I hope everybody had a happy Thanksgiving.
Today I was reading one of a number of insurance industry email newsletters that come daily. It's the modern way to keep up with what's going on. One particular article caught my attention and relates back in an interesting way to our ongoing discussion of the Long Island homeowners insurance situation.
The article says that a new company is rolling out a big car insurance program across the country in something like 35 states including New York. But the auto insurance market in NY is, if anything, super competitive and super saturated. The big direct writers and one-company-agent companies have long held most of that market and so they are battling it out for the most part amongst themselves. '35% Savings' and 'New Low Rates' are all over the place.
But there is so much money to be made on car insurance overall that new companies continue to want to enter the fray. It's very good for consumers because the competition keeps prices low and service levels high.
So what does this have to do with homeowners insurance on Long Island, you may well ask. Well, I did too. So I went to the new company's web site and looked around. There was the car insurance product, branded under their name. Then when I looked at the homeowners insurance page, a different link showed up in the sidebar. It said 'view a list of the 40+ insurance companies we represent'. A very impressive statement, but it doesn't show up on the auto insurance page at all.
Why? Because like GEICO and Progressive and AIG and any number of 'auto only' programs, this new company doesn't want to get involved with property insurance except as a selling agent or broker! Yes, auto insurance is profitable right now. But more importantly, car insurance is homogeneous across the country. There are variations in state law, but for the most part, it's something the insurance carriers can work with.
But since 9-11 and Katrina, insurers have begun to realize that HUGE amounts of property in the form of homes and businesses can be wiped out in one event, and that those events can actually occur. The industry was able to pay for Katrina but what about here, with our row upon row of million dollar homes?
So part of the key to solving the Long Island homeowners insurance issue in the short run is diversification, spreading it out to more companies. In the longer run, there are other possibilities including government backstops, all-peril insurance policies, catastrophe bonding, and some exotic financial instruments that are beyond the scope of this blog (meaning I don't understand some of them either)
More to certainly come. Next: What's happening in Flood Insurance.
Tuesday, November 28, 2006
Saturday, November 4, 2006
Mild Hurricane Season Brings Record Insurance Profits
The past few weeks have brought third quarter earnings reports from some of the major insurance carriers, and it's been interesting. As has been discussed here during our articles about the homeowners insurance situation here on Long Island and elsewhere along the coast, insurance carriers spent the last year and a half goint into a very conservative mode, cutting back on their coastal property risk (by cancelling policies in the case of Allstate, Encompass, Vesta Shelby and others) and raising prices.
What has happened is that this ended up being one of the mildest seasons in years for catastrophes such as hurricanes, and so we are seeing reports in the newspapers and financial publications that the companies are showing record profits. Sort of like what happened to the oil companies whe prices rose a few months back.
Unfortunately, and maybe rightly so, these record profits will, if the industry is not very careful, create a public relations nightmare. While they are canceling policies and restricting coverages, crying that they need to protect themselves from catastrophe risk, the idea that their shareholders are making tons of money does not seem to be in the best public interest.
In addition, they are not encouraged by tax laws to put this money away for possible future losses, as would seem to make sense. Unfortunately insurance carriers are not allowed to set aside money on a tax-deferred basis for future losses. And we all know that savings, whether it's your personal IRA or other retirement plan, or planning for catastrophes, is driven by the tax code.
One of the parts of the overall future plans to help insurance carriers and the public to deal with the problems in the homeowers and flood insurance areas will be the ability to put money away on a tax-deferred basis to cover possible future losses. This will apply to both insurance carriers and insurance customers.
For the carriers, they would then be able to take some of these record profits and put them away for the inevitable bad year. Unfortunately Congress could not get agreement on this quickly enough to help with the current profits, which would have made for a great opportunity to get started.
This sort of thing will help consumers as well. Right now in the Long Island homeowners insurance market, most people anywhere near the water (and we're talking 3-5 miles here, which includes most of the island) face a deductible on their home insurance policy of anywhere from $5,000 to $20,000 or more. (Most deductibles are in the form of a percentage of the coverage on your house - if you don't understand your coverage, please ask your agent or visit our web site at www.NYInsuranceWithService.com for contact info and we will explain it to you at no cost or obligation) . One proposal currently being reviewed would allow people to set up tax-deferred savings accounts, similar to an IRA, that would be used to cover that deductible in the event a major storm struck.
As always, for more info please visit our site and/or contact us. Insurance is one of those areas that the public needs to educate itself, because your policy these days can come back to bite you at the time you need it most.
What has happened is that this ended up being one of the mildest seasons in years for catastrophes such as hurricanes, and so we are seeing reports in the newspapers and financial publications that the companies are showing record profits. Sort of like what happened to the oil companies whe prices rose a few months back.
