Fast Action Bulletin For Consumers

A message from the Executive Vice President…

Dear Insurance Consumer,

You’re receiving a limited distribution copy of this “Fast Action Bulletin” because your agent is a Charter Member of the National Society of Agents for Consumer Education.

Society Members, like your agent, are dedicated to removing the “veil of mystery” around insurance – and providing you, the consumer, with accurate, complete information about your insurance and protection decisions.

Members strive to become “Trusted Advisors” to individuals, families and businesses.

Charter Membership is among the highest honors the Society can bestow upon its members.

Sincerely,
Michael Jans, CAE
Executive Vice President

PS: The coming insurance crisis is a serious issue affecting all insurance consumers. Please feel free to print this Bulletin for future reference.

PPS: The Society refuses any and all contributions from insurance companies, so that we may remain pure to our mission: to educate and advocate for you and you only…the insurance consumer.

Special Consumer Report: An NSACE “Rapid Action Bulletin” For Smart Insurance Consumers

Early Warning Signal: How You Can Survive The Coming Insurance Crisis

Save Money…Protect Your Family, Health & Business
Limited Distribution: For Clients of NSACE Members Only!

Insurance crisis?! Most consumers “don’t have a clue.” Read this now to protect yourself from the perils of being unprepared…

In this Special Bulletin, we’ll explain:

The dramatic events (like September 11th) that led to this crisis…
How you may suffer trying just to get the insurance you need…especially if you don’t make early preparations...
Why massive rate hikes in insurance are practically guaranteed, and
What you can do to save money… without sacrificing the protection of your business, your family and yourself.lf.

4 Real World Economic Knock-Out Punches Guaranteed to Drive Up Insurance Prices

Knock-Out Punch #1: Insurance Companies Have Been Losing Money For Years … And That Must Change

Insurance companies have never been all that profitable. Wait … before you scoff in disbelief … have you ever heard a hotshot, Wall Street analyst say, “ Quick! Go invest in insurance!” Probably not.

Here’s a secret that surprises most people: insurance companies haven’t made money on insurance for years. Here’s why … during the long stock market boom of the 1990’s, insurance companies were selling their insurance at VERY low prices. So low, in fact, that on average they were paying out $1.12 in claims and expenses for every $1.00 they collected in premium … actually losing money!

Knock-Out Punch #2: The Economic Boom Is Over … And So Are Investment Profits

During the 1990’s the insurance companies did make money, of course. But they made it by investing their cash flow in the booming economy and stock market. Their investment profits more than made up for their operating losses, and the low prices helped them capture enough market share to keep the machine running.

But the economy boom started busting in 2000 and continued on into 2001. The companies could no longer make enough investment profit to make up for their operating losses, and you can guess what happened. They started raising prices. Most likely, rates would have crept up steadily over several years (with some dramatic increases in certain lines of business) until the companies’ loss ratios were once again profitable. But, then …

Knock-Out Punch #3: Tragedy Strikes America And The Financial Stability Of The Insurance Industry

Then the unthinkable occurred. On September 11, 2001 terrorists destroyed the World Trade Center. The act was horrifying. The personal loss was devastating. It can never be measured in dollars.

However, the physical damage and insurance claims are measured in dollars. Estimates run a staggering $40 billion to $70 billion in losses, and the insurance industry has to pay for that. Standard & Poor’s, the industry rating firm, said, if the losses exceed $50 billion “it would begin to worry about the insurance system.” That’s exactly where the industry is headed … maybe even more.

These huge losses will apply dramatic upward pressure on prices. Not because the insurance industry needs your money to pay the WTC losses – it has “reserves” for that – but, because the magnitude of the WTC losses have brought the future financial stability of the insurance industry into question. And the financial stability of the insurance industry is critical to the world economy.

Knock-Out Punch #4: The Law Of Supply And Demand Applies To Insurance, Too

The final upward pressure on price is simply a matter of supply and demand. We all know how this economic law works around the holidays. Ten million kids are screaming for the newest fad, but somehow the manufacturer only managed to ship 8 million units for the holiday season. So, you pay $200 for something that will be $29.95 when the demand fades.

The insurance industry is suffering a similar problem now. Its “capacity” (supply of insurance capital) is down, but the demand for insurance from businesses and individuals is just as high. The law of supply and demand tells us prices must increase.

3 Direct Impacts On YOU, Your Family And Business …
(The Unprepared Will Lose Money, Lose Protection – And Waste Time!)

Impact # 1: The price YOU pay for insurance is going up … period. The events explained above make this an unavoidable outcome. It’s not a matter of if. It’s a matter of when, how much and what you can do about it to cushion the blow.

Personal lines insurance – personal auto, home, etc. – will probably feel some effect. While the trickle down effect from the WTC losses may have little impact on personal lines, the companies must adjust their pricing so they are operating at a profit once again. Therefore, you can expect to see small, steady price increases in personal lines over the next several years … though we can’t rule out dramatic increases in some situations.

The greatest price increases, however, will be applied to business insurance. Depending on the overall risk experience of your industry and of your business in particular, the increase could be anywhere from annoying to devastating. Here are some real-life, recent examples:

One agent insures a roofing contractor. Last year his insurance premium was $99,000 including a $4 million umbrella. This year … $232,000 without the umbrella!
Last year one law firm’s errors and omissions insurance was $67,000. This year … $150,000.
A trucking company’s premium went up “only” 11%, but that’s $100,000 additional premium! The insured is considering having each of his owner/operators provide their own individual policies instead.

