Sweet Sixteen – Is She Really Sweet, or a Young Dale Jr.?

• Posted by Admin on May 17, 2010
• 1 comments

A recent Wall Street Journal article asked this rather blunt question in its title:  “Do Girls Speed More than Boys?”  The article pointed out something that every auto insurer in the country knows:  the difference in premium charges between youthful boys and girls has narrowed over the last 5 years.  That’s a roundabout way of saying that girls have cost insurers more in recent years relative to boys than they used to – i.e., they have more and/or costlier accidents than they used to.

The article cites stats provided by a countrywide survey conducted by TRU Research for the Allstate Foundation in May 2009, based on 1,063 online interviews with teens.  The survey was a follow-up to one conducted in 2005 by the Allstate Foundation.  Since the survey was self-reported, it also could say something about the relative honesty of boys and girls when it comes to their driving behavior.  Nonetheless, I think we all know the difference between their driving experience isn’t what it used to be.

Certain of the stats were surprising, to the point of raising the issue of forthrightness.  48% of the girl respondents said they are likely to drive more than 10 mph over the speed limit vs. 36% of the boys.  The percentage of girls describing their driving as “aggressive” was 16%, up from 9% in 2005.   During the same period the percentage of self-described boy drivers dropped from 20% to 13%, below the percentage of aggressive girls.  Right!

Others of the stats definitely were not surprising.  51% of the girls said they are likely to use a cell phone to talk, text or email while driving, vs. 38% of boys.  In a reflection of their adult counterparts when queried about Congress (“I hate Congress, but MY Representative/Senator isn’t the problem”), kids of both genders see the problems as being somewhere other than in the mirror.  65% say they are confident in their own driving skills, but 77% admit to having felt unsafe with a different teen’s driving.

The latter stat likely has something to do with a point raised in the 2005 report that was studied at some length around that time.   The study involved brain development, and found that the portion of the brain that correlates cause-and-effect relationships between events and their consequences does not fully develop until the mid-20s (except in politicians, where I’m sure a similar study would find this portion of the brain to be completely missing – sorry, that was too obvious to pass up).  Therefore, kids tend to see the thrill in risky behavior behind the wheel without considering the dangers associated with that behavior.  As a passenger they are more likely to feel the danger since they are not the ones in control.

Getting back to the subject of the article, I can’t resist relaying an incident I experienced a few years ago while running out for lunch.  I was in the left lane in one of our city’s major streets, alongside a teenage girl talking and having a good time with her friends in the car.  As we approached a red light at another major thoroughfare, while I was applying my brakes I couldn’t help but notice her still talking and having a good time with her friends as she rapidly closed the distance between her and the last car at the red light.  Finally, either she looked up or one of her friends suggested she do so, slammed on the brakes, narrowly missing the stopped car, and backed up to put a little distance between the two cars.  As she resumed talking and having a good time with her friends (now slightly in front of me), I noticed that the back-up lights still were illuminated.  Sure enough, when the light turned green and she hit the gas, back she went before another screech brought her to a halt just in front of the car behind her, which apparently (and fortunately) had noticed the back-up lights and kept its distance.  Finally, now back in drive, she continued talking and having a good time with her friends as she proceeded in the correct direction.

“Oblivious” was the word that immediately came to mind.  However, a more thoughtful response probably would have observed that many kids are social animals, likely more so among girls.  In this case, and no doubt in many more like it, the driver’s social inclinations dominated her still-developing sense of responsibility.  In an admittedly non-scientific “study”, I certainly have observed this type of oblivious behavior behind the wheel in girls more so than in boys, who (from personal experience) are more likely to be goofing off as opposed to being unaware of what they are doing.  My unscientific observation has been unscientifically confirmed by similar unscientific studies of my acquaintances (the nice thing about non-scientific studies is they don’t have to be politically correct).