Unfortunately, and maybe rightly so, these record profits will, if the industry is not very careful, create a public relations nightmare. While they are canceling policies and restricting coverages, crying that they need to protect themselves from catastrophe risk, the idea that their shareholders are making tons of money does not seem to be in the best public interest.
In addition, they are not encouraged by tax laws to put this money away for possible future losses, as would seem to make sense. Unfortunately insurance carriers are not allowed to set aside money on a tax-deferred basis for future losses. And we all know that savings, whether it's your personal IRA or other retirement plan, or planning for catastrophes, is driven by the tax code.
One of the parts of the overall future plans to help insurance carriers and the public to deal with the problems in the homeowers and flood insurance areas will be the ability to put money away on a tax-deferred basis to cover possible future losses. This will apply to both insurance carriers and insurance customers.
For the carriers, they would then be able to take some of these record profits and put them away for the inevitable bad year. Unfortunately Congress could not get agreement on this quickly enough to help with the current profits, which would have made for a great opportunity to get started.
This sort of thing will help consumers as well. Right now in the Long Island homeowners insurance market, most people anywhere near the water (and we're talking 3-5 miles here, which includes most of the island) face a deductible on their home insurance policy of anywhere from $5,000 to $20,000 or more. (Most deductibles are in the form of a percentage of the coverage on your house - if you don't understand your coverage, please ask your agent or visit our web site at www.NYInsuranceWithService.com for contact info and we will explain it to you at no cost or obligation) . One proposal currently being reviewed would allow people to set up tax-deferred savings accounts, similar to an IRA, that would be used to cover that deductible in the event a major storm struck.
As always, for more info please visit our site and/or contact us. Insurance is one of those areas that the public needs to educate itself, because your policy these days can come back to bite you at the time you need it most.
Saturday, October 14, 2006
Mommy, Where Do Insurance Companies Come From?
Hi All. Sorry for the long break between posts. I was away for five days at the annual Rotary International Northeastern U.S. conference, and another five wonderful days visiting Mickey and friends in Florida. Nice to get away but somehow life keeps happening behind your back and likes to spring on you when you come home.
In any event, I thought it would be interesting to write a little about the origins of insurance in general, and homeowners insurance in particular. A lot of people tend to think of insurance as one of those pain-in-the-neck things that the State or their bank makes them buy, but the truth is that a lot of the things we like so much, ownership of property being a big one, driving a car another, would be impossible without some mechanism to spread the risk.
A couple of thousand years ago, people lived in mostly small huts that could be rebuilt with a neighbor's help in a couple of days. And if you lived in a big house, you probably had plenty of money, and slaves to do the re-building if there was a fire or other damage. The concept of insuring something of value started with seagoing trade between nations and continents, and so the field of Marine Insurance was born. Marine insurance is the oldest and probably most interesting of all insurance. It continues today both in the Ocean Marine type as well as Inland Marine which is used to write everything from giant cranes and bulldozers to your diamond engagement ring insured on a rider to your homeowners insurance policy.
Back in the early days of shipping trade along the Mediterranean Sea (thing Ancient Greece), ships started to bring gold, spices, silks, and lots of other interesting stuff from foreign ports of call back to sell in their home areas. After a while, the value of the cargoes carried got so high that the ship owner/captain could not afford the risk to the cargo. Although standard shipping rules even in those days did not make the captain responsible for all losses, even if he was not held accountable, he still might lose all the revenue from the sale of a lost cargo, and that could put him out of business and land him in debtor's prison.
So someone came up with the idea that wealthy merchants could absorb all or a part of the loss that might happen from certain agreed-upon perils such as storm loss, stranding, barratry (fraudulent acts of the captain or crew) or other 'perils of the sea'. In return for their promise to pay a certain amount to the owner of the cargo in case of loss, they received a payment from the owner called a 'premium'.
This would be done at the local taverns down near the seaports. A captain would post on a board that he was bringing a certain amount of such and such cargo from a named place, and local merchants and others would write their names under the posting including the amount of risk they were willing to accept. This is the direct beginning of the term 'underwriter', and in a broad way is still the way insurance is transacted by Lloyd's of London, the most famous insurer in the world.
For instance, if someone wants to insure the legs of a famous movie star for $10,000,000, it is presented to Lloyd's or another similar company (Lloyds is actually a group of many syndicated made up of people and organizations with money they would like to invest in this type of insurance). One or more syndicates will step forward and offer to accept all or part of the risk for a certain premium that they calculate.
The people who calculate what rates to charge for insurance are called actuaries, and are some of the best math and accounting people on the planet. They make or break the success of insurance companies, and the good ones are very highly paid for their efforts.
