By Kay T. Vassar
"Mark, can you pass me the ham?" Mrs. Tippett requested at dinner.
"No." Mark replied simply, and just kept eating.
"Mark honey why won’t you pass me the ham?"
"Because it’s not nice to touch a pig unless it’s alive."
“Then just touch the plate." Mrs. Tippett said, sounding kind of annoyed.
"I don’t even want to look at it!" Apparently, Jake, Mark’s brother, had been totally tuned out of the conversation because right when Mark said that, Josh picked up a piece of ham and ate it.
"HOW DARE YOU?!" he yelled at Jake.
"What?" Jake yelled back at him.
"You know that ham is made out of pigs! And you just ate ham!"
"Yeah, so?"
"Pigs are people, too!"
Mark got up, shaking the table. "How much better would the world be, if we didn’t eat animals? Take this paper, you could benefit from reading it!" He slammed it down on the table and walked away.
Jake picked up the paper, and read the title out loud:
The theory of PETA - Eat people, not animals.
Mr. Tippett, Jake and Mark’s dad, was laughing along with Jake. Mrs. Tippett gave both of them "the look."
Mr. Tippett stopped laughing, cleared his throat, and said, " Heh-hem, well, uh, Jake Tippett, you should respect your brother’s eagerness to, uh, help the society, and to, um, make the world a better place, one pig at a time." He said that in his deepest possible voice, trying to keep himself from laughing.
In his room, Mark had put up stickers that said, "EAT PEOPLE, NOT ANIMALS" like it said on the paper. That day, PETA had come to Mark’s class, and told them that eating animals was wrong, so Mark got really into it. He was sitting in his room, writing a letter to his family saying how he was running away to join PETA, and how he was "disgusted" with the things that they ate.
He set the letter on his nightstand, and walked out the door, because he had a door in his room. He walked next door to his friend Josh’s house whose parents were a part of PETA, and he decided to stay there until his family changed their minds about what they eat.
When Mark got to the house, he knocked on the door. Melissa, Josh’s older sister, answered the door. The family was a hippie family, and they still lived in the 70’s.
"Like heeey little mannn." she said in a relaxed, laid-back voice. "Come innn, we’re like about to do some yogaaa."
Mark looked at her kind of weird and answered,"Yeah, is uh, Josh there?"
"Like one second maaan." She went behind the door, as Mark heard Josh’s parents talking.
"Meeeel, like whos at the doorrrr?" Josh’s mom said.
"It’s the little man next door like totally lookin’ for Josh." She popped out in front of the door again, and told Mark, "He’s comin’ lil’ mannn."
Then behind the door, Mark heard, "JOOOOOOSH!"
"WHAT!?"
"YOUR FRIEND’S HERE!!!!"
She popped out in front of the door again, said "Like, come on innnn."
Mark replied, "Um, like, thanks."
He took a step inside the door, and there were posters of salads and animals up on the walls. One of the posters said, "Celery is your friend" under a big piece of smiling celery.
"Hi Mark." Josh said coming down the stairs. His dad came out of the kitchen with his hair in a ponytail, and his big sunglasses on, holding his guitar.
" Liiike hey lil’ maaan! We’re just about to liiike do character charaaades. You wanna join usss?"
"Um actually I was hoping to join your PETA thing."
"Ohhhh." He walked over to Mark and patted him on the back. "Liiike yeah man. You can stay in our veg rooooom."
"What?"
Josh leaned over and whispered, "That’s the guest room." Mark nodded and told Josh’s dad "Yeah, thanks Mr. Trustier."
"Duuude, I thought I like told you to call me Bright Moon."
Back at the Tippett’s house, Mrs. Tippett walked into Marks room. "Hey, Mark what was that at dinner- What’s this?"
She found the letter. "TOM! TOM!” She called down to Mr. Tippett. "Come here! Mark’s gone! All he left was this note!"
Mr. Tippett came up behind her and asked her, "Really?"
Here’s what the letter said:
Deer Dear Famly,
I am disgustd with yur your eeting habits, and desided too go and join the pida peeple. i mite com back if yu find me but you nevr wil find me.
Mark Tippett
Jake came around the corner to see his mother crying. "What’s wrong with mom?"
Mr. Tippett turned around and answered, "Mark ran away."
"Again?"
"Yep."
Mrs. Tippett turned around and said, "Jacob! How c-c-can you say that when my baby’s missing!?"
"Um, yeah, and I, uh, I’m, uh, bye!" He ran away before he could get in any more trouble with his parents.
Back at Josh’s house, Mark was trying to fit it with the family’s "rituals." They were naming the vegetables in their salads, and Mark was trying to figure out what to name his broccoli.
"Liiiike how’s ‘Carl’ for my lettuce lil’ maaan?", Melissa asked Mark.
"Uh, well it’s cool."
"Ok. Let’s eat!" Josh said.
At dinner, the Trustiers were sharing their "names." Melissa’s was Cloud Shine, Josh’s was Plate Warmer, and Mrs. Trustier’s was Flower Poker.
"And your name isss Raymond." Melissa told Mark.
"Raymond?"
"Do you liiike have a problemmm with that name?"
"No." Mark said nervously, then looked down and kept eating his pet salad.
Mark had started thinking, "These people are kind of weird..." They all heard a knock on the door, and Melissa got up to answer it. The person at the door kept knocking and knocking.
Suddenly, they heard barking, and Mark leaned over and asked Josh, "What’s that barking; it sounds like a Chihuahua!"
"Oh, that’s our pet cauliflower. She gets worked up when someone knocks on the door."
"Um, ok."
"Heeeey, Raymond, your parents are here."
"THANK GOODNESS! MOMMY! DADDY!" he yelled as he ran down the hall, grabbing his stuff and hugging his parents.
"Mark, we missed you soooo much!", said his mom.
Jake chimed in, "He was only gone for an hour and a half! I sleep over at my friend’s house for whole weekends at a time, and when I get home, all I get is a ‘Hey Josh, go clean your room!’"
"Liiike bye, Raymond." the Trustiers all shouted as Mark walked out the door, but when he took a step out of the door, he felt a bite on his ankle, and when he looked down, there was a cauliflower sitting there, panting.
"AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA!!!" he screamed, and ran away.
"Duuuude, I guess like some people don’t like, like animals." Melissa said, as she picked up the cauliflower and walked inside.
When they got home, Mark ran upstairs and into his room, followed by his dad.
"So, uh, Mark."
"Yeah dad?"
