Insurance For the Community

By Sarah Martin

It might be unusual to think about, but insurance is actually a good idea for the entire community. When most people think of insurance, they think about how it can benefit them or their company on an individual basis. However, insurance also helps to benefit the same time, since whatever affects the individual also affects the entire community. Here is a look at how.

Providing for the future

By taking out an insurance policy against fire or flood or other property damage, you are not only taking care of your business in the present, but also safeguarding it for the future. Doing this shows that you have a stable business and company. A company that stays around has an impact on the community. On a personal level, having life insurance helps a man or woman to provide not only for their family while they are alive, but also for a period after they have died. Relieving the community of expenses

Many insurance policies can help remove the burden of caring for an individual from the community. For instance, workman's compensation insurance, disability insurance, maternity coverage, health insurance, and life insurance can all take care of a person, and/or their family, in a different instance where they would normally rely on the community to do so. This can help to prevent poverty and the reliance upon public aid in the event of an injury or disaster. Often, many of the natural disasters that would normally impoverish families would have less of an impact if the families had insurance.

Help maintain the standard of living

Insurance helps to make sure that individuals, families, and businesses aren't left penniless after a disaster. By doing so, they are able to maintain the current standard of living for those people.

Balance payments

Without insurance, the cost of things would shift dramatically. For instance, should a company have several debtors bankrupt out of loans; they would be forced to raise prices to make up for the difference. Then they would have to wait for money to come in again to be able to drop prices. This could have a huge impact on the market. By having insurance, losses like these are absorbed so that their impact on society is much less.

Reduce losses

Insurance also helps to reduce the actual calamities that it is designed to pay for. For instance, take discount car insurance. Because premiums for car insurance go up when there is an accident, many drivers are more careful while they are driving. By driving more carefully, there are fewer total accidents on the road.

Insurance equals equality

Having insurance allows small businesses to compete with larger businesses because the insurance helps to eliminate some of the risk. This can allow for more competition in the market and make it easier for small business owners to stay in business.

Having insurance is not beneficial just for the individual who carries the policy. Instead, it is beneficial to the entire community as a whole.

Sarah Martin is a freelance marketing writer based out of San Diego, CA. She specializes in insurance, business, and finance. For quotes for maternity coverage or discount car insurance, please visit http://cheap-insurance-rates.com/

Metropolitan's Field Force

By Kyle Y Widner

Those who knew Mr. Knapp of the Metropolitan Life Insurance Company were not surprised when, early in 1879, he packed his bags and sailed for London. He was not the kind of man to be content with armchair studies; characteristically, he headed right for the fountainhead of information on industrial life insurance, Henry Harben, of the Prudential.

Mr. Knapp was given a cordial reception. His studies at firsthand confirmed his previous decision to enter the business. His next step, one without parallel in the annals of insurance history, was executed with typical boldness. He arranged with Brice Collard, a British insurance man, to become his local deputy and to send over a sizable number of Englishmen experienced in conducting industrial insurance, to launch Metropolitans new effort in the United States.

Between 1879 and 1884 Mr. Collard commuted back and forth from London to New York, bringing to our shores several hundred able men, together with their families. Once located in key centers, these men had a heroic task to accomplish-to hire and train local Agents in the new approach, and to organize and establish district offices from the very ground up-all at top speed. They had to teach a technique of selling policies for small amounts, of receiving the premiums weekly in the homes of the insured, and of accounting for this multitude of transactions to the home office.

Many circumstances conspired to make formidable the building of an industrial insurance business in this country. The depression of 1873 and its aftermath of liquidations and bankruptcies had seriously disturbed the economic life of the nation. This was the most disastrous period in American insurance history. Policyholders lost many millions of dollars in company failures, and public faith in the institution of life Insurance dropped to a low point.

Moreover, the American people had little or no knowledge of the advantages of industrial insurance the large majority had never even heard of it. Only the Prudential Insurance Company of America and the John Hancock Mutual Life Insurance Company were already in the field, and their operations were very restricted. There had been few fraternal organizations such as the English Friendly Societies to popularize among working people the practice of saving funds for the expenses of death.

Despite these difficulties, Metropolitan flourished from the very beginning, probably because of the experienced technique of the English Agents. The first industrial policy was issued on November 17, 1879 and before another year had passed more than 200,000 such policies were issued. The insurance in force multiplied by leaps and bounds. At the end of 1880, in a little over a year, the company had on its books more than $9,000,000 of industrial insurance.

This figure was virtually doubled during the next year. At the close of 1882 the industrial business in force exceeded $34,500,000. The company passed the $100,000,000 mark early in 1886, a little more than six years from the inception of the business. As the volume of business increased, so did the Field Force. A few weeks after industrial insurance was launched the company had three district offices, with 130 Field Men. The following year the strength of the Field Force increased to 750.

By 1883 more than 1,600 men were operating from nearly 50 district offices and the expansion of business and personnel continued apace. The insurance world viewed this development with amazement. The company's success had proved the enormous popular demand for this type of protection, previously almost altogether ignored.

This author is a freelance marketing writer based out of San Diego, CA. She specializes in the history of finance, business, and insurance.