More next time. Meanwhile, for more info visit our site at www.NYInsuranceWithService.com
In any event, I thought it would be interesting to write a little about the origins of insurance in general, and homeowners insurance in particular. A lot of people tend to think of insurance as one of those pain-in-the-neck things that the State or their bank makes them buy, but the truth is that a lot of the things we like so much, ownership of property being a big one, driving a car another, would be impossible without some mechanism to spread the risk.
A couple of thousand years ago, people lived in mostly small huts that could be rebuilt with a neighbor's help in a couple of days. And if you lived in a big house, you probably had plenty of money, and slaves to do the re-building if there was a fire or other damage. The concept of insuring something of value started with seagoing trade between nations and continents, and so the field of Marine Insurance was born. Marine insurance is the oldest and probably most interesting of all insurance. It continues today both in the Ocean Marine type as well as Inland Marine which is used to write everything from giant cranes and bulldozers to your diamond engagement ring insured on a rider to your homeowners insurance policy.
Back in the early days of shipping trade along the Mediterranean Sea (thing Ancient Greece), ships started to bring gold, spices, silks, and lots of other interesting stuff from foreign ports of call back to sell in their home areas. After a while, the value of the cargoes carried got so high that the ship owner/captain could not afford the risk to the cargo. Although standard shipping rules even in those days did not make the captain responsible for all losses, even if he was not held accountable, he still might lose all the revenue from the sale of a lost cargo, and that could put him out of business and land him in debtor's prison.
So someone came up with the idea that wealthy merchants could absorb all or a part of the loss that might happen from certain agreed-upon perils such as storm loss, stranding, barratry (fraudulent acts of the captain or crew) or other 'perils of the sea'. In return for their promise to pay a certain amount to the owner of the cargo in case of loss, they received a payment from the owner called a 'premium'.
This would be done at the local taverns down near the seaports. A captain would post on a board that he was bringing a certain amount of such and such cargo from a named place, and local merchants and others would write their names under the posting including the amount of risk they were willing to accept. This is the direct beginning of the term 'underwriter', and in a broad way is still the way insurance is transacted by Lloyd's of London, the most famous insurer in the world.
For instance, if someone wants to insure the legs of a famous movie star for $10,000,000, it is presented to Lloyd's or another similar company (Lloyds is actually a group of many syndicated made up of people and organizations with money they would like to invest in this type of insurance). One or more syndicates will step forward and offer to accept all or part of the risk for a certain premium that they calculate.
The people who calculate what rates to charge for insurance are called actuaries, and are some of the best math and accounting people on the planet. They make or break the success of insurance companies, and the good ones are very highly paid for their efforts.
More next time. Meanwhile, for more info visit our site at www.NYInsuranceWithService.com
Saturday, September 23, 2006
Long Island Homeowners and Flood Insurance Issues, Continued
It's been a few weeks since I had a chance to write a post. Mostly it's because we have been renovating my office. We have had two or three work crews at a time here daily. Now it's getting down to the trim and painting, so it's just a little slower. You can see pictures of how it's coming out at my other blog, www.aroundbabylon.com.
Anyway, my being busy has not stopped things from happening in the Long Island homeowners insurance and flood insurance market. Since I last wrote, several more companies, some of them fairly large players, have either announced that they will no longer be writing homeowners insurance either here on Long Island or, in some cases, in New York State.
Part of the problem is that here on Long Island is where the largest concentration of high valued homes exists. So many companies tried to write lots of business here to increase their cash flow, but are now in panic mode because after seeing what happened with hurricane Katrina, they now realize that they have a big exposure here that is not offset by customers in other areas that are not subject to 'coastal' issues.
For instance, it's not that people in upstate New York never have claims. And they DO have 'catastrophic' claims using the insurance meaning, which refers to something that affects a lot of people all at once, as opposed to a fire at someone's house, which might melt some siding on the house next to it, but generally does not affect a whole area.
In some upstate counties, for instance, they can have major ice storms that damage a lot of houses. But it's still not nearly the same as here on Long Island, because the houses tend to be much further apart (less concentrated) in most upstate areas, and the values are lower. As we all know, a house that sells for $450,000 here can still be had for $200,000 in most other parts of the country, maybe even less in some.
Interestingly, some of these areas that you would not expect have flood issues as well. Newsday a couple of weeks ago had an article about a number of people who live in Pennsylvania, along the Delaware river, just 'downstream' from the reservoir system that provides water to New York City. It seems that because of droughts that have occurred in the past few years, the water people now try to keep the reservoirs at 100% of capacity. But the flip side of that is when it rains a lot, BILLIONS of gallons of water overflow the reservoirs and have been creating flooding problems along the Delaware river!
There are a lot of post-Katrina changes coming to the Federal Flood Insurance program through FEMA, and some of them won't be pleasant for those living in primary and secondary flood hazard areas. More to follow on that, but in the meantime if you have questions, you can contact us through our web site at www.FloodInsuranceNY.com
Anyway, my being busy has not stopped things from happening in the Long Island homeowners insurance and flood insurance market. Since I last wrote, several more companies, some of them fairly large players, have either announced that they will no longer be writing homeowners insurance either here on Long Island or, in some cases, in New York State.
