Industry experts say the increases are due to two main reasons – catastrophe claims and insurance fraud, primarily roofing scams.  2011 had more federal disaster declarations than any other year in history, which has severely taxed insurance companies’ reserves.  For every $1.00 paid in premium, insurance companies are paying out $1.085 in claims.  Reinsurance prices have also been on the rise, forcing insurance companies to pass on this expense to consumers.

Coupled with the trend of rising insurance prices, is the fact that home prices in Atlanta just reached their lowest point since 1998.  Many people are stuck in homes they cannot afford to sell, and are having trouble purchasing insurance. 

What do you think the solution is?  Should insurance companies be capped at how much they can raise their rates in any given year?  Should they be able to deny coverage renewal to current clients that have never filed a claim?  Should the government step in and subsidize insurance for homeowners that can no longer afford their insurance?

If you are going to be in Charleston, let us know — we’d like to say hello.

IAIS, the world’s largest group of insurance regulators and supervisors, said the 2008 and 2009 financial crisis showed that “in general, the insurance business model enabled the majority of insurers to withstand the financial crisis better than other financial institutions.”  The IAIS said that insurance underwriting risks are, “in general, not correlated with the economic business cycle and financial market risks and that the magnitude of insurance liabilities are, in very broad terms, not affected by financial market losses.”

However, the financial crisis revealed that insurance groups and conglomerates operating in traditional lines of business may suffer considerable distress and become globally systemically important when they expand significantly in non-traditional and non-insurance activities.  The paper describes how insurance groups and conglomerates that engage in non-traditional or non-insurance activities are more vulnerable to financial market developments and thus more likely to amplify, or contribute to, systemic risk. Examples of such non-traditional and non-insurance activities include credit default swaps transactions for non-hedging purposes or leveraging assets to enhance investment returns.

The IAIS findings echo comments from individual insurers and insurance groups who have been saying that insurers shouldn’t be lumped together with banks, especially at a time when financial industry regulations are being revised following the global financial crisis.  Peter Braumüeller, chairman of IAIS’s Financial Stability Committee, noted: “Based on information analyzed to date, for most lines of business there is little evidence that traditional insurance generates or amplifies systemic risk within the financial system or the real economy.  However, supervisors need to monitor very closely those insurance activities that deviate from the traditional insurance model.”

What are your thoughts on the insurance industry’s contribution to global systemic risk?

More Information

A recent article posted by the Insurance Journal takes a look at the potential usefulness and challenges related to using social network data as an indicator for pricing premiums.  According to the article, sifting through social network pages is already a common practice in helping to identify potentially fraudulent claims, thus emphasizing that you should always be careful what comments, photos, or other details you post on the Internet.  And to take it further, just as insurers are becoming more responsive to the connection between an insured’s credit score and their potential risk for loss, the connection between the activities you engage in online and your riskiness as an insured is starting to become a hot topic as well. 

The things that you communicate online via public forums, wall posts, activity and interest selections, status updates, etc. can be used by insurers to develop a risk profile based on your perceived lifestyle.  Not only can your own activities and posts be used, but insurers are developing a “social graph” that shows how individuals are connected with one another through friending, friends of friends, or followers on Twitter.  According to the article, these graphs can give information on how an insured may perform as a risk based on the behavior of the friends that he or she is connected to. 

“Privacy settings,” you say? Well, even if you feel like your online profiles are in constant lock-down, unable to be breached by even the most adamant of social network stalkers, you still may be in danger of relaying more information to others than you might think.  The article further details some ways that persons trying to gain access to information on your account go about doing so.  Do you have a Facebook friend that accepts the friendship of literally anyone who asks?  That could lead to a breach if you haven’t blocked access to your account through friends of friends.  Did you forget to block access to all photos in your profile, or are you tagged in photos on other friends’ accounts?  Oops, another potential breach.  If you think about it, the list of potential “Oops” just keeps growing.