"Um, what made you want to join PETA in the first place? And do you still want to join? Because if you do, we're behind you all the way."
"Thanks, dad, but I am REALLY over my PETA stage. I mean after meeting the Trustiers, I don't think anyone will want to."
His dad laughed with Mark and asked him, "Sooo, do you want to go have a cheeseburger?"
"Well....."
"Mark, buddy, come on, we're supposed to eat animals! Why do you think God made so many? So they can eat us? Yeah, I don't think so!"
Mark laughed, and replied, "Ok, you may have a point there."
A Risk Manager in an Insurance World: Odd Man Out
Reprinted with Permission from The John Liner Review Winter 2007
Commentary
Insurance professionals learn about risk management — but not, apparently, about what a risk manager actually does. The need for education goes both ways.
A Risk Manager in an Insurance World: Odd Man Out
Rick Vassar
It’s always the same old story.
I go to a party, family gathering, church — it really doesn’t mat-ter. Eventually, someone will ask me what I do for a living. I tell them I’m a risk manager, and it’s always the same follow-up: “What does a risk manager do?”
There was a time when I would spin into the old Risk Management 101 song and dance, filling their heads with probability versus possibility, losses contingent upon this and that, subrogation stuff, until their eyes glazed over and they stumbled away dazed and confused, avoiding me like a plague, not only that evening, but forever.
Now, I give them the short answer: “I purchase insurance for my company.”
“Oh, so you’re like a broker.”
“No, a broker sells insurance; I buy insurance.” I remember using this explanation on a brother-in-law about 20 years ago. Whenever I’m with him and I meet someone new, he introduces me as “This is Rick; he sells insurance.” So much for communicating what a risk manager does in a social setting.
Stranger in a Strange Land
In an insurance setting, I would expect a better understanding of what I do. So imagine my surprise when I attended the Chartered Prop-erty Casualty Underwriter (CPCU) Society national meeting a few months ago. Here I was, amongst the greatest minds in the insurance industry, celebrating the fact that I had achieved the most presti-gious insurance designation in the property-casualty side of the business.
Then it happened, early and often — “So, what do you do?”
Actually, the first question was always, “Who do you work for?” since it was assumed that you work in the insurance industry. It didn’t matter what you do — the question was, “Who do you work for?” I heard responses such as “North American Life,” “Aon,” “Marsh Mac,” “AIG,” and “Zurich.”
“So, Rick, who do you work for?”
“I work for Valcourt Building Services.”
“What is Valcourt Building Services?”
“Why, it’s the premier building services company in the United States.”
“Seriously, who are you with?”
“That’s who I work for. I am a risk manager.”
“Really? What’s a risk manager?”
“I’m your customer!”
Slight pause.
“Of course you are.”
Pulling Back the Curtain
As implausible as this may sound, this is exactly how it seemed conversations went at this convention. It was like I was invited into this club, and the members were looking around to figure out who in-vited HIM. It wasn’t lack of courtesy; these folks couldn’t have been any nicer. I just got the feeling that they really didn’t know what to think of me, and they certainly didn’t know what to do with me.
I showed up at a meeting of a national committee that I had some interest in joining. Everyone was very warm and receptive until the meeting started, when one of the first questions asked of me was how I ended up on this committee. (How did HE end up here?)
It was pointed out to me time and time again that the president of the CPCU Society was a risk manager. I didn’t have the heart or the energy to tell them that she was a risk management consultant, not a risk manager, because they just wouldn’t understand the difference.
A Side Trip to Oz
Maybe it was because the lack of understanding of the risk manag-er’s function was so unexpected or maybe it was because it wasn’t so unexpected, but for the first time in my life, I truly felt as Doro-thy must have felt when she landed in Oz.
The Risk Manager as Dorothy
You see, I never started out to be a risk manager. Twenty years ago, no one knew what a risk manager was. I was a regional operations manager who kept asking for more to do, until one day they put me in charge of claims. I stayed with that organization for 15 years, be-coming a director of risk management and learning as I went along. And, “in the land of the blind, the one-eyed man is king.” I knew just a little bit more than anyone else in the organization about risk management, so I looked like a genius.
I supplemented my experience with education, receiving the Associate in Risk Management (ARM) in 1996 and the aforementioned CPCU in 2005. I also received the Associate in Insurance Services (AIS) and Associate in Risk Management for Public Entities (ARM-P) in 2005 as well.
What I didn’t know until I passed all these courses is that, of the 27,000 CPCUs in the world, less than 2 percent are risk managers and less than 1 percent work outside the insurance industry. The fact that I have never worked in the insurance industry makes me even more of an anomaly — an insurance customer who has always been a customer!
So, just like Dorothy, I was thrust into a world that I did not un-derstand, and it was fraught with danger. I charted a path, arming myself with allies who were often as clueless as I, and we set out to find the wizard, which in this case was the insurance industry, and the explanation of how it all worked.
Dorothy’s Adventures in Oz
When I received my CPCU designation, it was as if I had made it to the great hall of the wizard, and I was allowed to take a peek behind the curtain, where I was shown how it all works. I was invited to stay, but I decided to return to Kansas and report on what I had seen. The book I wrote as a result of my foray into the Oz of insur-ance chronicles my experiences in an effort to make the road easier for other risk managers who choose to make the journey and for those organizations that want to know more about what the journey entails.
Meanwhile, Back at the CPCU Meeting …
The one part of the meeting that made me most uneasy was when this committee started to try to figure out how to increase membership, not only for this section, but also for the CPCU Society as a whole. The committee decided to look into how RIMS (Risk and Insurance Man-agement Society) has steadily increased its membership and assigned people to look into RIMS’ marketing techniques. Since I wasn’t sup-posed to be there, I didn’t tell them what I thought was obvious:
“Stop Treating Your Customers Like They Are Outsiders!”
The Educated Insurance Customer
Clearly, there is a need for the insurance industry to understand the role of the risk manager in the insurance process. Then, risk managers won’t feel like outsiders at professional insurance gather-ings. But education goes both ways — the risk manager needs to know the intricacies of the insurance industry, too.
Risk Managers Are Essential to the Insurance Process
The easiest way to get involvement from the risk management commu-nity is to recognize risk managers for what they are: an essential component of the insurance process. Far be it for me to point this out, but without an insured, there is no insurance process. There is no need for a provider if there is no customer.
But the antiquated thinking prevalent in the insurance industry seems to indicate that the less the insured knows, the more insurers can sell. The more insureds buy, the more money the industry makes. This makes absolutely no sense. The insurance industry needs to real-ize that an informed consumer makes the best customer.
