“It’s what they don’t tell you that matters.” The person, an esteemed expert, who emailed me this quote was referring to insurance company shenanigans, illusory coverage, and maybe fraud. The easiest analogy is E&O (errors and omissions/professional liability). Most E&O classes cover errors, mistakes that agents make (do you ever wonder why the policies are professional liability policies but in E&O classes instructors advise agents to never classify themselves as professiona

Recently, I’ve come across many instances of agencies binding coverage without realizing they do not have the authority or they do not even realize they are binding coverage. First things first. What is a binder? I find that only a small minority of people whom I ask, know the correct answer. As the formal issuance of binders has dwindled to almost zero, people have lost the knowledge of what a binder is. A binder, simplistically, is a short-term insurance policy. IT IS AN IN

The last couple of years have seen the first true hard market since the 1980’s. We had a few minor events in the ‘90’s and the 2001-2002 “hard” market was simply fortuitous timing for some carriers to cover up the losses they had been hiding in their insufficient reserves. For example, if you review the subsequent reserve changes, you’ll see that reserve deficiencies in specific lines were far larger than initially and, for all practicality, publicly recognized. This long his

Based on what’s happening in claims and the way rates are rapidly increasing, no one would ever think insurance companies are charities. They might think they are cheats, voracious capitalists, necessary plagues, and those are the nicer terms. But the best insurance companies are run more efficiently than a great many charities. I began thinking about this when I realized that some insurance companies are running on 15-16 cents. Out of every premium dollar, after subtracting

Sometimes I just have to find some humor. Have you ever wondered if some material percentage of insurance executives attended a Monty Python marathon and left thinking they had a attended a management training program? If you Google, “Monty Python management training course” you will see somewhere near 2.2 million results! So maybe it’s possible and based on the ridiculous statements I’ve been seeing, I’d say this conclusion is almost guaranteed! For proof, consider their fam

An analysis of a U.S. intelligence operation failure concluded a key cause of that failure was, "We all have this tendency to look for information that confirms our beliefs and to ignore what conflicts with them. It's very hard to give somebody information he doesn't want to hear, and the more senior they are, the worse it is." --Peter Sichel This is another way of saying, "Don't tell the emperor they are not wearing any clothes." The insurance industry is at the cusp of dram

Socialism involves minimizing the value of merit. In the world of insurance, where is the value of performance if every single agency gets exactly the same commission rate regardless of merit? Historically carriers partially mitigated their socialistic commission schedules with profit sharing. But today, with so much aggregation, whether through networks or acquisitions, distributor books are so large that statistically, their loss ratios should mimic the carriers' loss ratio

What does it really mean when a carrier says they need to increase rates by so much? Let me translate: It means they screwed up. They either need better actuaries or, assuming the actuaries made the appropriate rate recommendations in the preceding three years, their management team needs to listen to the actuaries. The fact is someone screwed up. It might be worth asking who got fired when the carrier announces these kinds of rate increases. Why would a carrier need a 22% ra

Agents are facing ERISA exposures they don’t even know exist. And their E&O policies likely do not provide coverage. Most people think of ERISA relative to retirement accounts. However, ERISA was expanded to health insurance around 2020. Much of the ensuing litigation involves excessive fees as related to self-funded health plans. I am not an expert on this issue by any means. However, I have solid knowledge of most insurance agents' lack of knowledge in this space and their

A Carrier Management article, from July 17, 2023, covered a report by McKinsey Global Institute that $800 billion of value has been lost specific to office building values attributable to work from home, post-pandemic employment trends. For context, $800 billion is about 80% of surplus as all U.S. insurance companies have, combined, as of 12-31-22 ($1 trillion). This has multiple implications for insurance. The first is, if you insure office buildings, you may need to find so

I have my doubts. Hard markets are driven by surplus issues, not profitability. A review of historical industry data shows that hard markets happen when surplus is an issue, and insurance companies can have surplus issues while still making plenty of money. This hard market is a prime example. According to data from A.M. Best, the U.S. property and casualty (P&C) carriers have had an average annual pretax operating profit of $47 billion over the last twenty years through 2022

I know carriers are struggling with their expense ratios. Many carrier executives are especially concerned regarding the extra compensation being requested, maybe demanded, by networks, large brokers, aggregators, and so forth. Two types of carriers exist relative to this point. Commodity Carriers These carriers appoint every Tom, Dick, Harry, Sally, and Molly that possesses a license. When a carrier appoints every agent imaginable the carrier becomes a commodity. No value ex

This was the headline from Insurance Law360: "Lawsuits filed by Colorado homeowners and businesses against their insurance companies for coverage of wildfire losses are a symptom of a broader underinsurance problem in a state where climate change now..." I'm sorry but this is not the issue. Climate change is a red herring. As an almost lifelong resident of Colorado and a 35-year veteran of the insurance industry including at one time being an underwriter whose state was Color

In the old days, typically less well-run insurance companies would sell price for five to seven years and then discover they had run out of surplus. They always blamed market conditions, but it was their own incompetence. At that point, the well-run companies who had been doing just fine, and who had lots of surplus, would write a ton of business for two to three years. They were the only game in town, had the surplus, and could charge elevated (i.e., higher profit margin) pr

I read an interesting article by a leading purveyor of Insurtech advising carriers how to increase premiums without increasing rates. The three top recommendations were: Verify auto usage Verify garage address Verify unlisted drivers In 1987, when I began my career learning auto and homeowners underwriting, and did my first agency audit 30 days later, I verified: Auto usage Garage Address Unlisted Drivers And other variables, but these three were priorities. Carriers are curr

Hint: Old-fashioned fiscal management and regulatory fiscal management are good places to start. I recently analyzed the homeowners loss ratios for the top 60 writers of homeowners in one of the more difficult homeowners states. I note this is one of the "more" troubled states because reality is that quality homeowners insurance is becoming incredibly difficult to obtain and if obtained, the price is ridiculously high in probably at least half our states. I am not some consum

Below is a representation of a model made famous by Boston Consulting Group (BCG) sometime in the late 1980's. This quadrant representation was well designed to tell a story. It was meant to differentiate between products. For example, a soap might have a high market share and a low growth rate (it gets harder to grow quickly the more market share you have), which results in a "Cash Cow". The soap generates a lot of free cash flow, and that cash flow can be used to build Star

As I was drafting this article, there must have been something in my subconscious related to a love song. Hence my thought that agency owners and producers are awfully prone to falling in love with carriers that are incompetent but employ nice people. In fact, I recently read two surveys that show the top carriers as rated by agencies. Seventy-five percent of the carriers listed as "great" have limited futures because their financial performance is so poor. I am not suggestin

"Having no destination, I am never lost." --Ikkyu "If you don't know where you're going, any road will take you there." --Tom and Ray Magliozzi, a/k/a Car Talk. Ikkyu was a Japanese Zen Buddhist monk who lived in the 1400's. Tom and Ray Magliozzi hosted Car Talk on Saturdays on National Public Radio for several decades. They were from the Boston area and were brilliant men who made me laugh every time I listened to their show. The quotes listed above illustrate two apparently

I recently read an article in A.M. Best regarding a carrier I thought had long since gone the way of other poorly run carriers, and I was right, but also wrong. I have an interesting history with them. Circa 2002, give or take a couple of years, I analyzed that particular carrier and predicted (relative to their better agents only), that the carrier had no future and that those agents should find an alternative soon rather than waiting for all of the carrier's agents to begin