Seriously, the article points out some observations about the results of the study relative to the direction society as a whole has taken.  More specifically, women are more and more competitive in the role they now fill than in the past.  Whether talking about careers, academics, athletics, or whatever, former barriers and role distinctions have eroded, along with the more passive nature associated with former views.  In other words, narrowing gender differences in driving behavior are simply mirroring what is going on everywhere else.  That view has been put forth by psychologists and other professionals who work with teenage girls, no doubt in a more scientific format than my study.  Young female driving behavior and an increase in general assertiveness go hand-in-glove.

The WSJ article cites trends from the U.S. Department of Transportation showing that death rates for teenagers from traffic accidents have dropped by 54% from 1975 until 2008.  That, of course, parallels traffic fatalities in general.  However, the rate of decline for girls during this period was less than that of boys by a wide margin – 38% vs. 59%.  From that it doesn’t take a lot of analysis to deduce that the traffic death rate for girls and boys has narrowed considerably over the last 35 years.

We see things changing constantly in this business, and insurance rates have to change constantly to reflect current circumstances.  After all, insurers protect people and things against unanticipated events, and all three (people, things and events) are in a constant state of flux.  Societal changes such as what we see reflected in youthful female rates are a constant in our business. 

So is she sweet or Junior?  All of the above, plus many more options – she just ain’t who she used to be.  Who says insurance is boring?

Let’s Not Forget About Family

• Posted by Admin on March 23, 2010
• 0 comments

Study Explores Auto Premium Leakage

• Posted by Admin on February 11, 2010
• 2 comments

In January an insurance consulting group out of San Francisco and owned by ISO named Quality Planning released a report about private passenger auto premium leakage.  I will not attempt to make this article a book report about their findings, but rather will comment about some of the more salient aspects of those findings.

The report is based on actual audits performed by Quality Planning in 2008 covering in excess of 4 million auto policies from carriers ranging from substandard to preferred.  Industry estimates were extrapolated from the findings of those audits.  Error margins or degrees of confidence were not discussed in the report, so I will simply state that up front, along with the fact that any numbers referenced in this article are quoted directly from the report with that caveat.

The first major disclosure of the report is that their total estimate for premium leakage for the entire PPA industry in 2008 was $15.9 billion.  This compares to a total premium for the year of $164.25 billion (i.e., would increase the industry total by 9.7%), and would rank as a strong #3 writer if it represented the stand-alone premium of a single insurance group.

As I said, I don’t intend for this to be a book report, so I will just touch on the more interesting findings.  The recommended solutions are pretty much common sense, and are what Quality Planning is selling, so I will skip over those.  At the end of this article, though, I will provide a link for those who wish to see the full report.  Here are some observations:

• In recent years profit for many companies as a % of premium has been depressed.  However, even at a 90% combined ratio, if leakage of 1% of premium can be identified and fixed, that equates to a 10% lift in underwriting profit.  For most companies, the lift would be significantly greater.
• Under the heading of risk management, the report discloses a 200% loss ratio for undisclosed 16-year-old male drivers in their study.
• A fairly obvious observation of the study is that unreported rating information correlates with higher loss ratios.  No surprise there.  But carrying that concept to its conclusion, that means the honest subsidize the dishonest (again obviously).  While the majority of agents and insureds may be honest, a minority gaming the system can throw premiums and losses out of equilibrium, which in turn affects the rates for all.  This is because, what is not so obvious, it only takes a few to mess it up for the many.
• Rating errors that lead to leakage are not random.  Many are intended to lower premiums of otherwise high-rated insureds, introducing a bias into company statistics, whether actuarial, underwriting, claims, or whatever.  Management can be misled as a result.  Here’s where running your book through a tool such as Quadrant’s Quote Converter can have a side benefit in identifying the emergence of unexpected rating cells, besides helping with your competitive analysis.
• Companies are not blameless in the leakage department.  Besides the obvious upfront lack of diligence that can contribute to leakage, today’s ever more complex rating schemes, and the constant rating changes associated with them, mean that insureds are often rerated at renewal, creating more opportunities for error, missed details, or convenient mental lapses.
• It certainly does not help things that certain individuals take advantage of legitimate internet sites suggesting how to lower one’s premium, and put their advice to illegitimate use.  A well informed fraudster is an effective fraudster.  I didn’t spend much time looking, but I didn’t find any sites telling you how to cheat, although I found at least one questionable chat room (but it was aimed at gaming life insurance rates for a smoker, unrelated to this specific discussion, but symptomatic nonetheless).
• Dynamic lifestyles combine with dynamic rating schemes to result in many more opportunities for good old fashioned rating errors (i.e., unbiased) than ever before, in addition to the intentional stuff.  An example – is employment used in rating?  Most workers probably don’t know who Ozzie and Harriet are any more, let alone live like them.  But workers move around now – how current is the employment-related rating information on insureds for whom that is a variable?  What system is in place to keep the information current?
• I won’t get into the specific sub-categories here, but looking only at broad categories, of the above $15.9 billion of leakage:
        - $6.5 billion (4.0% of premium) were attributable to vehicle-based rating errors;
        - $8.9 billion (5.5% of premium) were attributable to driver-based rating errors;
        - $0.5 billion (0.3% of premium) were attributable to other rating errors.
• The above percentages are averages.  Actual results by carrier vary greatly around these averages based on the programs they have in place to address rating integrity.
• Changes between the 2007 and 2008 studies appear consistent with changes in the economy.
• Loss of personal contact with policyholders via the internet and attempts by companies to automate as much as possible likely have combined with more complex rating plans to add to the growth in leakage.
• Effective programs to address leakage can certainly give a lift to a company’s bottom line (maybe a material one), and may even help them establish better communication with their policyholders (which may not be a positive to a select few).