If a representative of an insured (the risk manager) is given an education on risk financing, risk control, and managing his or her organization’s insurance program, the insured will see the need for insurance because the risk manager understands the process. Educating the consumer doesn’t mean lower commissions because of lower pre-miums; it means being able to insure better risks, which will allow the insurer to go out and secure more good risks, strengthening and expanding its overall book of business.
Risk Managers Are Professionals
The reason more risk managers don’t pursue the CPCU designation is because they are often not considered to be insurance professionals by the insurance industry, especially if they do not have insurance industry experience. Yet, most risk managers come from the purchasing side of the insurance equation and are usually appointed from within an emerging organization to fill a need. The more professionalism they can bring to the job, the better. Doing their job almost always involves purchasing insurance, and education aimed at insurance pro-fessionals is vital to performing their job effectively.
I was in operations and had risk management thrust upon me, and, over time, it became a career. I truly believe that those of us who have an understanding of business first and then learn the insurance side are just as effective, if not more effective, as those who come out of the insurance industry and become risk managers, because we understand that in the minds of owners, executives, and operators, production is king, and the trick is to fulfill the objectives of a good risk management program within the constraints of the production mentality. The insurance industry can benefit from our expertise.
Risk Managers Understand Risk
By its very definition, business is a risk-taking enterprise. The key for the risk manager is to determine the tolerance for risk with-in the organization and work within that established box while striv-ing to improve upon the existing controls by proving that they are working. This allows for improvement and insures against a regression that could dissolve into intolerable uncertainty.
An owner asked me once why I thought his company was losing money. Without hesitation, I told him that I thought it was the company’s “production at all cost” mentality. Of course, he told me that with-out production, there would be no company. I agreed, but pointed out that I was not worried about the production. It was “at all cost” that concerned me. If your organization’s solution to problems is just to throw money at them in order to make more money, that atti-tude will catch up with you, probably sooner than later.
A Win/Win/Win Situation …
So, why is it a win for the insurance industry to have an educated insured?
… for the Insurer …An insured that knows how the insurance process works will see the value of lowering the frequency and severity of losses and will take active steps to lower its losses and reduce its premiums. While pre-miums become lower, so do combined ratios, which will increase profits. The customer will become more loyal both to the broker and to the insurer when the insured sees that its association with both has consistently lowered its costs and increased its profits. From a transactional standpoint, the need to move the insured’s program will become a nonissue if the insured knows it is getting a good deal.
… and for the Insured …The Associate in Risk Management (ARM) designation gives the desig-nee the understanding he or she needs to be an educated insurance consumer. I would advocate that all risk managers pursue the ARM de-signation. An educated consumer makes the most efficient choices when dealing with insurers and brokers.
… and for the Risk Manager Who Has Earned the CPCU Designation
I would strongly advise all risk managers to pursue the CPCU desig-nation, and I would also encourage their companies to advocate this training for their risk managers. The reason I never pursued the de-signation earlier in my career was twofold.
1. I thought it was too hard.
2. I didn’t see the value to my position as a risk manager.
I passed all the courses in 176 days — not bad for a risk manager. I am asked time and again how I was able to do this so quickly, and the only honest reply I can give is this: “It’s what I do.”
The value of the CPCU designation is this: instant credibility in my dealings with the insurance industry. When I send an e-mail or correspondence, I am afforded the respect that comes with attaining this level of excellence. It is assumed that I am an insider, and my job is made much easier with the CPCU next to my name. Insurance in-dustry people just assume I know what I’m talking about.
So, you have instant credibility for the risk manager, lower premium for the insured, and increased profits for the insurer, just by letting the insured take a peek behind the curtain. Sounds like a win/win/win situation to me.
Conclusion
In business, insurance has always been the 800-pound gorilla in the room. It’s always there, and it’s not going anywhere. Hardly anyone in business really understands it, and most don’t want to commit the time to learn. The only way to maximize your organization’s potential is to manage your risk and your insurance, and you can do this effec-tively only by learning the product and services and how to effec-tively manage them.
In this day and age of information technology as well as increased competition, it is imperative that insurance costs are managed. If you are informed, you may no longer have to accept the “hard market” as the only excuse for increased premium, and you will certainly be able to easily tap into the market, should you be given that excuse by your insurer.
There is a bit of mistrust between the insured and insurer, and the only real way to bridge this gap of trust is for each side to have a better understanding of the process and its role in the process. Sav-ings will go up and so will profit, and that’s all we are really looking for.
Bring the risk managers in.
We’re not in Kansas anymore.
Rick Vassar, CPCU, ARM, AIS, ARM-P, is the principal in The Vassar Group, LLC Risk Management Consultants as well as Vice President of Risk Management for Valcourt Building Services, LLC, both located in Virginia. Vassar has over 20 years experience in risk management and has written on various risk management topics. Vassar could never find a primer on business insurance for the business person, so he wrote it. Hide! Here Comes the Insurance Guy — A Practical Guide to Understanding Business Insurance and Risk Management (iUniverse Press 2006) was published in June 2006.
Reprinted with Permission - The John Liner Review Winter 2007 Standard Publishing
Commentary
Insurance professionals learn about risk management — but not, apparently, about what a risk manager actually does. The need for education goes both ways.
A Risk Manager in an Insurance World: Odd Man Out
Rick Vassar
It’s always the same old story.
I go to a party, family gathering, church — it really doesn’t mat-ter. Eventually, someone will ask me what I do for a living. I tell them I’m a risk manager, and it’s always the same follow-up: “What does a risk manager do?”
There was a time when I would spin into the old Risk Management 101 song and dance, filling their heads with probability versus possibility, losses contingent upon this and that, subrogation stuff, until their eyes glazed over and they stumbled away dazed and confused, avoiding me like a plague, not only that evening, but forever.
Now, I give them the short answer: “I purchase insurance for my company.”
“Oh, so you’re like a broker.”
“No, a broker sells insurance; I buy insurance.” I remember using this explanation on a brother-in-law about 20 years ago. Whenever I’m with him and I meet someone new, he introduces me as “This is Rick; he sells insurance.” So much for communicating what a risk manager does in a social setting.
Stranger in a Strange Land
In an insurance setting, I would expect a better understanding of what I do. So imagine my surprise when I attended the Chartered Prop-erty Casualty Underwriter (CPCU) Society national meeting a few months ago. Here I was, amongst the greatest minds in the insurance industry, celebrating the fact that I had achieved the most presti-gious insurance designation in the property-casualty side of the business.
