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