Judicial Hellholes

• Posted by Admin on December 22, 2009
• 9 comments

Liability insurance is a major element of both private passenger auto and homeowners insurance.  Therefore, it is relevant to devote a blog article to the annual report of “judicial hellholes” published by the American Tort Reform Association.  After all, while there is a tendency to laugh at the ridiculous claims that are filed, and even at those that occasionally are won (spilled McDonald’s coffee, anyone?), the fact is that the dollars involved to defend and to all-too-often settle and/or pay these claims are very real and are no laughing matter.  We all end up paying for them in the end, whether directly through higher insurance premiums or indirectly through higher costs of goods and services (to cover their higher insurance premiums).

The ATRA opens their annual Judicial Hellhole reports with actual quotes from judges or attorneys to highlight the bias in select jurisdictions.  These are not made up – they are actual quotes, generally from those prominent either in creating or benefiting from the climate in those jurisdictions.  Here is a sampling taken directly from the 2006-2009 Judicial Hellhole reports:

“What I call the ‘magic jurisdiction,’ [is] where the judiciary is elected with verdict money. The trial lawyers have established relationships with the judges that are elected; they’re State Court judges; they’re popul[ists]. They’ve got large populations of voters who are in on the deal, they’re getting their [piece] in many cases. And so, it’s a political force in their jurisdiction, and it’s almost impossible to get a fair trial if you’re a defendant in some of these places. The plaintiff lawyer walks in there and writes the number on the blackboard, and the first juror meets the last one coming out the door with that amount of money. . . . These cases are not won in the courtroom. They’re won on the back roads long before the case goes to trial. Any lawyer fresh out of law school can walk in there and win the case, so it doesn’t matter what the evidence or law is.”
— Richard “Dickie” Scruggs, legendary Mississippi trial lawyer who built an empire of influence suing tobacco companies, HMOs and asbestos-related companies, but who has since been disbarred and sentenced to federal prison after pleading guilty to conspiracy in an attempt to bribe a judge.

“As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so.”
— Hon. Richard Neely, who served as a West Virginia Supreme Court of Appeals Justice, including several terms as Chief Justice, for over 22 years until 1995, is now in private practice at a firm primarily handling personal injury cases.