There are definite obstacles that insurers face that will impede the speed-to-market of using social networking data in underwriting criteria.  Developing advanced data analysis techniques and methods for procuring and validating information are the first steps towards translating social data into an underwriting tool.  Also, one would have to imagine that passing these new underwriting rules through regulatory channels will be a challenge in itself.  There are also the questions related to the ethical and legal nature of extracting information about an insured without their express knowledge.  The article suggests that one way of dealing with the issue is to seek the permission of insureds to use their social data, and to even offer discounts if permission is granted.

What do you think?  Will companies use social data as part of their underwriting in the next three years as the article suggests?  What will you do and how will you feel if your insurance company begins examining your social networking sites to gain information on you as a risk?

M&A consultant Dave Shepherd will be representing the firm at this SOFE seminar.

The authors of the article describe a “bad faith setup” where a plaintiff (whether claimant or insured) makes a settlement offer with unreasonable deadlines or other technicalities that are difficult to meet.  Even though the insurer and insured agree to the settlement, the plaintiff withdraws the offer when the deadline or technicality is unmet.  Then, the plaintiff brings action against the insurer claiming bad faith, possibly turning a low limit policy into “limitless, court-ordered insurance.” 

The authors propose a revision to Florida statute requiring that the claimant make a timely & specific settlement demand, allow reasonable time for acceptance, identify the type of release it is willing to provide, and cooperate fully in submission of any supporting documents relevant to the case.  The claimant would also have to provide a reasonable showing by evidence establishing that it made a good faith effort to settle.

In the March, 2011 edition, Rutledge R. Liles argues that insurers can protect themselves from bad faith claims simply by doing what the statute compels them to do – act “reasonably in the discharge of the fiduciary duty they owe their policy holders.”  And, he argues, the proposed statutory revisions would eliminate the common law duty of good faith that insurers owe their insureds.  He cites Florida cases where courts ruled that failure to meet unreasonable deadlines or technicalities did not, in fact, constitute bad faith.

What do you think?  Is Florida, and the P&C industry in general, in the midst of a “bad faith crisis?”  Particularly given Florida’s climate of sinkholes, public adjusters, PIP abuse, and ever-changing regulation, do insurers need legislative protection from the “bad faith setup?” Let us know.

A recent article at the National Underwriter’s propertycasualty360.com urges insurers to begin exploring the possibilities that smartphone applications can bring to their company.  Reporting claims and making premium payments are just the beginning.  Imagine being able to take and upload pictures of a car accident scene before the police even arrive, or being able to record the other party’s insurance information in five easy steps.  Some companies allow their customers to photo and document personal property items in their home, and download receipts for big purchase items.  Proof of loss and claims adjusting could be streamlined with the touch of a few buttons.

The article also makes note of consumers’ expectations regarding the new app trend.  Recent generations are growing up surrounded by the digital age and will expect the products they consume to be growing digitally as well.  Pulling up a company’s current website via mobile phone no longer makes the cut for today’s tech-savvy population.  Customers will be looking for mobile applications that meet their on-the-go needs, and take messy and difficult to navigate sites and make them easily accessible and functional at a moment’s notice.  We are a fast-paced, on-the-move, touch-of-our-fingers society, and we are always looking for ways to improve on those things. 

Some may savor the days when we weren’t always so busy; when customer satisfaction meant face-to-face contact and personal assurance from a real, live company representative.  What do you think?  Will modernizing the insurance world into the mobile app age benefit customer relations?  Do you think insureds will eventually be more inclined to shop for a better app rather than a better rate?

• Ratemaking for personal lines of business, with primary focus on property insurance in Florida, Louisiana, and other coastal states.
• Preparation of competitive rate analyses;
• Development of funding studies for various captives and self-insured entities;
• Assistance on the development of actuarial reports and statements of opinion for various insurance companies, captives, and self-insured entities. 
• Aiding examinations of insurance companies for State Departments; and
• Reviewing rate filings for State Departments.

 Congratulations to Meg on her hard work and success!