Impact #2: Some businesses won’t be able to get insurance at any price. If the loss experience of your industry has been generally unfavorable, there will be some major changes in the availability of insurance. If you previously got your insurance in a standard market, tighter underwriting may now force you to shop “non-standard” markets.

Even if your particular business has an excellent loss and safety record, your industry’s record may make you undesirable to standard insurers. And if your business and/or industry are questionable risks, you may not be able to get insurance at all.

Last year a tobacco distributor paid $51,000 in premium. This year NO ONE WILL EVEN QUOTE IT!

Impact #3: Everything is going to take longer – more detailed applications, lengthier underwriting approval, work backlogs at the insurance companies. Your agent will be shopping more – not just for you, but for all his/her clients.

A “Financial Stability Checklist:”

Print & Review This With Your Family And/Or Business Associates And Advisors

21 Things You Can Do To Get The Protection You Need For Your Family & Business… And Help You Save Money

1. If practical, use only one agent/broker for all your insurance business. Consolidate all of your family’s insurance with one agent. If you own a business, consolidate your business insurance with one agent. This way you’ll have someone who understands your entire needs and can get you full protection.

2. Use an expert. Most families and most businesses are underinsured – and don’t know it until tragedy strikes. Engage the services of an agent who will advocate for your complete protection – and who understands the complex and differing needs of different people and different businesses.

3. Your agent should have access to several alternative markets to shop the account when necessary.

4. Cooperate fully with your agent. This is not the year to put-off phone calls and wait until the last minute. The insurance underwriters are going to be reviewing everything, and that’s going to create a work backlog. Wait until the last minute and you may find yourself with no insurance at all!

5. Provide all information your agent needs as quickly as possible, and make sure he/she has your e-mail address and fax number for fast communication.

6. Know the company you are insured with. What is their financial condition? Make sure your agent places your business with a financially stable company. Discuss this with your agent. (We’re predicting the decline of many insurance companies in the coming turbulent period.)

7. Once you have a professional agent and insurance company you trust, stick with them for the long term. Moving an account every year or two to save a few hundred, or even a few thousand, dollars can be counterproductive during times like this. Insurance is a relationship business and loyal customers have more bargaining power with trusted business partners than those who shop their accounts routinely.

8. Business owners: comply with recommendations from company engineers and loss control. Remember all the things the loss control department has been asking you to do for years … to improve safety and reduce risk? If you haven’t done them, yet, do them now!

9. Voluntarily take steps to eliminate hazardous conditions and create a safe environment any company would want to insure. And safeguard your property to reduce the risk of theft and damage.

10. Make a list of the actions you’ve taken to reduce your risk and have your agent use that list when negotiating your rates.

11. Minimize your claims. The businesses that will get the highest rate increases, or not be able to get insurance at all, will be those with frequent small losses or who ignored loss control recommendations.

12. Make sure any new equipment or buildings are installed or constructed in a manner desirable to the insurance company. Consult your agent and loss control before proceeding with construction or installation.

13. Make your insurance agent part of your trusted team of advisors – along with your attorney and accountant. Your agent is critical to your overall economic well-being. Your agent may be able to help you avoid unpleasant surprises.

14. Save money: increase your deductibles and retain more risk – most companies look favorably upon clients with higher deductibles. It shows you are willing to cover the small day-to-day stuff, and use your insurance for large losses – as it is intended. This will help lower your rates, too.

15. If possible, use higher coinsurance formulas to help lower rates. Ask your agent about this!

16. Most individuals, families and business are under-insured! Do a thorough review of your coverages to make sure you have insurance in place for exposures that are critical to the survival of your business, and to eliminate any that are no longer needed.

17. If you absolutely must lower your costs, you may want to temporarily suspend “non-critical” coverages. Of course, you would be retaining the risk of loss yourself in this case. Make sure you fully discuss this with your agent.

18. Be sure your insurance is providing proper coverage amounts. You may be dangerously underinsured in some instances, or paying for coverage you don’t need in others.

19. Employ non-insurance risk management techniques where availability of coverage is an issue and/or to reduce your cost of insurance.

20. Small business owners should ask what special programs and discounts might be available to them.

21. Whenever possible, business owners should place their entire business insurance package with one insurance company. Package policies are almost always cheaper than spreading insurance coverages over several insurers. Also, you are less likely to have expensive coverage overlaps or, more importantly, coverage gaps. Discuss this with your agent.

The Dramatic Conclusion…

We’ve enjoyed a “soft, easy” insurance market for over ten years. Those days are over. A dramatic insurance crisis is around the corner. (For some…it’s already here.)
Insurance will become a more important part of everyone’s life. You’ll be paying more. You’ll be spending more time making sure you have the protection you need.
You must make your agent a Trusted Advisor to your individual, family and/or business.
Review the “Financial Stability Checklist” with your family and/or business associates. Discover what you can do to save money, save time – and get the protection you need.
Do not delay. The saddest words an agent ever hears are “I never thought it could happen to me…” Ultimately, you’re responsible for your own insurance buying decisions. Be a smart consumer.

A final note. The information in this report is based on the most current and complete information available today. The insurance industry has survived many crises before. Hopefully, insurance companies will explore and discover creative solutions to the problems predicted in this report. Whatever happens, your agent – and the other Charter Members of the Society intend to help you make responsible consumer decisions about the protection of yourself, your family and/or your business. If you have any questions about the content of this report, contact your agent immediately.