“West Virginia was a ‘field of dreams’ for plaintiffs’ lawyers. We built it and they came.”
—West Virginia Judge Arthur Recht

“You may not like it . . . but we’ll find a judge. And then we’ll find a jury” that will find restaurants liable for their customers’ overeating.
— John Banzhaf, George Washington University Law School professor and personal injury lawyer

“That venue probably adds about 75% to the value of the case…. [W]hen you’re in Starr County, traditionally you need to just show that the guy was working, and he was hurt. And that’s the hurdle….”
— Tony Buzbee, West Texas trial lawyer, on filing lawsuits in Starr County, a jurisdiction in Texas’s Rio Grande Valley

Admittedly, the last two quotes specifically pertain to commercial coverages, but the bias and attitude they convey are equal-opportunity.  The first is from an actual law school professor from whom at least some of the next generation of trial attorneys are taking notes.  The second has definitely impacted personal lines similarly, but maybe not to such an extreme extent – ask any insurer who has written in the Rio Grande Valley how comfortable they are with the legal climate there.  

An insurer’s contractual defense of a claim translates to large expense dollars regardless of the merits of the case.  Clearly, the more frequent occurrences in these jurisdictions, along with their generally higher awards or propensity to settle and the expense costs associated with such claims combine to add costs to “the system”.  This means higher insurance premiums for all.  

Quotes such as those above tend to suggest this is not a “justice for all” equity-based system, but rather a rigged game designed to enrich those who play in that arena.  The ATRA has had some success in highlighting this fact to residents of some past Judicial Hellholes, who have defeated through election those most responsible for the judicial environments in those areas.  As the ATRA notes, judges create these situations, so their removal is necessary to fix them.  Not surprisingly, costs and insurance rates have subsequently dropped when this has occurred.

My point in bringing this up in this blog is simply to highlight awareness.  Quadrant’s clients are involved in the personal lines insurance market – these situations affect their business.  We can program any rates that have to be charged, but that doesn’t mean we have to be oblivious to the issues in the various jurisdictions that affect those rates.  We need to maintain an awareness of the laws and regulations of the various states, similarly to the companies that write there, but an awareness of the environment also helps.  This helps us anticipate upcoming changes that you, our clients, may be getting ready to make in your rates or rating structures.
For those of you who are curious, the 2009-2010 list of Judicial Hellholes, in order of severity (i.e., dishonor) is as follows:

1.    South Florida (specifically Miami-Dade County)

2.    West Virginia (entire state)

3.    Cook County, Illinois

4.    Atlantic County, NJ

5.    New Mexico Appellate Courts

6.    New York City

There is also an annual watch list of jurisdictions that show promise of deteriorating into Judicial Hellholes if remedial action is not taken.  The New Mexico Appellate Courts were promoted (demoted?) from this list this year, for example.  This year’s watch list is as follows:

1.    California (entire state)

2.    Alabama (entire state)

3.    Madison County, IL (former #1 Judicial Hellhole)

4.    Jefferson County, MS

5.    Gulf Coast and Rio Grande Valley, TX

Other areas are mentioned for different reasons, either for consideration for the watch list, for suspicious individual verdicts, or for positive developments.  For those interested, the report, along with those for the last few years, can be found at ATRA :: Judicial Hellholes 2009.

Is It Time for Homeowners Insurers to Worry About Swine Flu?

• Posted by Admin on November 19, 2009
• 2 comments

I concluded my last blog by observing that unforeseen and often emotional issues can blow up and potentially cause major loss events not anticipated or priced into the rates by homeowners insurers.  As if to make my point, an article in a recent trade magazine quoted a malpractice defense attorney as saying that swine flu just may be one of those unforeseen, emotional events.  If it is, I suspect it got a boost from a willing media, but first, little background.

The Centers for Disease Control estimate that we have on average around 36,000 flu-related deaths per year in this country.  That figure was based on a study from the 1990-91 through the 1998-99 flu seasons, during which time the number of seasonal flu-related deaths varied from around 17,000 to around 52,000.  An updated study conducted this year with data from 1993-94 through the 2002-03 flu seasons didn’t change the numbers significantly – the average was 36,171 annual flu-related deaths.  The point of this is that flu has been only slightly behind auto accidents in terms of the number of deaths for which it is annually responsible on average – before swine flu entered the scene.

