Find Insurance Online

By Rick Vassar CPCU ARM

Author of the #1 Insurance Liability Book on Amazon.com Hide! Here Comes the Insurance Guy


CHICAGO, Dec 17, 2008 (BUSINESS WIRE) -- Fitch Ratings downgrades XL Capital Ltd (XL) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL to ’BBB+’ from ’A’, and the Insurer Financial Strength (IFS) rating of its core operating companies to ’A’ from ’A+’. (See the full list below.) The ratings remain on Rating Watch Negative.

The rating action follows XL’s announcement that the company anticipates the estimated mark-to-market decline in its investment portfolio through November 2008 to be largely in line with the $1.1 billion of unrealized losses, other than temporary impairments and realized losses on sales the company incurred in the third quarter of 2008 and the $200 to $220 million in net investment fund affiliate losses from its alternative investment portfolio for the fourth quarter of 2008.

Rick Vassar’s insurance/Financial Interpretation – “Sorry, man, my bad…”

NEW YORK--Dec. 17, 2008--American International Group, Inc. (AIG) has issued the following statement regarding an article published today by Bloomberg:

"AIG reports all its derivatives at fair value in accordance with US GAAP including AIGFP’s credit derivative portfolios. In accordance with US GAAP, in its determination of fair value for its credit derivatives, AIG considers all available information including but not limited to market available data, dealer provided prices, prices used for collateral posting and recent trades including early terminations initiated by counterparties. In evaluating fair value for its Regulatory Capital portfolio, AIG also considers factors relating to the individual underlying portfolios including, but not limited to, asset type and seasoning, default history, loss history and attachment point.

"AIG has clearly described its valuation approach including key assumptions used for AIGFP’s super senior credit default swap portfolio in its Form 10-Q for the quarter ended September 30, 2008."


Rick Vassar’s Insurance/Financial Interpretation:

“Face it. You [screwed] up! You trusted us.”

-Eric ‘Otter’ Stratton from the motion picture Animal House (1978)



I have been asked on numerous occasions in the past few months how this could happen to a big insurance company like AIG.

Why are they investing money in sub-prime mortgages?

How could they not see this coming?

You see, the general public believes that insurance is quite a simple process. You charge premiums, you pay claims, and you keep the money that’s left over.

It’s sort of like that, except that there’s one component left out. The insurance companies charge premium, put some of it aside to pay claims, and invest the rest. The insurance industry as a whole loses money on the spread of premium to losses, but makes it up handsomely on the investment returns. The industry has been doing this for hundreds of years.

So what’s the problem, Rick?

The problem was outlined in my book Hide! Here Comes the Insurance Guy in early 2006:

“I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.

The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.”

In other words, instead of insurers going to the bank to invest their money, they became the bank. Insurers found that by going to themselves to invest their money to be much easier and much more profitable.

I mean, who is going to ask questions of you if you are borrowing from you.

Sarbanes-Oxley only expanded the problem, because the transactions were being reported. No one understood the investments, but they were being reported. And don’t worry, it’s mostly our money.

Then, the bottom falls out, and the bank turns back into an insurance company and tells us that they don’t know what these swaps and stuff are all about, because this isn’t our core area of expertise.

Exactly.

One needs to look only at the insurance industry’s combined ratio, which is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The industry average has been hovering around 102%, which means for every $100 collected in premium, $102 is paid out in claims and expenses.

The combined ratio is conservatively estimated to be around 104% in 2008, with some experts saying that it could be as high as 108%.

So, what has this taught us?

Insurers began to rely on investment income to offset poor premium pricing and underwriting decisions in reaction to increased competition brought about after Gramm-Leach-Bliley. Insurers lowered qualifications to bring in more income to invest. Once claims cost began to rise due to poor underwriting, there was more pressure on the investment side to make up the difference.
The pressure for increased investment income led to lower standards in the underwriting of investments. The greater the risk, the greater the return, unless the bottom falls out
If there is transparency in financial transactions that no one understands, are they really transparent? SarBox gives the impression of accountability without accountability, which is okay, unless the bottom falls out.

