how easily it is spread, how infectious and what the case mortality rate is.

Pandemics may be inevitable and the economic impacts may be significant, but lets not forget the impact of a concentrated risk can have on a region even if its not a "true" pandemic spreading worldwide, just remaining in a local region.

Business will be interrupted, supply chain issues, property may be at risk, resources may become unavailable, home prices decline in the region, and economic loss potential is present.

Therefore, an opportunity for insurance...or to add protection...

Blood in the Water? AIG property/casualty units downgraded to A2 by Moody's



The sharks are in the water...AIG is being attacked on all sides... by activist investors (Carl Icahn), by Moody's, who's next??



AIG has recently been planning restructuring plans to spin off its Mortgage Insurance unit to fend off some of the attacks but this news is related to other results.  According to Business Insurance, “The downgrade of AIG’s main P&C units reflects persistent adverse loss development and weak underwriting results plus the ongoing challenge of setting reserves for long-tail casualty lines,” said Bruce Ballentine, Moody’s lead analyst for AIG, in the announcement.  Moody’s noted that AIG took a $3.6 billion charge to strengthen its property/casualty loss reserves, effective in the fourth quarter of 2015, “continuing a history of reserve problems that included charges totaling about $7 billion in 2009-10.”

Will insured's and employees continue to see AIG as long term partner or swim for the shores?

The AIG stock is down 2% on the day.

5 Steps in the Risk Management process

Life is full of risk.   Personal risks, business risks, missed opportunities, etc.  Even living in a bubble has risk associated with it.

Understanding risk is one of the main benefits of the broker or agent model, these professionals provide a perspective and experience that an individuals or businesses doesn't always have, since their mind and time is spent in areas outside of Insurance and/or Risk management (for example growing their business or spending time with family).  The focus and experience of this insurance professional have many benefits, but one is that the broker or agent understands the detailed steps of the risk management process.

There are five steps in the risk management process...

  1. Identify loss exposures
    • An example includes establishing property or liability exposures that individuals or businesses are exposed.  
  2. Review these exposures
    • Estimate the significance of these exposures, essentially figuring out a cost and likelihood of a loss occurring.   How much would an accident cost? how often would it occur? 
  3. Explore risk financing or risk control techniques
    • These can be examples such as insurance (risk financing) or avoiding certain activities or risks (risk control).  There are additional risk financing and risk control techniques to explore, these are only 2 examples. 
  4. Select the appropriate technique
    • Then its up to the individual or business to select the most appropriate technique for them.  The costs or opportunity costs must be weighed carefully.   If insurance is relatively cheap compared to the risk control measure costs, its a valuable product.  
  5. Monitor the results and revisit. 
    • The selections should be reviewed regularly, exposures can change as well as the best available techniques can change. 
Individuals and businesses should be reviewing these steps with their broker or agent on a regular basis.  Your agent or broker may provide checklist or questionnaires that focus your attention on common loss exposures, and will provide solutions to address your needs.  

Everyone can spend time thinking about the things in life you want to protect or areas of your business at risk, and the principles above can be applied to determine your best approach, however, it is still good to get the advice of a professional.  

How to Buy Insurance??

This is a difficult question and not a one-size fits all approach.  The answers can vary depending on the risks and risk tolerance of the buyer, the product purchased, if an individual or business is asking the question, etc.  For example, there are a variety of direct to consumer, phone or online approaches for personal lines carriers and if you are a business there are very similar channels to buy insurance.  But the longstanding buying habits for personal lines and commercial insurance have traditionally been through a broker or agent.

However, buying insurance may change over the next few years....Usage based insurance, Peer to peer insurance, etc. are all being addressed and discussed by websites like Insurance Thought Leadership.

In the new age of disruption, new competition is entering the Insurance Sector to "disrupt" the traditional role of an insurance broker.  At Bankrate.com they have addressed the topic under the heading "Will Lemonade be the Uber of Insurance?" Although we belief this is a powerful idea, presents opportunity for some disruption and the insurance industry is in desperate need of technology improvements, we suspect there will still be room for the traditional model as well.

  • There is nothing new under the sun.  This peer to peer model isn't new and is somewhat similar to the group captive model, which is far more established and requires brokers or advisers to source and evaluate risk.   
  • Technology platforms will need to work with regulators to ensure the appropriate capital behind the risks they insure.  The 3 to 1 premium to surplus ratio has been a longstanding guideline for ratings.  
  • Acquiring scale in this platform is going to require multiple channels, possibly requiring broker channel.
  • Automated and self driving vehicles may move the liability associated with auto usage to the product manufacturer and away from the individuals
  • Most individuals don't view insurance as a product to take risks with especially when it comes to self-insurance, more often than not, its a topic they don't have a strong understanding and it protects their most valuable assets (i.e. home, car, jewelry, health)
For the time being, we still support the traditional channel - but recognize even the best of companies and sectors don't stay insulated forever in this new age of technology.   There is obviously much more to be discussed about this topic as we anticipate future innovators entering the insurance space.  We are excited to report will be updating/adding to this topic regularly.

The goal of this blog....

Insurance Shark is a blue-ocean for info about the Insurance and Reinsurance Industry, topics range from emerging risks for Property & Casualty both personal & commercial insurance to Life and Health insurance topics, we will address underwriting, finance, accounting, mergers and acquisitions, industry and market trends and the interaction of the insurance industry with the capital markets.

This blog is directed at consumers & non-industry insiders as well as Insurance industry insiders as a resource to maximize returns and find strategies to efficiently use their capital & avoid “Red Ocean” strategies.  

For the insurance industry insider, we will cover insurance industry news, events, announcements, company news and investors’ briefings, innovations, products and services.  

For the consumer, we will address topics like risk management, risk financing, strategy, how to buy insurance and the basics around understanding and quantifying risk.  As we advance, we will have product recommendations for the consumer and direct links to products or consultants/brokers who can advise the business or individual on the best risk management strategies. The goal of this blog is to inform individuals and business about insurance products and services, about the insurance industry, decipher the insurance language, and discuss news and events in the industry...you may occasionally see some posts around personal finance and occasional investment analysis as the topics sometimes overlap.