Swine flu is unique in that it is a virus against which humans have not developed a natural immunity defense.  Thus it has spread relatively unimpeded, and pandemics are declared on how they spread – not on the severity of the disease.  I recall a discussion last spring where a prominent official not beholden to political correctness advised an alternative term be used other than pandemic.  His point was that as soon as the government used that term and it was picked up by the media, a general panic would ensue that would not be supported by the severity of the actual disease.

That’s pretty much what’s happened.  Like any other flu, people have become very ill from the swine flu, and people have died.  Nothing in this article is intended to diminish the anguish associated with this.  CDC numbers show that hospitalization rates for regular flu are pretty much the same as those for swine flu, though.  Local reports show anecdotally that people are going to the hospital with self-declared swine flu, but who prove to have either the regular flu or even the common cold.  If this event had been handled with less hysteria by the media – less emphasis on the dramatic headline-grabbing but not necessarily key facts, and more on the key issues that may be less sexy from a news standpoint, I suspect the public wouldn’t be quite so fearful or quick to believe they are suffering from the disease.

This brings me to back to the original topic of this article – the impact on homeowners insurance.  I took the above detour to highlight that what is going on this flu season is pretty much business as usual with one twist – awareness drummed into us by a hyperactive media, and given a boost by a government wanting us to believe there was a monumental problem they alone could solve.  

What is the unintended consequence of all this?  With awareness comes blame!  Things that have been going on forever and accepted as a part of life suddenly are being called foreseeable events that could have been prevented.  That’s a lawyer’s turf!  Thus, as was discussed in the article I referenced in my opening paragraph, suits could arise for such things as hosting a cocktail party when your kid is sick, or for failing to inoculate your kid, who proceeds to get sick and pass the illness to another child.

To prove his point, the author cited an actual case in New York where the family of a school principal has brought a $40 million suit against the city of New York, claiming the Board of Education failed to alert the principal that he had been in contact with children who had tested positive for the virus (I will refrain from any obvious editorial comment about someone whose chosen profession puts him in contact with thousands of children every day!), failing to provide a safe working environment, and several other quite obvious charges.  Surprisingly, failing to advise him that breathing could be hazardous to his health was not among them, although this may have fallen under “health condition information,” which was included in the charges.

Regardless of the merits of a lawsuit, though, it costs an insurance company real dollars to defend its insured against any suit.  With the public whipped up to such a fever (no pun intended), I suspect the author is correct that it is only a matter of time until such suits hit homeowners insurers, if it hasn’t happened already.  Are the circumstances any different than they were last year, or any other year?  No, just the awareness and the fear factor.  That’s enough for the legal community to figure this has now moved into its playground.  When that happens, they generally are more than ready to play.

By the way, I came down with something the day before writing this, and it developed into an infection of some sort.  However, it hasn’t occurred to me to sue anyone.  I called my doctor, got an antibiotic for the infection, and am monitoring how I feel.  Isn’t this how we used to do things in this country – take personal responsibility?  For those of you who are concerned, though, I have been assured that I cannot infect the electrons that flow from my computer to the website where this article will be posted, and thus I am maintaining for my homeowners insurer that anyone who reads this and proceeds to get ill must have been infected elsewhere.

Chinese Drywall – Not The Next Mold

• Posted by Admin on October 27, 2009
• 15 comments

For months there has been an undercurrent of unrest in homeowners circles that didn’t directly get the homeowners insurance industry involved until quite recently.  Most people wouldn’t think something as innocuous as the drywall installed in their house could pose any kind of threat, but that all changed this year.  It was discovered that certain batches of drywall imported from China were apparently made from a chemical process that didn’t sufficiently refine out the sulfur and other contaminants found in their source, which typically is the smokestacks of power plants, as I understand it. 

Most drywall manufactured in this country historically has been made from mined gypsum, although in more recent years there has been a trend here, too, towards the “manufactured” gypsum using lime or limestone and gas from coal-fired power plants.  Such a process requires desulfurization methods to remove impurities in synthetic gypsum.  If such methods are flawed, so is the gypsum.