Then it happened, early and often — “So, what do you do?”
Actually, the first question was always, “Who do you work for?” since it was assumed that you work in the insurance industry. It didn’t matter what you do — the question was, “Who do you work for?” I heard responses such as “North American Life,” “Aon,” “Marsh Mac,” “AIG,” and “Zurich.”
“So, Rick, who do you work for?”
“I work for Valcourt Building Services.”
“What is Valcourt Building Services?”
“Why, it’s the premier building services company in the United States.”
“Seriously, who are you with?”
“That’s who I work for. I am a risk manager.”
“Really? What’s a risk manager?”
“I’m your customer!”
Slight pause.
“Of course you are.”
Pulling Back the Curtain
As implausible as this may sound, this is exactly how it seemed conversations went at this convention. It was like I was invited into this club, and the members were looking around to figure out who in-vited HIM. It wasn’t lack of courtesy; these folks couldn’t have been any nicer. I just got the feeling that they really didn’t know what to think of me, and they certainly didn’t know what to do with me.
I showed up at a meeting of a national committee that I had some interest in joining. Everyone was very warm and receptive until the meeting started, when one of the first questions asked of me was how I ended up on this committee. (How did HE end up here?)
It was pointed out to me time and time again that the president of the CPCU Society was a risk manager. I didn’t have the heart or the energy to tell them that she was a risk management consultant, not a risk manager, because they just wouldn’t understand the difference.
A Side Trip to Oz
Maybe it was because the lack of understanding of the risk manag-er’s function was so unexpected or maybe it was because it wasn’t so unexpected, but for the first time in my life, I truly felt as Doro-thy must have felt when she landed in Oz.
The Risk Manager as Dorothy
You see, I never started out to be a risk manager. Twenty years ago, no one knew what a risk manager was. I was a regional operations manager who kept asking for more to do, until one day they put me in charge of claims. I stayed with that organization for 15 years, be-coming a director of risk management and learning as I went along. And, “in the land of the blind, the one-eyed man is king.” I knew just a little bit more than anyone else in the organization about risk management, so I looked like a genius.
I supplemented my experience with education, receiving the Associate in Risk Management (ARM) in 1996 and the aforementioned CPCU in 2005. I also received the Associate in Insurance Services (AIS) and Associate in Risk Management for Public Entities (ARM-P) in 2005 as well.
What I didn’t know until I passed all these courses is that, of the 27,000 CPCUs in the world, less than 2 percent are risk managers and less than 1 percent work outside the insurance industry. The fact that I have never worked in the insurance industry makes me even more of an anomaly — an insurance customer who has always been a customer!
So, just like Dorothy, I was thrust into a world that I did not un-derstand, and it was fraught with danger. I charted a path, arming myself with allies who were often as clueless as I, and we set out to find the wizard, which in this case was the insurance industry, and the explanation of how it all worked.
Dorothy’s Adventures in Oz
When I received my CPCU designation, it was as if I had made it to the great hall of the wizard, and I was allowed to take a peek behind the curtain, where I was shown how it all works. I was invited to stay, but I decided to return to Kansas and report on what I had seen. The book I wrote as a result of my foray into the Oz of insur-ance chronicles my experiences in an effort to make the road easier for other risk managers who choose to make the journey and for those organizations that want to know more about what the journey entails.
Meanwhile, Back at the CPCU Meeting …
The one part of the meeting that made me most uneasy was when this committee started to try to figure out how to increase membership, not only for this section, but also for the CPCU Society as a whole. The committee decided to look into how RIMS (Risk and Insurance Man-agement Society) has steadily increased its membership and assigned people to look into RIMS’ marketing techniques. Since I wasn’t sup-posed to be there, I didn’t tell them what I thought was obvious:
“Stop Treating Your Customers Like They Are Outsiders!”
The Educated Insurance Customer
Clearly, there is a need for the insurance industry to understand the role of the risk manager in the insurance process. Then, risk managers won’t feel like outsiders at professional insurance gather-ings. But education goes both ways — the risk manager needs to know the intricacies of the insurance industry, too.
Risk Managers Are Essential to the Insurance Process
The easiest way to get involvement from the risk management commu-nity is to recognize risk managers for what they are: an essential component of the insurance process. Far be it for me to point this out, but without an insured, there is no insurance process. There is no need for a provider if there is no customer.
But the antiquated thinking prevalent in the insurance industry seems to indicate that the less the insured knows, the more insurers can sell. The more insureds buy, the more money the industry makes. This makes absolutely no sense. The insurance industry needs to real-ize that an informed consumer makes the best customer.
If a representative of an insured (the risk manager) is given an education on risk financing, risk control, and managing his or her organization’s insurance program, the insured will see the need for insurance because the risk manager understands the process. Educating the consumer doesn’t mean lower commissions because of lower pre-miums; it means being able to insure better risks, which will allow the insurer to go out and secure more good risks, strengthening and expanding its overall book of business.
Risk Managers Are Professionals
The reason more risk managers don’t pursue the CPCU designation is because they are often not considered to be insurance professionals by the insurance industry, especially if they do not have insurance industry experience. Yet, most risk managers come from the purchasing side of the insurance equation and are usually appointed from within an emerging organization to fill a need. The more professionalism they can bring to the job, the better. Doing their job almost always involves purchasing insurance, and education aimed at insurance pro-fessionals is vital to performing their job effectively.
I was in operations and had risk management thrust upon me, and, over time, it became a career. I truly believe that those of us who have an understanding of business first and then learn the insurance side are just as effective, if not more effective, as those who come out of the insurance industry and become risk managers, because we understand that in the minds of owners, executives, and operators, production is king, and the trick is to fulfill the objectives of a good risk management program within the constraints of the production mentality. The insurance industry can benefit from our expertise.
Risk Managers Understand Risk
By its very definition, business is a risk-taking enterprise. The key for the risk manager is to determine the tolerance for risk with-in the organization and work within that established box while striv-ing to improve upon the existing controls by proving that they are working. This allows for improvement and insures against a regression that could dissolve into intolerable uncertainty.
An owner asked me once why I thought his company was losing money. Without hesitation, I told him that I thought it was the company’s “production at all cost” mentality. Of course, he told me that with-out production, there would be no company. I agreed, but pointed out that I was not worried about the production. It was “at all cost” that concerned me. If your organization’s solution to problems is just to throw money at them in order to make more money, that atti-tude will catch up with you, probably sooner than later.