Part of the problem is that here on Long Island is where the largest concentration of high valued homes exists. So many companies tried to write lots of business here to increase their cash flow, but are now in panic mode because after seeing what happened with hurricane Katrina, they now realize that they have a big exposure here that is not offset by customers in other areas that are not subject to 'coastal' issues.
For instance, it's not that people in upstate New York never have claims. And they DO have 'catastrophic' claims using the insurance meaning, which refers to something that affects a lot of people all at once, as opposed to a fire at someone's house, which might melt some siding on the house next to it, but generally does not affect a whole area.
In some upstate counties, for instance, they can have major ice storms that damage a lot of houses. But it's still not nearly the same as here on Long Island, because the houses tend to be much further apart (less concentrated) in most upstate areas, and the values are lower. As we all know, a house that sells for $450,000 here can still be had for $200,000 in most other parts of the country, maybe even less in some.
Interestingly, some of these areas that you would not expect have flood issues as well. Newsday a couple of weeks ago had an article about a number of people who live in Pennsylvania, along the Delaware river, just 'downstream' from the reservoir system that provides water to New York City. It seems that because of droughts that have occurred in the past few years, the water people now try to keep the reservoirs at 100% of capacity. But the flip side of that is when it rains a lot, BILLIONS of gallons of water overflow the reservoirs and have been creating flooding problems along the Delaware river!
There are a lot of post-Katrina changes coming to the Federal Flood Insurance program through FEMA, and some of them won't be pleasant for those living in primary and secondary flood hazard areas. More to follow on that, but in the meantime if you have questions, you can contact us through our web site at www.FloodInsuranceNY.com
Tuesday, September 19, 2006
1001 SECRET FISHING HOLES
1001 SECRET FISHING HOLES,
1. over 34 million people went fishing
2. they fished an average of 16 days per participant and spent an average $1,046 each
3. overall, anglers spent $14.7 billion in 2001 for fishing trips, $17 billion on equipment, and $4 billion for licenses, stamps, tags, land leasing and ownership, membership dues and contributions, and magazines.... 1001 SECRET FISHING HOLES
- HUNDREDS OF NATIONAL PARKS
- HUNDREDS OF WILDLIFE REFUGES
- OVER A 1000 LAKES & HISTORICAL TRAILS
1. over 34 million people went fishing
2. they fished an average of 16 days per participant and spent an average $1,046 each
3. overall, anglers spent $14.7 billion in 2001 for fishing trips, $17 billion on equipment, and $4 billion for licenses, stamps, tags, land leasing and ownership, membership dues and contributions, and magazines.... 1001 SECRET FISHING HOLES
1001 SECRET FISHING HOLES
1001 SECRET FISHING HOLES,
1. over 34 million people went fishing
2. they fished an average of 16 days per participant and spent an average $1,046 each
3. overall, anglers spent $14.7 billion in 2001 for fishing trips, $17 billion on equipment, and $4 billion for licenses, stamps, tags, land leasing and ownership, membership dues and contributions, and magazines.... 1001 SECRET FISHING HOLES
- HUNDREDS OF NATIONAL PARKS
- HUNDREDS OF WILDLIFE REFUGES
- OVER A 1000 LAKES & HISTORICAL TRAILS
1. over 34 million people went fishing
2. they fished an average of 16 days per participant and spent an average $1,046 each
3. overall, anglers spent $14.7 billion in 2001 for fishing trips, $17 billion on equipment, and $4 billion for licenses, stamps, tags, land leasing and ownership, membership dues and contributions, and magazines.... 1001 SECRET FISHING HOLES
Sunday, September 10, 2006
Buddy Walk - Down's Syndrome of Louisville
Buddy Walk 2006 Down's Synrome of Louisville
Downs Syndrome of Louisville Buddy Walk.
National Down's Syndrome Society
Downs Syndrome of Louisville Buddy Walk.
About Downs Syndrome of Louisville (from their website)The 5k walk on Watefront Park actually starts at 9:45 am, registration for the walk is at 8:30 am. BUDDY WALK REGISTRATION
"Down Syndrome of Louisville, Inc. (DSL) is a non-profit organization formed in 1991 by a group of parents of children with Down Syndrome. The group originated as a parent support group of the Early Education Funding Program for children with Down Syndrome. In January 1993 this group merged with Down Syndrome of Louisville, Inc. Our organization is dedicated to educating the community on the positive values of persons with Down Syndrome...... About
National Down's Syndrome Society
If you would like to help us support the Buddy Walk, please call us
at 502-245-3625.
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