This summer, I've noticed a LOT more motorcycles, scooters and bicycles on the road. Many Greater Portlanders seem to have responded to higher gas prices by dropping from 4 wheels to two. I'm one of those human-powered commuters, at least when my schedule allows.
One of the appealing features of scooters for many is that they don't require a special license, unlike a motorcycle. Unfortunately, because there's no license test to study for, there's also a shortage of good safety and information for scooter riders.
We recently came across this excellent booklet from the Motorcycle Safety Foundation. Whether you're a rider, or just thinking about becoming one, it's worth a read.
Recent news reports indicate that the Treasury Department is considering expanding Congress' recently approved $700 billion bailout program to the insurance industry. The option currently favored involves buying stock in insurance companies adversely impacted by the current financial crisis and credit crunch.
The insurance industry has consistently opposed federal government regulation in its industry in favor of state regulation. However, media report indicate that some of the largest companies in the industry, including The Hartford
and Met Life
support – and have even lobbied Congress for – a share in the bailout.
What's going on?
The financial crisis affects all Americans: businesses and families. The insurance industry isn't immune. However, life insurance companies are more vulnerable to broad declines in stock prices than property-casualty companies. Here's why:
- Life insurers collect cash (premiums) which is invested primarily in long-term instruments (e.g. stocks). They accumulate huge stockpiles of cash which they invest and hold for a long time. . Because the companies don't plan to pay claims for several years (when the insured dies), they can invest in stocks, which are more volatile, but tend to outperform other investments in the long run.
- Property-casualty companies expect to pay claims much closer to the time they collect premiums (in the event of an accident or loss). So, their investments are much more conservative (usually bonds, t-bills and other secure instruments) and readily converted to cash in the case of a disaster.
The companies that are being mentioned in the bailout proposal are those with significant life insurance exposures in their product mix.
All of this reinforces some of the danger in starting down the slippery slope of government bailout of private businesses. All publicly-held companies compete with one another for funds in the capital market. They sell stock to the public. Their stock prices reflect the level and stability of their earnings potential: the higher the earnings per share, or the more reliable their projections, the higher their stock price. The higher their stock price, the higher their net worth. By bailing out banks, the government artificially boosted the stock price of publicly held banks, to the detriment of other businesses – including insurance companies.
Life companies were hit by both the declining value of their investment portfolios and the comparative disadvantage in raising capital when compared to the government-supported banks. Now, they're next in line with their hands out.
Insurance consultant Towers Perrin reported yesterday that the current financial crisis may have cut the industry's surplus – an important measure of claims-paying capacity or capital – by over 40 billion in the 3rd quarter. The firm also projected an 80 billion reduction in surplus for the year. See a press release about the report here.
The study cites several reasons for the reduction in capital, including:
- Stock market losses in companies' investment portfolios.
- Catastrophe losses incurred during a hurricane season that produced 15 Atlantic storms and 15 in the Pacific.
- Deteriorating underwriting results during a prolonged period of depressed insurance rates (known in the business as a "soft market").
Now, compared to crises in the banking and investment sectors of the economy, the insurance industry is in good shape. Because its purpose is to transfer risk from its clients, insurers have been held to a much more conservative reserving standard than those businesses. They must have a strong financial safety net to allow them to pay claims, even in the worst of circumstances.
But if Towers Perrin's predictions are accurate, this could be the beginning of a time of rising insurance rates (known as a "hard market"). Property rates, especially in coastal areas, have increased the past few years, but auto and liability insurance rates have dropped significantly the past few years. This trend could reverse quickly in the face of shrinking industry surplus. Stay tuned!
The leaves are turning, and many of us have begrudgingly turned up the thermostat for the first time since April or May. Every Fall, our Maine insurance agency sees an increase in car accidents. Many of those are caused by the angle of the early morning and late afternoon sun, which coincide with commuting hours this time of year.
Avoid “Driving Blind” by:
- Slowing down and increasing your following distance;
- Wearing polarized sunglasses to reduce glare;
- Keeping your windshield and wiper blades clean, and your washer fluid full;
- Lowering your visor to help block reflected light;
- Keeping your headlights on to make your vehicle more visible to others;
- Taking an alternate route or delaying your trip to avoid driving into the sun;
- Looking carefully for pedestrians and bicyclists in the roadway.
Keep in mind that other drivers may not see you when the sun’s angle is low. Be extra careful when pulling out of side streets or taking off from a stop sign. Drive safely!
If you have questions about your car insurance, or would like a Maine auto insurance quote online, contact Noyes Hall & Allen at 207-799-5541.