Year: 2008

Jan
3

Why reinsurance rates matter

Posted by Joe Paduda on Thursday, January 3rd, 2008 | Comments

The relatively mild hurricane seasons of the past two years and the lack of other catastrophic weather events has been largely responsible for the significant profits generated by reinsurers. Indications are the happy days of low losses and high profits are ending, as reinsurance premium rates are on the decline.
That’s good news for primary carriers, and also for policyholders – companies, governments, taxpayers, and individuals – for two reasons.
Declining premium rates mean primary insurers spend less on reinsurance. In turn, primary carriers’ profits increase, and/or they cut their policyholders’ premiums.

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Jan
3

HIllary’s strength – health care

Posted by Joe Paduda on Thursday, January 3rd, 2008 | Comments

Among Democrats polled in Iowa who are most concerned about health care, Hillary Clinton has a substantial lead (38% v 21% for Edwards and 18% for Obama). While health care is not the top issue (the economy is), it is for 24% of Iowa Democrats.
And it remains a big issue for the rest of America – a gut issue, one that keeps voters up at night, worried about coverage for their moms, dads, and kids. It bleeds over to the economy and jobs – with health insurance tied to employment, many middle-class voters are keenly aware that losing a job means losing health insurance. This is not an esoteric, remote intellectual issue – it is the neighbor who just lost her job, the “pennies for a cancer victim” tin can at the convenience store, the parent too young for Medicare and too wealthy for Medicaid.
WIth the Iowa race wide open, the gut issue of health care could be a deciding factor.
The caucus environment is one where neighbors talk to neighbors about issues that concern them, and about which candidate is best suited to fix that problem. Yes, Hillary Clinton has her share of detractors, but many are undecided and Hillary owns health care. And that may just make the difference for her in Iowa.

Jan
2

Fixing the pre-existing problem

Posted by Joe Paduda on Wednesday, January 2nd, 2008 | Comments

One of the largely-overlooked problems in the health care reform debate is that of exclusions for pre-existing conditions. These exclusions, common in the individual market, essentially limit the insurer’s liability to those conditions that occurred after the insured obtained coverage.
From the insurer perspective, this makes sense – they don’t want to sign up folks who found out a week ago they have asthma diabetes and other expensive conditions, and now need some help paying the bills.
From the insured’s perspective it also makes theoretical sense – individuals will be more likely to sign up for insurance before they get a case of the horribles if they know they can’t get coverage once they are diagnosed. That’s the theory.
The reality is that the older we are, the more likely we are to have a condition or conditions that will require medical attention. Mine is cataracts, a situation that is not a big deal. Those with hypertension, COPD, diabetes, asthma, or cancer are much worse off – in many states they will not be able to get any coverage for those conditions.

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Jan
2

The top of the cycle

Posted by Joe Paduda on Wednesday, January 2nd, 2008 | Comments

in the property/casualty industry probably occurred earlier this year. The latest numbers indicate premium growth is flat and profitability is down, albeit from a stratospheric level.
The flat premium growth is especially troubling as it coincided with a period of significant economic expansion(up 4.8%). When businesses are growing and selling more stuff, they need more inputs – and the additional raw materials, transportation, workers, new equipment, and new facilities drives up insurance costs – there’s just more stuff to insure.
Claims costs aren’t dropping – the medical CPI (which is far less than the WC CPI) was up 5%, the cost to repair autos was up as well (auto insurance is the single largest component of the P&C industry).
So what’s happening? Simple. Insurers want to generate more profits so they sell more insurance. And that requires them to cut prices to compete. Which, in about two years, will result in significantly higher losses.
Yes, the underwriting ratio of 93.8 (first nine months of 2007) is one of the industry’s best-ever numbers. Profits will decline from here on out, until ‘pricing discipline’ returns. Which, if history is any guide, will happen in 2-3 years.
What does this mean for you?
If you have P&L responsibility, send up a flare and document it. The good times are coming to an end.