What problems can contaminated drywall cause?  First of all, there are health concerns that as of now involve primarily complaints rather than diagnoses – a rotten egg smell accompanied by itchy eyes and skin, runny noses, nose bleeds headaches, asthma attacks, and more.  These seem to bear some similarity to the symptoms claimed when mold was the issue – real symptoms, raising passionate emotions in those affected, whose source legitimately can be debated. 

Besides the health issues, though, there is another latent impact of the contaminants involved that complicate this issue from an insurance standpoint – the drywall contaminants are corrosive.  If this is the case, over time wiring and/or copper pipes can corrode and fail, which becomes a potential life-threatening or building-threatening hazard of its own right.  Failed wires are a dangerous fire hazard.  Failed pipes, including those associated with air conditioning systems, can be a very expensive insured peril.  Both fire and water are covered by homeowners policies, but building defects are not.  Are you beginning to see how this issue starts to become pretty complicated from an insurance standpoint?

This all came to a head a couple of weeks ago in Florida (as if that state didn’t already have enough homeowners issues!), when Citizens Property Insurance Corp., the state-created non-profit insurer-of-last-resort (that through the state’s failed social experiments in artificial price suppression has become the dominant homeowners insurer in the state), issued non-renewal notices to several insureds after they submitted claims related to Chinese drywall, unless the insured removed and replaced the faulty drywall.  The reason for the notices was not any claims that had been paid – there had been none, and building defects are excluded from their policies, as mentioned above.  Rather, it was the potential for insured loss due to the corrosion that resulted in the notices – this now was a known condition that made an insured loss more likely, and the insured had an obligation to repair it before it caused said insured loss.

Had this been a loose board on the steps to the insured’s deck, or missing shingles on his roof, no one would question Citizens’ right to make such a demand.  In fact, everyone would agree they would be irresponsible not to.  However, in this case, we are dealing with something new and unknown, and something with an $80,000-$100,000 or so price tag.  Now is it fair?  To complicate matters, Citizens was not the only insurer to take this stance, although only one other insurer did as of yet.

We will have to see how this plays out.  Politics will play a role, as it always does.  First of all, there is talk between the US and China on potential remediation.  There are an estimated 100,000 houses affected in this country, primarily in the Southeast, so the problem is not as widespread as it could be.  That is why this is not going to be the next “mold” – due to lack of exposure, but certainly not due to lack of passion.  As for the non-renewal notices, one of Florida’s US Senators happens to be former Insurance Commissioner Bill Nelson.  As might be expected, he took quite an interest in the plight of the affected homeowners.  Coincidentally, after he got involved, Citizens revoked their notices of non-renewal, saying that upon further review the hazard was not as great as originally feared.

Who knows what was said to Citizens behind closed doors?  Regardless, the issue is a complicated one, but thankfully it also is a limited one in scope.  Chinese authorities have acknowledged there is a problem, and maybe the restitution will come directly from them.  However, this issue does highlight the tenuous nature of the homeowners market, and how unforeseen and often emotional issues potentially can blow up into major loss events not anticipated, or priced into the rates, by the industry.

California - Pay as you Drive

• Posted by Admin on October 20, 2009
• 13 comments

Last week the California Office of Administrative Law approved the regulations needed to implement Commissioner Steve Poizner’s pay-as-you-drive concept.  This removes the final regulatory barrier to PAYD in the Golden State, so now what?  If the public is expecting a flood of new auto insurance options, it probably better hold on a little longer.

PAYD is one of those ideas that have great appeal across all spectra.  It’s a way to encourage people to voluntarily drive less (fewer miles = less cost).  Fewer miles driven means less gasoline consumed and fewer emissions, so environmentalists love the concept.  Reduced consumption also means less reliance on imported oil.  Then there’s the safety factor – less crowded highways should lead to fewer accidents, leading to fewer injuries and fewer deaths, not to mention lower costs.  Only the lawyers are left on the sidelines.  What’s not to like?

