By The Numbers

By The Numbers

By The Numbers

The insurance industry lives and dies by the numbers.  A.M. Best published its 2014 annual figures for the property and casualty industry in June.

The first thing that struck me was a dose of personal humility. It occurred when I realized my agency, which I think is significant, places only .0035% of the $570 billion that makes up the P&C total for the United States.

Then I started to look inside the numbers.

Private Passenger Auto still dominates the industry comprising over 53% of the total. Homeowners’ makes up another 15%. Workers’ Compensation, although a sizable chunk, at $55 billion is just under 10% of the total premium.

However, if driverless cars were to become fully functional and Obamacare was to right itself and absorb Workers’ Comp, our industry could easily drop to half its current size.

State Farm is still the 1,000-pound gorilla in the personal lines world with just slightly under 20% of the market share. GEICO has just over 11% of the private auto. AIG and Travelers’ dominate the commercial side, but their share of the market is much less.

Overall the market grew 4.4%, which is beyond inflation, indicating the industry is starting to assume more of the ever-growing risk in the world.

Nationwide is the king of the $4 billion farm market, with about 10% market-share.

In the tough private passenger auto market, Travelers’ had the best underwriting performance of the top fifteen companies with a 58.4% adjusted loss ratio. Homeowners’ adjusted loss ratios were much better than auto with Travelers’ again having the best year at 40%.

James Holm

Do People Trust Insurance Agents

People respect insurance agents, but do they trust them?

Do People Trust Insurance Agents

A Gallup poll in 2012 indicated only 15% of those responding stated they rated the honesty and ethical standards of insurance salespeople as either “very high” or “high”. In comparison, 82% rated nurses as either “very high” or “high”.

To give you perspective here are some other professions and the percentage of people who rated them either “very high” or “high”.

Pharmacists 70%
Police Officers 54%
Clergy 47%
Auto Mechanics 29%
Bankers 27%
Local Officeholders 23%
Lawyers 20%
TV Reporters 20%
State Officeholders 14%
Car Salespeople 9%
Members of Congress 8%
Lobbyist 6%

Professions Ranked High

On the bright side only about 10% rated insurance salespeople as either “very high” or “high” for honesty and ethical standards ten and twenty years ago. However, do we really want to be considered less ethical than the average Lawyer?

Polls also show that 80% of all people who buy insurance want an agent involved. So how do we reconcile that with the 36% who state that we have either “very low” or “low” ethical standards?

My guess is that when people answer these polls that have the same dilemma people have when asked about congress. In a recent Rasmussen poll only 8% rated congress as doing a “good” or “excellent” job, yet 29% felt their representative deserved to be reelected.

The low ratings probably have something to do with insurance being an intangible product that breeds mistrust because so few understand it. The other day on the radio I was listening to a show that “warned” people to be careful because home insurance contracts take away coverage for flood and earthquake “in the fine print”.

I’m of the opinion that there are a lot of very, very good people who happen to be insurance agents. Having dealt with thousands of agents during my career I’m sorry to say that there are seemingly more bad ones than good.

Before you toss me into the caricature of the old geezer who is slipping into general nastiness, consider the following.

Many agents are too young to have formed solid ethical standards. In a few years, they will be just fine. At the other end of the spectrum are those who should have retired and have allowed the world to sour them.

About a fourth are just plain bad apples. I’ve been shocked over the years by some who have done things that we all would say were dishonest.

When the public thinks about insurance salespeople, they’re including a lot of people we wouldn’t necessarily think of as selling insurance. They might be including the appliance salesperson who tried to sell them a worthless warranty. They could have just had a bad experience with a pushy counterperson at a car rental agency. They may have encountered a car salesperson who also tried to add on insurance. You can hardly buy anything today without someone trying to sell you some sort of “policy”.

Some of our fellow agents are lazy and incompetent, which could easily be misinterpreted as dishonest.

So, how can you build trust with your customers?

Do what you say you will. Fulfill your promises. Don’t hedge on your promises.
Be honest. Tell the truth. If you do lie (everyone does), own up to it.
Be open. Tell the full truth. Offer information easily. Avoid secrets. Expect others to be honest. Don’t cover up the truth.
Keep Confidences. No gossip.
Wear your integrity proudly. Be fiercely loyal. Know what you’re doing. Always practice fairness.

John Wooden said it best, “Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

As the NFL is experiencing, even a $45 billion dollar empire can be shaken by bad publicity. On the other hand, Viking’s fans know that one good quarterback covers a lot of ills.

James Holm

Tessa Holm

Are Youth Sports A Lightning Rod for Legal Action?