A Win/Win/Win Situation …
So, why is it a win for the insurance industry to have an educated insured?
… for the Insurer …An insured that knows how the insurance process works will see the value of lowering the frequency and severity of losses and will take active steps to lower its losses and reduce its premiums. While pre-miums become lower, so do combined ratios, which will increase profits. The customer will become more loyal both to the broker and to the insurer when the insured sees that its association with both has consistently lowered its costs and increased its profits. From a transactional standpoint, the need to move the insured’s program will become a nonissue if the insured knows it is getting a good deal.
… and for the Insured …The Associate in Risk Management (ARM) designation gives the desig-nee the understanding he or she needs to be an educated insurance consumer. I would advocate that all risk managers pursue the ARM de-signation. An educated consumer makes the most efficient choices when dealing with insurers and brokers.
… and for the Risk Manager Who Has Earned the CPCU Designation
I would strongly advise all risk managers to pursue the CPCU desig-nation, and I would also encourage their companies to advocate this training for their risk managers. The reason I never pursued the de-signation earlier in my career was twofold.
1. I thought it was too hard.
2. I didn’t see the value to my position as a risk manager.
I passed all the courses in 176 days — not bad for a risk manager. I am asked time and again how I was able to do this so quickly, and the only honest reply I can give is this: “It’s what I do.”
The value of the CPCU designation is this: instant credibility in my dealings with the insurance industry. When I send an e-mail or correspondence, I am afforded the respect that comes with attaining this level of excellence. It is assumed that I am an insider, and my job is made much easier with the CPCU next to my name. Insurance in-dustry people just assume I know what I’m talking about.
So, you have instant credibility for the risk manager, lower premium for the insured, and increased profits for the insurer, just by letting the insured take a peek behind the curtain. Sounds like a win/win/win situation to me.
Conclusion
In business, insurance has always been the 800-pound gorilla in the room. It’s always there, and it’s not going anywhere. Hardly anyone in business really understands it, and most don’t want to commit the time to learn. The only way to maximize your organization’s potential is to manage your risk and your insurance, and you can do this effec-tively only by learning the product and services and how to effec-tively manage them.
In this day and age of information technology as well as increased competition, it is imperative that insurance costs are managed. If you are informed, you may no longer have to accept the “hard market” as the only excuse for increased premium, and you will certainly be able to easily tap into the market, should you be given that excuse by your insurer.
There is a bit of mistrust between the insured and insurer, and the only real way to bridge this gap of trust is for each side to have a better understanding of the process and its role in the process. Sav-ings will go up and so will profit, and that’s all we are really looking for.
Bring the risk managers in.
We’re not in Kansas anymore.
Rick Vassar, CPCU, ARM, AIS, ARM-P, is the principal in The Vassar Group, LLC Risk Management Consultants as well as Vice President of Risk Management for Valcourt Building Services, LLC, both located in Virginia. Vassar has over 20 years experience in risk management and has written on various risk management topics. Vassar could never find a primer on business insurance for the business person, so he wrote it. Hide! Here Comes the Insurance Guy — A Practical Guide to Understanding Business Insurance and Risk Management (iUniverse Press 2006) was published in June 2006.
Reprinted with Permission - The John Liner Review Winter 2007 Standard Publishing
Claims People Play - It Takes a Lot of Effort to Get Something For Nothing
I had the opportunity to reflect on some of the experiences I have had in my life, as well as some of the situations in which I've realized that some people are just plain stupid. To me, it seems as if there has been a progression over the years:
1955- Diner: “Waiter, there’s a fly in my soup.”
Waiter: “Don’t worry, flies don’t drink much.”
2005- Diner: “Hey, there’s a finger in my chili.”
CSR: “Cool! Hey, anybody missing a finger back there!? I’m sorry, ma’am but we charge 99 cents extra for human fingers, but don’t they taste just like chicken?”
So now this lady's in jail. I hope they investigated Uncle Louie, who was once arrested for petty theft, or as the police report called it, a “four finger discount”. Or was it Grandma Edna, who accidentally chopped her finger off cutting up a ham, prompting her daughter to say, in a most sympathetic of ways: “Get Grandma a band-aid. Anybody want to go to Wendy’s?”
As a career risk manager, I take these things with a grain of salt—naw, I’ll leave that one alone. Maybe she found it on the street. Maybe she found it on e-bay, and successfully bid $89.95 for it, and needed to make her investment work for her. It gives me pause, though, to reflect back on my life, and the wonderful ruses all perpetrated in the name of cash.
First, a little risk management 101. When someone tells you it’s not the money, and it’s the principal of the thing, don’t let them fool you—it’s about the money; it’s all about the money, and it’s always about the money.
My favorite story involves a guy who thought he was smart but was actually very stupid. He worked with my wife, and in 1987, he got married, and his wife got pregnant. The baby was born in February, 1988. This guy claimed the baby on his 1987 taxes. When the IRS came a-knockin’ on his door, he told them that the U.S. Supreme Court declared that life begins at 24 weeks after conception, and since his kid legally “came alive” in 1987, he was entitled to the tax deduction. He is still to this day paying off the interest and penalties on that stroke of genius.
Then there was the guy who was a car wash supervisor for a rental car company I worked for. He went to the doctor and was diagnosed with tennis elbow. He promptly came into the branch office and made a workers comp claim. When I took the report over the phone, I deviated from the script a wee bit. I asked name, address, date of birth, and in the middle of this line of questioning, I asked him if he considered himself an active person. Yes, he did. Do you play any sports? Yes, I played softball, basketball, tennis and soccer.
I’m sorry, did you say basketball? Okay, good, got it. Social? Okay. Safety equipment provided? Okay. Now let me go back and make sure I got these activities right. You said you like tennis? Yes, I love tennis. Okay, great. One more question: Do you think that maybe your tennis elbow could have come from… playing TENNIS!?
I loved the people who would rent a car, smack it up, and then drop it off at a suburban branch after the office had closed. When the vehicle was found the next day, the manager would call the customer to find out what happened:
Customer: I don’t know. It was fine when I dropped it off.
The customer would then call my office after they received a bill for $8,000, and say they didn’t do it. Yea, 40 cars parked all neatly parked on the lot, and the only one that ever seems to come up totaled is the one that was dropped overnight. What are the chances? And every person who tries this believes they had thought of it first.
You know those highway signs that have a blinking area to direct you either left or right. There is also a middle switch (or so I assume) so the sign blinks a straight line. I had a customer tell me that they came to the fork in the road, and there was a blinking straight line, so they went straight—into the sign. I believe alcohol was involved in that one.