Well, nothing really.  However, neither the companies nor the consumers are really ready for this quite yet.  At least one company is up and running in Texas, founded and operating strictly on PAYD principles.  Progressive has been running trial variations of PAYD for a number of years now.  Further, there’s probably not an auto insurance company out there that is not looking into what PAYD will involve, so there definitely is interest on the part of the companies.  There are some hurdles to overcome before they can make it happen, though.

Not the least of these gets back to the consumer.  I’m not sure if George Orwell is as well known to today’s youth as he was when I was growing up, but the concept of Big Brother certainly is alive and well today.  To put it bluntly, there is a fundamental distrust of giving out “private” information to someone as potentially intrusive as your auto insurance carrier.  It’s kind of ironic that the same individuals who don’t want their insurer to know where they might be driving are relying on their car’s GPS to get to their next destination and buying cell phones with a cool GPS feature that, well, lets their service company know where they might be driving, among other things.

Kids see the potential “gotcha” factor, feeling they have another set of eyes looking at them, ready to catch them when they slip up or try to slip one by.  Of course adult distrust of these systems probably goes deeper, getting well beyond the scope of this discussion.  Big Brother is still the issue, but concerns take on a political overtone involving intrusiveness and personal rights.  Maybe the lawyers will find a home in PAYD after all!

From the company perspective, there are practical considerations.  No one other than Progressive has any amount of data to analyze, so putting together a PAYD program may largely be an act of faith, at least at first.  And unless a company simply puts out a glorified mileage discount and calls it PAYD, it has some serious work to do in terms of data design and collection, since it will be dealing with rating features it has never before captured.

One of the biggest hurdles is how to get the data.  In California this may not be the issue it is when PAYD begins to roll out in other states, since the regulations are restrictive in what can and cannot be used in rating.  However, the day will come when a company wants to use a variable such as what time of day a car was driven and where, what type of road on which it was driven, how fast it was driven vs. the posted speed limit, aggressive driving tendencies, and other such features that get to the heart of the Big Brother concerns.  There is no doubt that some of these will be shown to be strong loss predictors, and serious discussions will ensue as to what is fair for rating, and what is indeed intrusive.

To get the types of variables discussed above, data needs to be captured electronically (and it is available).  This may eventually be available through the “black box” built into all vehicles currently, but there is no standardization as of yet.  Therefore, today a third party device is needed to capture the necessary information.  With a limited market, as you might expect, the cost is similar to the early versions of any other electronic device – too high to be viable for mass use.  Plus there’s an additional complication that is ongoing – if these devices are going to transmit data, there will have to be a monthly service fee to some company that is able to receive, collect and summarize the data, and most importantly, do so in a secure manner while maintaining the privacy of each individual’s specific details.

As you can see, PAYD isn’t something a company can decide it will just start doing.  There’s a lot to plan and get in place first, without knowing if the public will buy it.  It is likely that PAYD will start out for most companies as an option, probably fairly basic in scope.  Like everything else, it will evolve over time.

This optional approach may skew the relative experience between PAYD programs and traditional programs.  Who is more likely to opt in at first, someone who feels he has something to gain because of his good driving habits, or someone whose driving leaves something to be desired, whether or not he has been caught or had an accident in the past?  As a result, early PAYD experience is likely to look better than average, but this could be misleading if used to make generalizations.

Time will tell how PAYD evolves, but despite the hurdles to be overcome, chances are that it will evolve.  New ideas often are greeted with skepticism before ultimately being accepted, and PAYD may be no exception.  PAYD could significantly modify traditional auto insurance classification, but it could also work in conjunction with most existing rating variables.  It also could lead to additional changes in the way auto insurance if rated.  Companies compete today through innovation at least as much as they do through rates, and something as new as this could easily trigger more new concepts.

Whatever happens, we at Quadrant are aware of the changing landscape, and the fact that there are more changes to come.  As companies innovate, we will make the necessary modifications along with them.  We will be there for you to help you compete more effectively, with better tools and more complete knowledge

Highline Data Analysis Shows P&C Industry Net Income Down 54%, Life Insurance Industry Shows Signs of Improvement in Second Quarter

• Posted by Admin on September 23, 2009
• 20 comments

The property and casualty insurance industry continued to decline in the second quarter of 2009, with a 54.3% year-over-year drop in net income, according to the Highline Data Performance Monitor.

