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

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

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

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

An insurance agent went to an attorney and asked him to draft a producer contract. A month later the attorney sent back a contract accompanied by an invoice for $4,500. The agent got what she requested. The attorney had fulfilled his duty. The agent did not know what clauses and conditions should be included in a producer contract (that is why she went to an attorney!). Ignorance was bliss for the agent until one of her producers left, with clients, and the judge held the con

I read about an E&O case where an insured asked for complete auto coverage but failed to explicitly ask for collision coverage, so the agent only sold them comprehensive and liability coverages. Why the agent did not verify with the client that they did not want collision coverage is beyond me, but the agent did not ask. The insured had a collision, discovered they had no coverage, and sued the agent for E&O. The agent's defense was that the insured asked for complete coverag

I saw a headline stating that Florida building codes are at the root of Florida's property insurance problems. I doubt that building codes are the root of the problem, but are they a contributing factor? Prior to Hurricane Andrew that wiped buildings clean of their foundations for miles, Florida's building codes were weak. Considerable angst was expressed among all concerned parties regarding the inadequacy of Florida's building codes. The state's politicians, to their credit

The property insurance situation in some coastal states is in a crisis. With another big hail season and/or fire season, much of the South and Intermountain West may see the property market freeze. For those in more northern climates, the property market is comparatively much better. Many of these problems are self-inflicted and the solutions can be provided by the industry. The self-inflicted part is that the industry has made too much insurance look easy, and appearances in

For those of you who are not affected by the near freezing of the property insurance market (think of Florida primarily, but also southern Louisiana and the entire Gulf Coast, large parts of California, and large portions of the Intermountain West), you may not realize how many property insurance carriers have been declared impaired or insolvent over the past twelve to eighteen months. There are many, but the number seems to vary depending upon how you count them and whether

Susanne Sclafane, the editor of Carrier Management, wrote a great article many months ago about an interesting insurance study that turned out to be fake (https://www.carriermanagement.com/features/2021/08/27/225570.htm). This is a story well worth reading. A follow-up regarding the same subject was reported in other non-insurance publications. A particular carrier seems to have supplied the data, which was categorically faked. The data was not just wrong; it was proven to be

As I write this article, I have been working in the insurance industry for 35 years. Throughout those many years I have reviewed and analyzed carrier production documents, either when I worked for a carrier or when I review/analyze/reconcile them for my agency clients. Carrier production documents are the monthly and annual, scorecards of how well an agency is performing for a particular carrier. These documents are supposed to be easily understood by an agency's staff so tha