I’ve had employees call for an ambulance, and call an attorney on the way to the hospital. I had an employee who took a car home and totaled it on the way. He called it in, and was absolutely flabbergasted when he clocked in the next day and was promptly arrested. I had a customer tap another vehicle while parallel parking in Washington, DC. The two occupants got out of the car, saw it was a rental, and called for an ambulance. I didn’t think this was too unusual, until the customer told me the two occupants were uniformed police officers and the vehicle he tapped was a police cruiser.
Am I jaded? You bet I am. The sad aspect of all this is that there are individuals out there for which the tort system is necessary to compensate for the negligence of others. Unfortunately, the system is mired in cases in which folks just want to make a buck. As risk managers, we lose faith as well as focus, and it becomes a war zone. And the path is paved with recidivism. Once someone so inclined finds out he or she can sit at home and collect almost the same amount in pay from work comp (I like to call it the “Watching the Beav”), they are inclined to do it again. And who can blame them. It beats working.
And don’t get me started on class action lawsuits. I tried one of those once. It was against my power company. I signed up and sent it back. A year later, I received a notice saying that the suit was settled, and my bill would be surcharged $20 a month for five months as an offset. I figured we lost. To my surprise, I found out we had actually won, and the power company was going to issue an apology. The settlement, though, didn’t quite cover the attorney fees, which was the reason for the surcharge.
Oh, well, it was the principal of the thing anyway. Although… if I had that cash now, I could have gone on e-bay…
Anybody want to go to Wendy’s?
1955- Diner: “Waiter, there’s a fly in my soup.”
Waiter: “Don’t worry, flies don’t drink much.”
2005- Diner: “Hey, there’s a finger in my chili.”
CSR: “Cool! Hey, anybody missing a finger back there!? I’m sorry, ma’am but we charge 99 cents extra for human fingers, but don’t they taste just like chicken?”
So now this lady's in jail. I hope they investigated Uncle Louie, who was once arrested for petty theft, or as the police report called it, a “four finger discount”. Or was it Grandma Edna, who accidentally chopped her finger off cutting up a ham, prompting her daughter to say, in a most sympathetic of ways: “Get Grandma a band-aid. Anybody want to go to Wendy’s?”
As a career risk manager, I take these things with a grain of salt—naw, I’ll leave that one alone. Maybe she found it on the street. Maybe she found it on e-bay, and successfully bid $89.95 for it, and needed to make her investment work for her. It gives me pause, though, to reflect back on my life, and the wonderful ruses all perpetrated in the name of cash.
First, a little risk management 101. When someone tells you it’s not the money, and it’s the principal of the thing, don’t let them fool you—it’s about the money; it’s all about the money, and it’s always about the money.
My favorite story involves a guy who thought he was smart but was actually very stupid. He worked with my wife, and in 1987, he got married, and his wife got pregnant. The baby was born in February, 1988. This guy claimed the baby on his 1987 taxes. When the IRS came a-knockin’ on his door, he told them that the U.S. Supreme Court declared that life begins at 24 weeks after conception, and since his kid legally “came alive” in 1987, he was entitled to the tax deduction. He is still to this day paying off the interest and penalties on that stroke of genius.
Then there was the guy who was a car wash supervisor for a rental car company I worked for. He went to the doctor and was diagnosed with tennis elbow. He promptly came into the branch office and made a workers comp claim. When I took the report over the phone, I deviated from the script a wee bit. I asked name, address, date of birth, and in the middle of this line of questioning, I asked him if he considered himself an active person. Yes, he did. Do you play any sports? Yes, I played softball, basketball, tennis and soccer.
I’m sorry, did you say basketball? Okay, good, got it. Social? Okay. Safety equipment provided? Okay. Now let me go back and make sure I got these activities right. You said you like tennis? Yes, I love tennis. Okay, great. One more question: Do you think that maybe your tennis elbow could have come from… playing TENNIS!?
I loved the people who would rent a car, smack it up, and then drop it off at a suburban branch after the office had closed. When the vehicle was found the next day, the manager would call the customer to find out what happened:
Customer: I don’t know. It was fine when I dropped it off.
The customer would then call my office after they received a bill for $8,000, and say they didn’t do it. Yea, 40 cars parked all neatly parked on the lot, and the only one that ever seems to come up totaled is the one that was dropped overnight. What are the chances? And every person who tries this believes they had thought of it first.
You know those highway signs that have a blinking area to direct you either left or right. There is also a middle switch (or so I assume) so the sign blinks a straight line. I had a customer tell me that they came to the fork in the road, and there was a blinking straight line, so they went straight—into the sign. I believe alcohol was involved in that one.
I’ve had employees call for an ambulance, and call an attorney on the way to the hospital. I had an employee who took a car home and totaled it on the way. He called it in, and was absolutely flabbergasted when he clocked in the next day and was promptly arrested. I had a customer tap another vehicle while parallel parking in Washington, DC. The two occupants got out of the car, saw it was a rental, and called for an ambulance. I didn’t think this was too unusual, until the customer told me the two occupants were uniformed police officers and the vehicle he tapped was a police cruiser.
Am I jaded? You bet I am. The sad aspect of all this is that there are individuals out there for which the tort system is necessary to compensate for the negligence of others. Unfortunately, the system is mired in cases in which folks just want to make a buck. As risk managers, we lose faith as well as focus, and it becomes a war zone. And the path is paved with recidivism. Once someone so inclined finds out he or she can sit at home and collect almost the same amount in pay from work comp (I like to call it the “Watching the Beav”), they are inclined to do it again. And who can blame them. It beats working.
And don’t get me started on class action lawsuits. I tried one of those once. It was against my power company. I signed up and sent it back. A year later, I received a notice saying that the suit was settled, and my bill would be surcharged $20 a month for five months as an offset. I figured we lost. To my surprise, I found out we had actually won, and the power company was going to issue an apology. The settlement, though, didn’t quite cover the attorney fees, which was the reason for the surcharge.
Oh, well, it was the principal of the thing anyway. Although… if I had that cash now, I could have gone on e-bay…
Anybody want to go to Wendy’s?
Vassar's Book A Business Must Have!
Hide! Here Comes the Insurance Guy
Expert offers up eleven crucial questions to help people determine their risk management needs
(Arlington, VA) Rick Vassar is not your ordinary run-of-the-mill insurance person. Rick Vassar does not sell insurance. He buys insurance. He is a risk manager. He’s refreshing and totally committed to making people trust him in spite of his chosen profession!
