Are Insurers the Next Bailout Beneficiaries?

Posted on by admin

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,  Prudential  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. 

Financial Crisis May Affect Insurance Pricing, Capacity

Posted on by admin

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. 

And the system has worked. The insurance industry successfully weathered 9/11, killer hurricanes Andrew, Hugo  and Katrina  without threat of a government bailout  or late-night fire sales of insurance companies. 

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!

Don’t Fall into an Accident this Autumn

Posted on by admin

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.

Bicycle Commuting in Maine: Tips to Reduce Your Financial Risks

Posted on by admin

Bicycle commuting is increasingly popular, with over 200 people registered for the online Portland Bicycle Commuting Meetup group. You don’t need a fancy new bike to commute. In fact, many people use older 10 speed or 3-speed bikes. But many others have invested a considerable amount in their commuter bikes.

Of course there are many ways to protect their asset and means of transportation. A good lock is a no-brainer. So is riding carefully and competently to avoid colliding with vehicles. Ditto for dressing brightly and using lights to increase visibility.
But what if the worst happens? What if your bike is stolen, or if you are in an accident with your bike? The good news is that homeowners or renters insurance will cover damage to your bike caused by theft or collision with a vehicle. The bad news is that too many apartment-dwellers (a considerable share of the bike-commuting population) fail to buy renters insurance at all. This stuff is cheap! Covering your “stuff” up to $20,000 often costs less than $15.00 a month. If you own a vehicle, you usually qualify for car insurance discounts if you buy a renters’ insurance or homeowners insurance policy from the same company. Often, the car insurance savings will almost pay for a renters policy.
Losing your bike would stink, but losing everything else, including future earnings, would stink even more. That’s what can happen if you cause an accident. See, you can be liable for an accident just like an auto driver can. Let’s say you make an “Idaho stop”, and proceed through the intersection, failing to notice that oncoming car. The car slams on the brakes, swerves, and misses you, but hits something else. Guess who’s at fault? It would be nice to have some insurance to help you pay the damages and court costs. That’s what your old friend the homeowners/renters policy is for!

Most cyclists take care to operate their bikes safely and protect their property. They invest a lot of time and effort into staying safe. Despite these efforts, bad things can happen. So do yourself a favor: get a renters insurance quote or homeowners quote and protect yourself.

For more information about insuring your bicycle, car, home or other property, contact Noyes Hall & Allen Insurance at 207-799-5541.

Bike Commuting – A “newbie” Hits the Streets of Portland Maine

Posted on by admin

I recently bought my first new bike since I was in junior high (I know, that term gives away my age), and have been trying to commute to work one day a week. It’s good exercise, lots of fun, saves gas, and takes one more car off the road – at least briefly.

I had a few questions to answer before attempting my first commute.
  • Did I have the stamina? My job is mostly sedentary. I walk more than most people, but that’s the extent of my regular exercise. To build endurance, I took longer and longer rides, culminating with a Sunday night “dry run” to the office. It’s only 6 miles, but there are some pretty big hills. It was surprisingly easy. Within a week or two, I felt ready.
  • How would I manage traffic? Sharing the road with cars and trucks was a bit intimidating at first. I went to a discussion about bike safety sponsored by the Portland Bike Commuters Meetup Group. It was great! I learned how to ride in traffic and to increase my safety while on the bike.

The main idea is to dress “bright and tight” and behave like a slow vehicle on the roads – which makes perfect sense. In other words, stay on the street (sidewalks are for pedestrians), “take the lane” when necessary and appropriate, and behave in a predictable manner – using the rules of the road that I already know from driving a car. I also bought a blinky red light for the rear of my bike – only $2.00! A bargain!

 I joined the online Meetup Group that night, and was pleasantly surprised to learn that there were over 200 members who were commuting in Greater Portland!

  • How would I “clean up” at work? Our office doesn’t have a shower. I found that the cool temperatures in the morning prevented me from getting too sweaty. I also paced myself to avoid getting overheated, and dressed in layers I could peel off if necessary (it wasn’t). I found some great beginner’s tips at a web site called Commuting 101 where people shared practical ideas about bike commuting.
  • What if I had an unexpected appointment during the day? This one hasn’t come up yet. I have been able to arrange my schedule for one “office day” a week. If I really needed to get someplace in a hurry, I could probably borrow a co-worker’s car.

I don’t think I’ll become a hard-core year-round bike commuter like some of the people I see on the road every day, but I’ve enjoyed my “alternate commute” the few times I’ve done it.

Some early observations:
  • It doesn’t take much longer than commuting by car. About 30 minutes vs. 15 by car.
Portland drivers are quite accommodating to bikes.  People generally give me the 3 feet clearance they’re supposed to, and pass me only when it’s safe to do so. They’re also patient when I join them in a line of traffic at a light, allowing me to clear the intersection without tailing too closely.

PhpThumb.phpThe proper equipment helps me to feel more confident. Thanks to a timely birthday, I now have a white front light, a “screaming yellow” jacket, the aforementioned blinky red light, a pump and water bottle. I feel visible and equipped to handle most minor emergencies that could arise. I carry a cell phone just in case.