My daughter played multiple youth sports growing up and eventually played soccer for Coe College. It was a wonderful experience for her, which has taught her a great deal she can call upon her entire life. She is a math teacher in a middle school just outside of Madison WI and has already started coaching.Tessa SportsI’m concerned that she will be targeted for legal action at some point in the future. I’m almost certain that if she continues to coach she will have players who suffer injuries; some of them might be very serious.

1.35 Million ER Visits

The National Underwriter issued a story on September 4, 2014 that focused on youth sports injuries. According to that story 1.35 million young players suffered an injury during 2012 that required an Emergency Room visit. Nearly 164,000 of those visits were diagnosed as concussions.

During her sophomore year my daughter’s roommate was a girl who had played soccer her freshman year, but was unable to continue due to short-term memory problems attributed to concussions. She was a lovely girl who probably will have to deal with this the rest of her life.

A year ago a friend of mine who played for the Minnesota Vikings told me that he was starting to have problems with memory. I wasn’t shocked as he was noted for his play and was named captain of the special teams by Bud Grant.

Today’s Minneapolis Tribune carries a letter to the editor from a mother who wishes that thirty years ago she had refused to allow her son to play football. His concussions have caused long negative impacts.

Players Too Young to Make an Informed Decision

How long will it be before suits start flying that hold schools and other sports authorities responsible for not explaining the probability of injury? Even if the probability of injury is explained in depth the injured person will contend that they were incapable of assessing the gravity of the situation.

Consider that 59% of high school football and college players believe they will receive a college scholarship.  Many of them imagine themselves to be pro material, when the reality is only 1 in 16,000 high school athletes attains a professional career in sports.

Some Do Make It

I’ve coached dozens of youth sports teams. I’ve officiated hundreds of high school and grade school football and basketball games. I coached tennis at the high school level in 1969 when my team took second in the state.  I’m a huge sports advocate.

Yet, I’ve been outspoken about the problems involved in youth sports for the last full decade. During that time I had an ongoing debate with a friend who believed I was being too harsh in my assessment.

I would tell him how seventy percent of those who start in youth sports would drop out by junior high. I would quote numbers like those stated above to show him that young players were self-deluded and that youth coaches were culpable for perpetuating the myths of success.

Who knew his son would grow eleven inches between his sophomore and junior year in high school? Who knew his son would get a scholarship to Wisconsin to play for Bo Ryan? Who knew his son, Jon Leuer, would evidentially go on to play in the NBA?

Yes . . . it does happen. But for every Jon Leuer there are nearly 10,000 high school players who will not achieve what they think is a reasonable goal. There are 10,000 high school kids who are making decisions based on erroneous assumptions. There are 10,000 young kids who will have a plausible argument that they were taking a risk based on incomplete and specious knowledge.

Agents Need to Speak Up

Insurance agents reading this blog should take it upon themselves to discuss youth sports injury figures with sports leaders in their communities.

Don’t assume that only boys playing football are at risk. Actually girls are eight times as likely to have an ACL injury as boys. My daughter had knee surgery. My three boys were relatively injury free although one played college football and one college soccer. They both dropped out of their sports in college, which we now all look at as a blessing.

When someone is being seen every three minutes in the United States for a concussion–related injury, this qualifies as a national epidemic.

There are lawyers licking their lips over class action suits to come. Talk to your customers about the potential for them to be named in the class action, if they serve as a coach or board member for youth or school sports.

Offer to review league practices for risk management or to help them understand their liability issues and the policies they have in place or should have in place.

My experience with school administrations have left me shaking my head at their lack of understanding of what is needed and why. You can help. An outside eye might be just what is needed.

Farmers Insurance Sues Over Climate Change

Farmers Insurance Sues Over Climate Change

“What the heck???!!!”

You’ve probably heard the news that Farmers Insurance filed a suit against about 200 Chicago-area municipalities. The suit contends that those municipal governments knew the risk posed by climate change and should have been better prepared.

Farmers Insurance Sues Over Climate Change

Farmers Insurance is seeking damages for losses caused to their insureds’ homes by the surge of storm water and sewage overflow due to a 2013 torrential storm. Farmers Insurance contends that because of climate change heavy downpours are happening more frequently and cities should know this and make the proper preparation.

They argue the cities should have increased their storm water capacity. They further argue that steps could have been taken days before the storm to mitigate damage.

Farmers Insurance is a subsidiary of Zurich Insurance Group. Another Zurich subsidiary won a climate related suit in 2012.

Some combine the logic of the two suits to indicate a Zurich strategy to insulate itself against climate change losses.

Some pundits have speculated that since cities enjoy governmental immunity, Farmers Insurance will probably amend the suit to bring in the oil and gas industry. And, would it be long before the agricultural industry would be brought in as a co-defendant?

What is really at stake here?

There is great fear in some quarters that the insurance industry will be left holding the bag for costs related to climate change much like it was for asbestos.

The lawsuit by Farmers states, “The defendant knew or should have known that climate change in Cook County has resulted in greater rainfall volume, greater rainfall intensity, and greater rainfall duration than the pre-1970 rainfall history evidenced, resulting in greater storm-water runoff.”

It would appear defense attorneys would claim that Farmers Insurance’s underwriters also had knowledge of the potential damage and elected to accept the risk. I would tend to agree with that position.

I believe the sustainability of the property and casualty market for homeowners into the future depends on increased deductibles, making the accountability for incurred loss more squarely the individual’s problem. At that point decisions will be made by homeowners that result in much less total catastrophic loss. Fewer homes without proper construction will be built in areas prone to tornados. Dwelling will be built less often on ocean front property with limit ability to withstand storms. Sprinklers will protect homes built in areas that are prone to fire.

Courts are a lousy place to seek change to protect your business.

James Holm

Ethics and Insurance

I started my career in 1970 in a management trainee program for the Continental Insurance Company of New York. The two-year course included classroom instruction in the Chicago office from the corporation’s top management in the various departments.

Continental Insurance logo

As I recall, even though the course went into great detail with subject matter that ranged from a full day tour of Underwriter’s Laboratories to actual hands on boiler inspections, the material presented barely touched on ethics.

The education manager did tell us that our corporate objective was to meet the reasonable assumption for coverage by the insured. Of course, that was the legal theory in practice at that time and still is to some degree.

The education manager railed against Mayor Daly’s actions when the McCormick Place burned. According to him the huge convention center should have been a partial loss of about 10%. He said the Mayor condemned it based on political reasons and rolled the bulldozers before objections could be launched. He said it very quietly, because such words criticizing “Hizzoner” were considered treason in Chicago in the early 1970’s.

The VP of underwriting for farm, who was the head of underwriting for the nation, spoke to us for over an hour about the ethical considerations of farm underwriting. He said that when a fire occurred the difference between a small fire and a total loss often came down to whether the farmer walked or ran to his phone to call for help. He said that if the farm was prosperous he would likely run.

He never once spoke to the ethics of the underwriters on his own staff. He seemingly just assumed they would “do the right thing”.

It seemed like ethics were considered a given, at that time.

Shortly after we went through the course, I heard about an underwriter in the Chicago office who “issued” a phony policy to one of the large downtown Chicago hotels. The underwriter, and a small number of co-conspirators collected and pocketed the “premium”. They had written the policy on the $30 million hotel with a $100,000 deductible and assumed there would be no losses. Unfortunately for them, a $3 million fire occurred.

That was the first time that I realized that insurance employees did bad things.

About that same time a theatre burned to the ground in a small town in southern Minnesota. The agent in that town wrote nearly every large business in his town with The Continental. The Continental was the largest fire company in the U.S. at that time. The agent had “bound” the business verbally the day before the fire. I was traveling with the Special Agent (field rep) for that territory as the last lap of my training. We were working out of the Minneapolis branch.

About ten people in the branch, the manager, production superintendent, several key underwriters, the claim manager and several field people met after hours and constructed an underwriting file to send to the home office. The file was duly date stamped to make it appear it had been handled properly, and in a timely fashion, so that the $250,000 loss could be paid without fail.

I didn’t feel right about what was done that evening. I did understand that The Continental was the “logical carrier” and probably would be held for coverage by a court of law. But in my mind, the agent’s E&O should have responded. I was told the E&O carrier would subrogate against The Continental, so what we were doing was merely avoiding a lot of red tape and embarrassment for a good agent.

My first year in the field I was asked by one of my largest agents to help him back date coverage to cover a claim. I refused. He went around me to my superior who also refused. In the end, the agent cut back sharply on the business he placed through our company. In hindsight doing less business with an unscrupulous agent wasn’t a bad thing.

A few months later another agent asked me to fulfill the promise of an exclusive sales territory that my predecessor had “promised” to him. The agent was a bank president whose agency placed a great deal of crop/hail through our company. He wanted me to make him the only agent who could write crop/hail through us in his county. My predecessor had retired but stopped in our office quite often for coffee. He told me that not only had he not offered an exclusive, the subject had never come up.

I kick myself even to this day for not closing that agency for my company, because two years later that banker/agent handed us a $2 million loss under the bankers’ blanket bond. It seemed his dishonesty went beyond fabricating conversations.