It makes me chuckle to hear insurers tell me that the insurers are actually in good shape. My question is: How good would they be if that $100 billion or so didn’t come to the rescue? The insurance subsidiaries are being kept alive to sell off from the banks – I mean holding companies.

Let’s go back to banks being banks and insurers selling insurance. When they’re apart, they work pretty well. When they got together, it was real good for awhile. Premiums came down, insurance was available, investments were plentiful. When the bottom fell out, the fall was swift and severe, and there was no place to go.

Too good to be true is all well and good, unless the bottom falls out.

The Envelope, please … the Top Risk Management Book of the Year …

By Kevin M. Quinley CPCU, ARM AIC, AIM, ARe

"Olly olly oxen free! Come out, come out, wherever you are!"
Reviewed by Kevin Quinley

Hide! Here Comes the Insurance Guy by Rick Vassar, iUniverse, 2006, 196 pp., $17.95

Somebody once said that a New York accent was the most effective form of birth control known to man. Others might nominate as an effective contraceptive any tendency to talk about insurance… or risk management, for that matter.

Author, risk manager and consultant Rick Vassar has penned an illuminating primer on insurance and risk management in his book, "Hide! Here Comes the Insurance Guy." The title is a take-off on the notion that, for most people, meeting with an insurance person or discussing coverage is as much fun as a root canal or proctological exam. The author – a CPCU and an ARM -- lives a dual existence. By day, he is a mild-mannered risk manager for a company in the Washington D.C. area. In his spare time, he writes and consults on risk management topics (check out http://www.vassargroup.com ). Vassar tries (successfully) to cushion the blow and counter the stereotype by presenting insurance and risk management principles in a straightforward way that can profit any business professional.

Part of his theme is that most companies have risks that are overseen by someone whose title is not "Risk Manager." Most companies do not have risk managers; you need to have a pretty big insurance budget to justify that as a full-time position. No company vies to be paying so much in insurance premium that they spotlight the problem by having a full-time individual to tend to it. Nevertheless, all companies have risks and need to manage it. For these risk managers without title or formal portfolio, Vassar's book – perhaps the best risk management book of the year even without that phrase in the title -- is an indispensable primer and guide. Reading and heeding his advice will save businesses much money, frustration and Excedrin-consumption.

Vassar divides his book into three main sections. Part I discusses business strategies to even the playing field between policyholders and insurance companies. Part II walks through the major basic forms of insurance coverage for most any business. Part III rounds out with a useful; glossary and index.

Vassar's target audience is likely not the Fortune 500 or Fortune 1000 risk pro who attends the annual RIMS Conference. There is no highfalutin discussion of enterprise risk management or views from 50,000 feet above ground level. If you are seeking information on Sarbanes-Oxley compliance or the risk management implications of global warming, look elsewhere. The storefront risk manager, though, will find a wellspring of effective tips and tricks between these covers.

Vassar's focus is practical and hands-on, leavened with a self-deprecating sense of humor. Did I say "humor"? Yes, though few comedy clubs are likely to feature an Open Mike night for insurance reps, Vassar takes the human antipathy toward insurance and turns it into a source of mirth and amusement. (Some end-of-chapter checklists would have been a nice addition to the text, but this is a minor quibble.)

So run -- but don't hide - and get your copy of "Hide! Here Comes the Insurance Guy." Get out from under the desk. Leave the closet and face your fears. Insurance and risk management may not be fun (though they are occasionally funny), but Rick Vassar has come as close to anyone in blending sharp wit with moneysaving risk management insights.

Kevin Quinley CPCU ARM is the author of over 500 published articles and nine books. His articles have appeared in publications including Business Insurance, The National Underwriter, Risk Management, Occupational Safety & Health, Best's Review, CPCU Journal, Insurance Settlement Journal, The Risk Report and For the Defense. He is the author of Time Management for Claim Professionals, Claim Management, The Quality Plan, Litigation Management and Winning Strategies for Negotiating Claims and Managing Product Liability Risks. His seventh book, Bulletproofing Your Medical Practice: Risk Management Strategies that Work, was published in October of 2000. His eighth book, