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Dr. Jack Nordhaus – News of the Day

Latest insurance industry news, with commentary.

NEWS OF THE DAY December 6, 2013

Jack Nordhaus Jack Nordhaus , 12/6/2013
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“Difficulties break some men, but make others.” 

Nelson Mandela
Letter to Winnie Mandela from Robben Island, 1975


December 5, 2013 -

Commercial Property/Casualty insurance rates rose an average of 4% in November, Dallas-based electronic insurance exchange MarketScout reported Thursday.
Among lines of coverage tracked by MarketScout, commercial automobile experienced the largest increase at 5%. Commercial Property, General Liability and Workers Compensation registered increases of 4%, while crime and surety coverages posted the smallest increases at 1% each.
Manufacturing, contracting, and service accounts experienced the greatest increase at 5% each, while public entities had the smallest increase at 3%.
“The market is still on an upward trajectory, but rate increases are slowing,” said Richard Kerr, CEO of MarketScout, in a statement accompanying the report.



By Phil Gusman, 


December 4, 2013 

"He says he's not dead!"
(EMI Films/Python [Monty] Pictures)

The independent agency model still works.
Although direct-channel growth in Personal Auto has come at the expense of the Independent Agency channel, 12 of 18 Personal Lines insurers that have outperformed their peers in both growth and profitability during the past decade use the Independent Agency distribution channel either in whole or in part, according to a recent Conning report.
“The flexibility of the Independent Agency channel is well suited to the rapid growth of these companies,” Conning says in its report, “Growth and Profit Leaders in Personal Lines Insurance.”
The Conning statements come after a Nomura report and a study argued that the value added by independent agents is diminishing. The McKinsey report determined that “agents have neither the scale nor the operational efficiency to profitably sell a commodity.”
the Conning report does state that the strongest growth for Personal Lines has, in fact, been seen in the direct channel. But Conning notes that the most common channel for companies in its “growth and profit leader group” was the Independent Agency channel, adding that the channel allows small- and mid-sized insurers “to accommodate growth without requiring the large fixed-cost base of a direct-response organization.”
Challenging another common assumption, Conning says size is not the determining factor for profitability and growth in Personal Lines. “The most striking result of analyzing the companies composing our list of growth and profit leaders is the skew in the distribution of firms by size,” Conning notes. The report shows that 14 of its 18 growth and profit leaders had total Personal Lines premium volume of less than $500 million.
“Only four of the successful companies appear among the rankings of the top 25 writers in either auto or homeowners,” Conning adds.
Of course, Conning notes that, mathematically, it's more difficult for the largest companies to grow at the rapid pace of a successful small insurer, which in part explains the out-sized presence of smaller insurers. “For State Farm to grow at the same pace as the slowest-growing firm from our list would require the addition of $1.3 billion in new premium in a single year—the total premium volume of the 19th-largest personal-auto insurer,” Conning explains.
However, the firm contends that its list indicates that companies need not be big in order to excel. With the wave of consolidation in Personal Auto, Conning notes, “there’s a tendency to conclude that increasing size and scope are becoming requirements for success.”
Although that’s not the case, Conning finds that carriers do find success by specializing in a particular product or customer, calling such a focus the “most common feature” among its 18 growth and profit leaders. “The idea behind the niche approach is that insurers finding a better way to meet the needs of a particular segment, in a segment that has growth potential, stand to improve their odds for success.”
Conning also says a specialty or niche focus can lead to more customer loyalty, which helps improve retention, and, through a better understanding of customers, insurers can take a more targeted approach to customer acquisition, leading to a higher conversion rate.
Additionally, says Conning, “[T]he specialist can exercise an advantage in pricing—with a better picture of expected claim activity—leading to a loss-ratio advantage.”



by Julie Campbell

December 3, 2013

The research determined that Auto coverage has become more affordable for people of  all  income levels o=.
A recent study by the Insurance Research Council (IRC) has determined that Auto insurance has become more affordable for the last ten years, particularly for individuals within the lower and middle income ranges. 
Every state except for six experienced improvements in affordability from the 1990s to the 2000s.
Among all of the states and the District of Columbia there was increasing affordability observed in the auto insurance  figures from 2001 through 2005 and again from 2006 through 2010. Within the study, the IRC conducted an analysis of the data regarding coverage expenditures provided by the National Association of Insurance Commissioners, and compared them against U.S. Census Bureau income data. This allowed them to conduct measurements and tracking of changes in the affordability of these policies.
Auto insurance affordability was determined through a ratio of average spending to income levels.

To better comprehend the conditions and factors that could have had an impact on the affordability of the coverage, the IRC made use of a multivariate statistical model. The model indicated that the improvements in affordability for vehicle coverage were linked with greater competition within the market, reduced pricing regulation, smaller residual markets, a decreased rate of uninsured drivers, moderate injury compensation, and lower rates of unemployment.
According to the IRC director of research, Patrick Schmid, “There has been increased interest from policymakers and others regarding Auto insurance affordability during the past few years; and yet, little factual evidence has been brought to bear on the issue.” He went on to explain that this research has provided a way ito objectively measure the changes in the affordability of this coverage in each state..
The outcomes suggest that there have been improvements in this area, over the years, which can help to identify number of explanations for these lower Auto insurance rates, said Schmid.



by Rob Lieblein
Marsh, Berry

December 3, 2013.  

What did Lance Armstrong desire most during all those years in the spotlight? Certainly he wanted to be a winner. But there was something beyond the immediate gratification of the yellow jersey; and it’s something he has in common with many agency owners. Because of Armstrong’s steroid-abuse actions, the one thing he wanted the most — an enduring legacy — has been taken from him. if agency leaders don’t pay attention to their own legacy, history could show them a similar fate. There’s clearly a challenge for most independent agents with succession planning, so let’s talk about what you can do to help secure your legacy.
:A 2011 MarshBerry survey found that nearly 70% of agencies did not have a formal perpetuation plan in place. Other stats we track at MarshBerry are just as scary:
Average age of majority owner of stock: 58
Average percentage of the book of business controlled by producers over 50: 52% (compared to 38% for
        high-growth agencies)
Average weighted new business production by producers over 50: 47% (compared to 32% for high growth
Why do I point out these statistics? Because in the end, perpetuation is a process, not a transaction, and numbers don’t lie. It takes time to create a plan and process, driven by generating free cash flow, building a balance sheet, and hiring, training and mentoring young people. Often it takes five to ten years to prepare what you hope will be a successful perpetuation. Yet so many agency owners wake up one day thinking it’s  time to perpetuate — and then realize that they can’t. So they either watch the value of their agency diminish over time or sell to a third party.
What are the reasons and roadblocks to internal perpetuation? The 2011 survey by MarshBerry indicated these major obstacles to internal perpetuation:

1. Financial issues: 34%
2. No candidates: 19%
3. Risk-averse owners: 16%
4. Risk-averse candidates: 11%
5. Believe best deal is external: 11%
6. Lack of communication: 8%
'Hanging-on syndrome"
Just like the aging star athlete who won’t retire gracefully, the insurance industry is filled with aging owners who, despite their best intentions, refuse to transfer stock, retire or hand over leadership. The ego often creates this roadblock.
I’ve seen far too many examples of owners who hire the right talent, train and mentor them, all along giving them the promise “someday when you own the agency.” In the end, those words become hollow. When talented employees join an agency with the goal of one day owning and managing it, I feel that nothing destroys morale more than seeing the aging star athlete, in this case the owner, staying in the game despite declining skills, lack of intensity and, candidly, while it has all begun to pass them by.

‘Need the discipline’

The ability to perpetuate can often create a harsh reality: most agency owners view perpetuation as an event, rather than a continual process. This view leads to an external sale for many agencies that had dreamed of an internal perpetuation because the owner lacked the discipline to keep funds in the agency. To perpetuate internally, agencies need the discipline to:
1. Develop, execute and implement a long-term business plan related to perpetuation;
2. Continually reinvest in all staff personnel, not just production;
3. Build an internal market with realistic sellers and risk tolerant buyers;
4. Focus on financial metrics and best practices;
5. Operate the business like a business, not as a lifestyle firm;
6. Be willing to let go; and
7. Continually transfer stock



Workplace Safety Bulletin

December 2, 2013

The holidays are a great time of year, but they can also be stressful for many people. Help your employees enjoy the season with these stressbusting suggestions.
Fill in the blank: "It's the most ____________ time of the year."
Did you say "wonderful"? Or did you, like many people during the holidays, answer "stressful"?
It's true. Just when we're expected to feel joyful and uplifted, many of us feel stressed and unhappy. This stress contributes to poor productivity at work, increased susceptibility to illnesses that cause sick days, and potential long-term problems such weight gain and heart disease.
Fortunately, you can take steps during the holidays to reduce your workers' stress levels. Our suggestions will increase the odds that your workforce enters the new year with good health and attitudes. You might   not be able to use all of the suggestions – for example, giving workers extra time off might be absolutely impossible for employers that do much of their business during the holidays – but every little bit helps.

The stressor: Holiday parties. Many employees find the holiday party circuit stressful, and employers' holiday parties, while they may be expected, can contribute to this stress.

Stressbuster strategies: 
  • Schedule office parties during the workday. This way, workers don't need to take any extra time out of their schedule to attend, coordinate with their spouse's schedules, or worry about extra costs for parking or attire. 
  • Provide healthy food options. Food temptations for workers abound during the holidays. Even if you provide premium petit fours and delicious punch, offer such healthy options as fresh fruit and vegetable trays and sparkling water for employees who are trying not to overindulge.
  • Wait until after the holidays. Workers might be better able to appreciate awards ceremonies and other work-related events when things have slowed down
The stressor: Holiday expenses. It can take Americans six  months to pay off the extra expenses of the holidays. 
Stressbuster strategies:
  • Limit workplace gift expectations. Don't let it be expected that workers will exchange expensive gifts or provide gifts for many people on the job. Suggest holiday cards, inexpensive ornament exchanges, or other options that limit the funds workers feel they must spend on one another.]
  • Curb charity come-ons in the workplace. Although the holidays are a time when many people donate to charity, give workers the freedom to choose which charity they will contribute to, and discourage workers from hitting up each other on behalf of their favorites. You can also encourage nonmonetary charitable giving by giving workers time to volunteer.
  • Provide guidance. Use paycheck stuffers, office newsletters, and similar resources to offer  tips on controlling holiday spending and remind workers of ways to celebrate that don't involve money.
  • Offer extra income. Some workers want extra time off during the holidays; others might prefer opportunities to bring in some extra income. If your company offers bonuses, the holidays are a good time to distribute them. If workers consider extra shifts or overtime desirable, offer these if you can. 
The stressor: Time pressure. Your workers' personal time is probably packed with holiday-related outings and tasks. Family get-togethers, holiday concerts, children's activities, volunteer activities, extra shopping, and cooking all mean that workers might feel of time pressure.

Stressbuster strategies:
  • Allow flexible scheduling. If your workplace offers flexible scheduling this can be a real stressbuster. Can employees come in early or work late to take time off for outside activities? Can you offer workers a day off to do their holiday shopping? Can workers telecommute during the holidays to reduce their travel time, leaving them a few extra hours in the week for other things?
  • Ease up on deadlines. Plan ahead so fewer deadlines fall in December and  these deadlines don't fall during the week of a worker's holiday observance (bear in mind that this time will vary among your workforce).
  • Be as fair as you can. In some jobs, somebody has to work on the holiday. People in these fields know that they’ll  have to work some holidays, but they can feel oppressed if they must work every holiday. Juggle  schedules so the folks who work Thanksgiving don't end up also working on Christmas and New Year's.