His new book, Hide! Here Comes the Insurance Guy, educates and entertains with energy and enthusiasm, and it’s a must-read for anyone who owns or operates a business.
This is a truly unique concept – an authoritative explanation of business insurance and practical cost-saving risk management strategies from the business perspective.
With a no holds barred and no prisoners taken approach, he takes the mystery out of the most mind-numbing insurance questions that plague everyone who’s ever sat down with an insurance policy and tried to make sense out of the minefield of questions that have to be answered.
“We all need insurance,” he says “but let’s face it – most of us can’t understand a single word insurance people are saying.”
With humor and a bit of spunk, you can go to Vassar for the answers!
In any organization, not managing your insurance program can cost a company thousands, if not millions, of dollars.
Hide! Here Comes the Insurance Guy is a guide to business insurance written by a businessman.
For example, here is a sampling of some of this truly sane advice about how you can attack the subject and divide up the risk management process into four distinct steps to control & improve your insurance costs:
1. Understand the language
Like any other specialization, insurance has a language and cadence all its own. You must learn the language to understand the process.
2. Know the players
Once you understand how all the pieces fit together, you will better understand the process. Better understanding leads to better management, which leads to savings.
3. Develop a strategy
Just as your business has a game plan (for example: goals, vision, mission, five-year plan), there are subtle yet distinct ways to work your insurance program to maximize your coverage for minimal cost.
4. Invest the time
You spend years and years going to school so you can get a good job or start your own business. You go to conferences and seminars to aid in your development as your career progresses. If you take the time initially to learn about insurance, how it works, and how you can make it work for you, it will help you reap real financial benefits while providing the maximum coverage for your company.
One of the biggest questions that business owners face is whether they are properly insured. Vassar provides a really helpful set of questions to help business people answer that question. In a section called the ABC’s of Risk Management, he offers up eleven crucial questions to help people determine their risk management needs.
Some of these questions are:
1. Do you own the facility? If yes, is the replacement amount on the policy sufficient to cover a total loss to that facility? If no, do you have the proper coverage as required by the lease?
2. Are customers regularly on the premises? If yes, does your present coverage adequately protect you from them?
3. Are there employees on the premises? How many? Who does what?
4. Is there inventory on premises? Is it properly valued to cover a loss?
5. Is there equipment on-site, which is leased and, if owned, properly valued?
6. Would the loss of a piece of equipment interrupt the entire process? If the
answer is yes, would this disruption cause a significant loss to the organization? Is the company covered under any of the present coverage?
7. Do you depend on suppliers for key aspects of this process, and if so, would the loss of this supplier interrupt the process in any way?
And more.
Rick says he designed this analysis for super simplicity, which will allow you to define your risks and determine what you will need to protect yourself in the event of a accident or disaster.
Hide! Here Comes the Insurance Guy also provides valuable strategies for interacting with the insurance industry from an insurance professional who has operated on the business-buyer end of the process. Here are some of the most effective tactics you’ll ever find in the areas of business insurance and risk management demystified by a businessman who has actually achieved real cost savings for himself and his clients.
Hide! Here Comes the Insurance Guy provides insight into an aspect of business life that few people readily understand. This wonderful little book can show you how to protect your company from losses and save lots of money in the process.
Hide! Here Come the Insurance Guy – A Practical Guide to Understanding Business Insurance and Risk Management
Expert offers up eleven crucial questions to help people determine their risk management needs
(Arlington, VA) Rick Vassar is not your ordinary run-of-the-mill insurance person. Rick Vassar does not sell insurance. He buys insurance. He is a risk manager. He’s refreshing and totally committed to making people trust him in spite of his chosen profession!
His new book, Hide! Here Comes the Insurance Guy, educates and entertains with energy and enthusiasm, and it’s a must-read for anyone who owns or operates a business.
This is a truly unique concept – an authoritative explanation of business insurance and practical cost-saving risk management strategies from the business perspective.
With a no holds barred and no prisoners taken approach, he takes the mystery out of the most mind-numbing insurance questions that plague everyone who’s ever sat down with an insurance policy and tried to make sense out of the minefield of questions that have to be answered.
“We all need insurance,” he says “but let’s face it – most of us can’t understand a single word insurance people are saying.”
With humor and a bit of spunk, you can go to Vassar for the answers!
In any organization, not managing your insurance program can cost a company thousands, if not millions, of dollars.
Hide! Here Comes the Insurance Guy is a guide to business insurance written by a businessman.
For example, here is a sampling of some of this truly sane advice about how you can attack the subject and divide up the risk management process into four distinct steps to control & improve your insurance costs:
1. Understand the language
Like any other specialization, insurance has a language and cadence all its own. You must learn the language to understand the process.
2. Know the players
Once you understand how all the pieces fit together, you will better understand the process. Better understanding leads to better management, which leads to savings.
3. Develop a strategy
Just as your business has a game plan (for example: goals, vision, mission, five-year plan), there are subtle yet distinct ways to work your insurance program to maximize your coverage for minimal cost.
4. Invest the time
You spend years and years going to school so you can get a good job or start your own business. You go to conferences and seminars to aid in your development as your career progresses. If you take the time initially to learn about insurance, how it works, and how you can make it work for you, it will help you reap real financial benefits while providing the maximum coverage for your company.
One of the biggest questions that business owners face is whether they are properly insured. Vassar provides a really helpful set of questions to help business people answer that question. In a section called the ABC’s of Risk Management, he offers up eleven crucial questions to help people determine their risk management needs.
Some of these questions are:
1. Do you own the facility? If yes, is the replacement amount on the policy sufficient to cover a total loss to that facility? If no, do you have the proper coverage as required by the lease?
2. Are customers regularly on the premises? If yes, does your present coverage adequately protect you from them?
3. Are there employees on the premises? How many? Who does what?
4. Is there inventory on premises? Is it properly valued to cover a loss?
5. Is there equipment on-site, which is leased and, if owned, properly valued?
6. Would the loss of a piece of equipment interrupt the entire process? If the
answer is yes, would this disruption cause a significant loss to the organization? Is the company covered under any of the present coverage?
7. Do you depend on suppliers for key aspects of this process, and if so, would the loss of this supplier interrupt the process in any way?
And more.
Rick says he designed this analysis for super simplicity, which will allow you to define your risks and determine what you will need to protect yourself in the event of a accident or disaster.