What Did the GAO Say About the Availability of Terrorism Insurance?

By Kimberley Ward

What did the recent GAO report on Terrorism insurance say and what does it mean to the insurance industry? This article presents the official conclusions and points out some other interesting facts found in the details of the report. Also, I provide my perspective on the terrorism insurance availability and call on the insurance industry to come to some consensus on the matter.

On Monday, September 15, the Government Accountability Office (GAO) released a study called "Terrorism Insurance: Status of Efforts by Policyholders to Obtain Coverage". (GAO-08-1057) As a member of the American Academy of Actuaries Terrorism Risk Insurance Subcommittee, I was involved in meetings in Washington DC as the GAO was pulling together expert opinions and background on the issues involved.

Background

The terrorist attacks of 9/11 are estimated to have caused insured losses of about 32.5 billion (as of 2006). Just after the attacks, the availability of coverage was severely impaired, causing problems in the real estate sector and other negative economic consequences.

To help mitigate these consequences, Congress enacted the Terrorism Risk Insurance Act of 2002, more commonly known as TRIA. Under TRIA, insured must offer terrorism insurance to their commercial policyholders on the same terms they offer for other coverages on the policy. In the event of a terrorist attack, the insurance industry is responsible for a deductible of 20% of their direct earned premium and 15% of losses after that. The US government would cover 85% up to a maximum of $100 billion annually. (NOTE: This seems very small compared to the financial services bailout being considered!)

The act has been reauthorized in 2005 and 2007, with changing amounts of deductible for the industry and changes in the lines of business covered. The current act doesn't expire until 2014.

The GAO was tasked with the objective to determine if specific markets in the US are having any trouble getting the amounts of coverage they wish to obtain. Specifically:

1. Availability of terrorism insurance in certain geographical areas


2. Factors limiting insurers' willingness to offer coverage


3. Advantages and disadvantages of some options for changes to TRIA or the funding mechanism.

The GAO study looked at take up rates, data on insurance companies, and interviews with more than 100 experts on various parts of the insurance process.

GAO Conclusions

The official GAO conclusions include:

• That some high-value properties in major cities may face initial challenges in obtaining enough coverage, but eventually manage to by using several insurance companies in more complex insurance structures, buying separate terrorism coverage, or self-insuring


• The current 'soft' market has helped the availability of terrorism insurance overall


• Many insurance company CEOs worry about their overall exposure (aggregation limits) in some geographical areas and seek to control their concentration there.


• There is a lack of consensus on what future TRIA options would be the most useful for improving the availability of terrorism insurance coverage.

I have garnered some other interesting information from the meat of the report. Other interesting facts from the GAO report:

• The 'take-up rate', or the percentage of commercial insurance policyholders opting to buy terrorism coverage has been between 60% and 65% since 2004.


• The cost has generally amounted to about 4% of annual premium for these customers. Note that coverage is not usually priced on a percentage basis, but as a loss cost that varies by territory. I'm assuming that the 4% refers to high risk areas since those were targeted in the scope of the study.


• The policyholders that don't purchase coverage do so because they don't feel at risk or their lender doesn't require it.


• Reinsurers and Rating Agencies may influence the purchase of terrorism insurance.

The GAO asked industry personnel about what options should be enacted to aid with the availability problems. They went on to say that no consensus of industry opinion was found. The options for modifying TRIA include:

• Lowering TRIA industry deductible following large terrorist attacks


• Permitting tax-deductible reserves for terrorism losses


• Forming insurance pools for sharing assets and losses


• Catastrophe bonds


• Limiting state regulation and requirements

What does it mean for you

As an actuary, I have several take-aways from this report. In my opinion, the fact that the GAO didn't find any serious availability issues means that TRIA will remain in place, unchanged for some time to come, unless a big terrorist attack occurs. In that case, availability will 'harden' in the short term while losses are assessed.

From a risk management and actuarial point of view, controlling concentration (or your aggregation limits) is key to sleeping easy at night, even if it makes potential insurers (or their brokers) work harder to find coverage. That effort makes the system work better because spreading the loss is an important function of insurance.

The industry's lack of consensus when it comes to alternative options really hurts the industry's credibility and their ability to influence the options eventually selected. I think a industry-wide conference with interested stakeholders in the terrorism insurance arena would be a valuable first step to a more permanent terrorism insurance solution. In my mind, the government HAS to have a stake in the final arrangement, since the government's actions have a great influence on terrorism activity in the US.

You can read the GAO report GAO-08-1057 at gao.gov.

Kimberley A. Ward, FCAS, MAAA, FCA - Kimberley serves as Partner at Windsor Strategy Partners and is located at their satellite office in Newark, IL. Prior to joining Windsor Strategy Partners, Kimberley served as Chief Actuary at AAIS. Kimberley is a Fellow of Casualty Actuarial Society. She is hold memberships in the American Academy of Actuaries, Conference of Consulting Actuaries, Project Management Institute and Association of Insurance Compliance Professionals. Kimberley's core expertise includes property-casualty actuarial pricing, reserving, product development, project management, mentoring, strategic planning, education, training and employee development. See Kimberley's blog at http://viewivorytower.blogspot.com and her company's website at http://wspactuaries.com