In the next post, we’ll talk about how cyclists can protect themselves and their bikes from other types of accidents.

Lessons from the Lapointe Trial Verdict

Posted on by admin

Many Mainers followed the recent trial of Medway, MA and Bridgton, ME resident Robert Lapointe, who was charged with manslaughter, reckless conduct with a dangerous weapon and aggravated OUI following a collision on Long Lake in which killed Terry Raye Trott of Harrison and Suzanne Groetzinger of Berwick. The jury was deadlocked on the first two charges and found Lapointe guilty of the third. 


Regardless of your opinion on the case (and everyone in Maine seems to have a strong one!), there are some items worth noting:

  • The criminal trial was only part of Mr. Lapointe’s worries. There will surely be a civil trial now that the criminal trial is over. Yes, he was convicted of two counts of Aggravated OUI, each of which carries a maximum sentence of 5 years in prison. And, the State hasn’t decided whether to re-try him on the two deadlocked charges. 
  •  A civil trial, which would likely charge wrongful death, would be protracted and expensive – regardless of the outcome. Probably the most famous civil trial following a criminal acquittal was The O.J. Simpson case. As everyone knows, Simpson was acquitted of murder in the criminal trial, only to be found guilty of civil charges, which cost $8.5 million in compensatory damages and $33.5 million in punitive damages. 
  • Maine homeowners insurance and Boat Insurance policies offer liability protection, including defense costs. This would apply only to civil – not criminal – charges. The maximum limits available are generally $500,000. Too many people fail to even carry this amount.
  • Personal Umbrella Insurance policies provide excess liability protection in increments of $1 million. Best of all, legal defense costs are usually NOT taken out of that limit: most policies provide a full $1 million of protection against damages.

 You probably have a tough time identifying with O.J. Simpson or Robert Lapointe. Their cases are extreme. But bad things can happen to ordinary people, too. And your assets can be wiped out by defense costs and liability judgements following an accident. 

Takeaways:
  1. Review your homeowners policy. 
  2. Compare your liability coverage to your net worth.
  3. Consider buying an umbrella policy.  
  4. Talk to your insurance agent.   
  

Kyle Causes Suspension of Binding Authority

Posted on by admin

Insurance companies suspend agents’ authority to bind any new coverage or to increase coverage on buildings, vehicles or other property when an area is under a “severe storm warning”. This includes

  • Gale Warnings
  • Tropical Storm Watch or Warning 
  • Hurricane Watch or Warning. 

 As a result, we expect to  be unable to bind coverage for most of the weekend.  

Our 24/7 claim service will be available as usual. Call our office at 207.799.5541 for instructions. 
For instructions on how to protect your property in the event of a storm, visit the Insurance Information Institute’s Disaster Preparedness page. 
Be safe this weekend!

A Useful Site to Learn About Insurance

Posted on by admin

The National Association of Insurance Commissioners (NAIC) has produced a consumer-friendly educational site that we recommend to anyone wanting to learn more without any sales pressure, implied or otherwise. 

Many people like to do their research online before consulting with an agent or buying insurance. This site is especially good, because it's created by regulators, who 
  1. Don't sell insurance; and
  2. Are charged with protecting consumers.   

Check it out! 

AIG’s Wild Week

Posted on by admin

It's been quite a week in the insurance business. Industry behemoth AIG saw its stock price drop from over $14.00 to about $2.00 in three days. AIG has been one of the world's largest and most successful financial institutions over the past 20 years, led for years by Maurice R. "Hank" Greenberg. 

On Wednesday, The Federal Reserve Bank of New York was authorized to implement an $85 billion liquidity line, in essence giving the Federal Government control of nearly 80% of the company. 

While this is startling news inside and outside the insurance business, it's important to note the following:

  • AIG's insurance operations remain well-capitalized. The National Association of Insurance Commissioners (NAIC), a regulatory body, said in a September 17 press release  "We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims."
  • By all accounts, AIG's trouble stemmed from its financial holding company assuming more risk than they could handle when investing in complex transactions involving mortgage-backed securities. These investments are financial products, not regulated insurance products. When the housing market took a downturn, these risky investments lost lots of money for AIG's holding company.
  • Non-insurance operations are not held to the same high standards as insurance companies. Think about that when you choose the insurer you trust to protect your assets.     

Even insurance professionals were shocked by how quickly AIG's A.M. Best rating dropped from "A+ (excellent)" to "A (excellent)" , with "negative implications". If insurance people were surprised, how could individual clients keep up with it all? To make matters more confusing, AIG owns over 70 U.S. based insurance companies, with names such as Lexington, New Hampshire Insurance Company, and AIU. Many clients who are insured by them probably don't even know that they're insured by an AIG company. 

Bottom line: find a local insurance professional you trust, and rely on them for advice. These days, they are worth their weight in gold – which, not coincidentally, is an extremely hot commodity .