This drop comes on the heels of last quarter's 89% year-over-year decline in net income, once again putting the industry at its lowest level since 2001. The continued global economic downturn contributed to the industry-wide decline, leaving 60% of the property and casualty companies included in the Highline Hundred suffering drops in net income. Four companies had losses greater than $500 million year-over-year. Positive signs were seen in total assets and policyholder surplus, which increased in the second quarter after showing declines in the first quarter.

The Performance Monitor also revealed that the life insurance industry's net gain from operations totaled $36 billion, a 30.7% increase over last year's $27.5 billion. Capital and surplus for the life insurance industry showed a slight increase of 1.7%, and separate account assets, which had seen the worst losses, increased 4.3%. Net premiums continued to decline by 6.5% overall in the second quarter, primarily driven by an 8.4% decrease in group insurance.

The insurance industry continues to struggle with the effect of the economy and depressed stock market values. The life insurance industry is showing some signs of improvement, but continues to feel the impact of declines in group business due to layoffs and reductions in company sponsored plans. The property and casualty industry will continue to struggle through the remainder of this year and will be especially hopeful for a mild hurricane season.

The Highline Data Performance Monitor tracks both the industry as a whole and the top 100 companies from the property and casualty and the life insurance industries along key financial metrics. The Highline Hundred is a composite of the top 100 insurance companies that identifies industry-wide trends.

          HIGHLINE DATA 2009 Q2 PERFORMANCE MONITOR KEY FINDINGS
------------------------------------------------------
P&C Insurance Industry
----------------------
% Change
Net Income                                            -54.30%
Total Assets                                            0.80%
Policyholder Surplus                                    2.10%
Net Premiums Earned                                    -3.40%
Net Losses Incurred                                    -7.30%
Loss Adjustment Expense                                 0.60%
Net Premiums Written                                   -4.90%
Life Insurance Industry
-----------------------
% Change
Net Unrealized Capital Gains (Losses)                  -4.60%
General Account Assets                                 -0.50%
Separate Account Assets                                 4.30%
Capital & Surplus                                       1.70%
Net Premiums                                           -6.50%
Net Investment Income                                  -4.40%
Net Gain from Operations                               30.70% 

Source: PR Newswire / Highline Data

FTC asks insurers about charges to homeowners

• Posted by Admin on December 23, 2008
• 6 comments

WASHINGTON, Dec 23 (Reuters) - U.S. regulators have asked nine major insurance companies, including Allstate Corp <ALL.N> and Travelers Cos Inc <TRV.N>, to provide information about how they set prices for homeowners' coverage, the Federal Trade Commission said on Tuesday.

The FTC said it ordered the companies to provide data about credit-based insurance scores, essentially the equivalent of a credit rating but one that focuses on how much particular consumers cost their insurance companies.

The U.S. Congress asked the FTC to look at the use of credit-based insurance scores in 2003. An FTC study on automobile insurance released in 2007 found that the scores allowed insurance companies to determine who was likely to be high risk and to charge those people more.

The study found African-Americans and Hispanics tended to have lower insurance scores than whites and Asians and, because of this, tended to pay more for auto insurance.

The other companies queried about the study for homeowners' insurance were Chubb Corp <CB.N>, State Farm Mutual Automobile Insurance Company, Fire Insurance Exchange, Nationwide Mutual Insurance Co, United Services Automobile Association, Liberty Mutual Holding Co Inc and American Family Mutual Insurance Co. 

On the Web
The order itself can be found at the FTC web site at: http://www.ftc.gov/os/2008/12/P044804facta.pdf 

New Quadinfo.com site!

• Posted by Admin on December 16, 2008
• 24 comments

We are happy to announce that we've released Quadrant's new Quadinfo.com site.  This site serves as our company website and we hope to allow visitors to this site to get a better understanding of who Quadrant is and what we are all about.  We look forward to hearing your comments!

Quadrant BlogTeam