Perhaps the first instance of corporate ethics that hit home for me was on the last day of our training. We were having a few congratulatory beers when one of the home office people asked me what I thought of the education manager. I can remember telling him that I thought the manager was quite sharp, maybe too sharp for the position he held. It was explained to me that he had recently been demoted from a fast track to the CEO office. His son had broken into a draft board and burned records. His corporate career was essentially over. I’ve often wondered about that home office decision.

Over the years I’ve seen dozens of occasions when ethics were challenged and found wanting. So much so that it appears that maybe we all should take a moment to think about how we make ethical determinations.

Years ago I was introduced to a process for determining whether or not a considered action passed the test of ethics.

  1. Define the problem. If you can’t reduce the problem to a one-sentence statement, perhaps it is more about unresolved personal issues than a real business problem.
  1. Consider alternatives. Once you have a comprehensive list, you might be able to eliminate those alternatives that present ethical problems immediately. Make sure your alternatives are legal and meet the standards and rules you work under.
  1. Establish a list of the stakeholders, who will be impacted by your actions.
  1. Determine how each stakeholder will be impacted by your action and assign a score for each stakeholder on a scale of one to ten with one being very poor and ten being excellent.
  1. If your average score is less than seven you need to consider other alternative actions.

If all else fails use the “mom” test. Many people say if you would not be embarrassed to have your mother read about your actions in the local paper, it probably is ethical.

James Holm

Snow Storm Atlanta Traffic

Insurance Is the Ultimate Infrastructure

Snow Storm Atlanta Traffic

The videos and news accounts of the horrible traffic snarls and accidents in Atlanta is a grim reminder of the power of nature. At times it seems like mankind’s ability to mitigate the negative impact is overly limited. Especially when you read that as many as thirteen people died due to the storm, including the traffic fatalities.

A few days ago I posted a blog on about fracking. In that blog I came to the conclusion that fracking might not be as big a problem in North Dakota as the lack of proper infrastructure. Infrastructure can be defined as basic organization or services.

Definition of Infrastructure

Faulty and insufficient pipelines are creating spills and causing too much traffic on roads and railways. Lack of adequate restaurants and stores and housing are forcing the oil field workers to live in “man camps” made of semi trailers and imagination, and to spend hours shopping  . . . instead of minutes.

My blog also concluded that insurance could play a powerful role in the oil field in applying loss control and engineering in a constructive effort to reduce loss without impeding production. As such, insurance could be an important part of the oil field infrastructure.

The situation in Atlanta would be much, much worse if it wasn’t for insurance.  Obviously auto insurance is a necessity that can mitigate the devastation of a chain reaction collision that ultimately involves dozens of automobiles. The resulting bodily injuries can easily run health care costs in the $millions. In those instances where death occurred life insurance can make the loss less traumatic by easing the financial transition.

Lack of Snow Plows in Atlanta

It might seem a far stretch to think of an economy where insurance doesn’t exist, but for me it is quite easy. In the mid-1980s we were in the midst of a very hard market. Political subdivisions and state agencies in North Dakota were struggling to find affordable insurance.

  • The University of North Dakota Medical School, whose graduates supply a large percentage of health care for the state, was closing because it couldn’t find malpractice insurance for the teacher/physicians.
  • The leafy spurge program had shut down and projected losing twenty years in the battle against this noxious weed.
  • The municipal zoos in Bismarck and Wahpeton had both closed.
  • Many senior citizen buses were parked because they couldn’t afford insurance.
  • Hundreds of board positions for cities, counties, schools, and other political subdivisions were going unmanned because they couldn’t purchase director’s and officer’s coverage.
  • Many cities, counties, schools, etc. were facing budgetary problems with their insurance premiums doubling and tripling.

I was asked to talk to an interim committee of the state legislature about insurance cycles. At the end of my discussion they asked what they should do to solve their crisis. I told them to form a self-insurance pool.

Several state officials including the insurance commissioner, the attorney general, and the head of management and budget met with me the next day and challenged me to create such a pool. Less than sixty days later we issued our first insurance policy. Today that pool has over $50 million in assets, works through agents, and has saved the people of North Dakota $millions while solving the pending problems.

Insurance is necessary and life without it would be harsh.

Affordable Care ActA few weeks ago I had lunch with my insurance agent. He had an idea for saving us some money. He reminded me that health insurance has been turned inside out by the Affordable Care Act. He suggested that we have our people buy individual policies and increase their payroll accordingly.

It sounded absurd, but we gave it a try because life without health insurance would be unthinkable. It was nice to find out that we’d dropped our annual expense for health care for our employees by nearly $3,500 per insured person per year.

I have great empathy for the tragedy in Atlanta. It must be rough living where public officials seemingly don’t understand the importance of ice-free roads. However, their plight is one more example that knowledgeable agents combined with robust insurance policies written through financially strong insurers provide infrastructure for our country.

James Holm