Hide! Here Comes the Insurance Guy also provides valuable strategies for interacting with the insurance industry from an insurance professional who has operated on the business-buyer end of the process. Here are some of the most effective tactics you’ll ever find in the areas of business insurance and risk management demystified by a businessman who has actually achieved real cost savings for himself and his clients.
Hide! Here Comes the Insurance Guy provides insight into an aspect of business life that few people readily understand. This wonderful little book can show you how to protect your company from losses and save lots of money in the process.
Hide! Here Come the Insurance Guy – A Practical Guide to Understanding Business Insurance and Risk Management
Insurance and the Myth of the Hard Market
The hard market is the stuff of legend as far as I’m concerned. To me, it appears to be a cyclical and arbitrary theory promulgated by the insurance company to justify the need for increased premiums to fuel shortfalls caused by free market conditions and certain disasters that adversely affect the insurance industry.
But that’s just me.
First, let me say that there may have been a time that the theory of a hard or soft market may have been justified. I’ve only been in the business since 1986, but the research on the issue is a little sketchy.
From what I have gathered, soft markets, in which insurance premiums drop and the market is more advantageous to the buyer, generally lasted two to five years and would follow the cyclical trends of the economy.
By 2001, we were almost nine years into a soft market, and there were no real signs that it was going to turn anytime soon. By the insurance industry’s estimation, we were at least four years overdue for the market to harden, which would have led to significant and, in my opinion, arbitrary price increases, and all I heard from the industry professionals was this:
“Be prepared. The market is starting to harden. These low rates can’t last for long.”
And so it went.
Then there were the bombings of the World Trade Center and the Pentagon on September 11, 2001. Now, there is no doubt that this was a catastrophic event, the likes of which have never been seen on American soil. But from an insurance standpoint, and particularly from a property casualty standpoint, this was not a catastrophe that should have ushered in the hard market in the insurance industry that came about immediately after these events—especially in the property casualty market.
Much of the loss of life was covered through life insurance. As of this writing, the property claim at the World Trade Center has yet to be resolved, although a federal jury has categorized the event as two occurrences, meaning that the ownership group could collect the limits twice because the policy was written on an occurrence basis.
The losses that ensued from business interruption and loss of revenue coverage were well funded prior to this loss, and therefore should have been a non-factor. I firmly believe that the insurance industry took this event and used it as an excuse to arbitrarily “harden” the market. The losses were well funded, and although the fallout from 9/11 did result in the bankruptcy of some insurance carriers, these companies can find no fault beyond their own parking lots because of their internal reserve and surplus policies before the event.
Now that the industry has had the opportunity to review the economic fallout from these attacks, these appear to be a consensus of understanding:
Total economic loss due to the attacks was around $38 billion.
Insurance losses amounted to roughly 50 percent of that total ($19.1 billion).
The property damage to the World Trade Center alone was approximately $7 billion of the total
Much of the losses were covered by life insurance, which would not significantly affect the property casualty side of insurance.
Thus, you are looking at property casualty losses, independent of the WTC loss, which was absorbed by one group of insurers and reinsurers, of less less than $10 billion. In contrast to this, the economic effects of Hurricane Katrina are estimated to be in excess of $50 billion. Hurricanes Ivan and Charley in the summer of 2004 have estimated losses of $19 billion. Yet, neither of these events seem to have had the impact on the insurance markets that the 9/11 attacks did.
I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.
The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.
These market conditions were becoming evident prior to 2001 and fell back into line fairly quickly after 2001. From an indemnity standpoint, the 9/11 attacks should have been a nonevent but for the insurance industry’s need to have an excuse to raise premiums and rid themselves of some bad risks they were forced to take due to the increased competition from FSMA.
Now be forewarned. I'm told the market is going to start to harden later this year.
But that’s just me.
First, let me say that there may have been a time that the theory of a hard or soft market may have been justified. I’ve only been in the business since 1986, but the research on the issue is a little sketchy.
From what I have gathered, soft markets, in which insurance premiums drop and the market is more advantageous to the buyer, generally lasted two to five years and would follow the cyclical trends of the economy.
By 2001, we were almost nine years into a soft market, and there were no real signs that it was going to turn anytime soon. By the insurance industry’s estimation, we were at least four years overdue for the market to harden, which would have led to significant and, in my opinion, arbitrary price increases, and all I heard from the industry professionals was this:
“Be prepared. The market is starting to harden. These low rates can’t last for long.”
And so it went.
Then there were the bombings of the World Trade Center and the Pentagon on September 11, 2001. Now, there is no doubt that this was a catastrophic event, the likes of which have never been seen on American soil. But from an insurance standpoint, and particularly from a property casualty standpoint, this was not a catastrophe that should have ushered in the hard market in the insurance industry that came about immediately after these events—especially in the property casualty market.
Much of the loss of life was covered through life insurance. As of this writing, the property claim at the World Trade Center has yet to be resolved, although a federal jury has categorized the event as two occurrences, meaning that the ownership group could collect the limits twice because the policy was written on an occurrence basis.
The losses that ensued from business interruption and loss of revenue coverage were well funded prior to this loss, and therefore should have been a non-factor. I firmly believe that the insurance industry took this event and used it as an excuse to arbitrarily “harden” the market. The losses were well funded, and although the fallout from 9/11 did result in the bankruptcy of some insurance carriers, these companies can find no fault beyond their own parking lots because of their internal reserve and surplus policies before the event.
Now that the industry has had the opportunity to review the economic fallout from these attacks, these appear to be a consensus of understanding:
Total economic loss due to the attacks was around $38 billion.
Insurance losses amounted to roughly 50 percent of that total ($19.1 billion).
The property damage to the World Trade Center alone was approximately $7 billion of the total
Much of the losses were covered by life insurance, which would not significantly affect the property casualty side of insurance.
Thus, you are looking at property casualty losses, independent of the WTC loss, which was absorbed by one group of insurers and reinsurers, of less less than $10 billion. In contrast to this, the economic effects of Hurricane Katrina are estimated to be in excess of $50 billion. Hurricanes Ivan and Charley in the summer of 2004 have estimated losses of $19 billion. Yet, neither of these events seem to have had the impact on the insurance markets that the 9/11 attacks did.
I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.
The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.
These market conditions were becoming evident prior to 2001 and fell back into line fairly quickly after 2001. From an indemnity standpoint, the 9/11 attacks should have been a nonevent but for the insurance industry’s need to have an excuse to raise premiums and rid themselves of some bad risks they were forced to take due to the increased competition from FSMA.
Now be forewarned. I'm told the market is going to start to harden later this year.
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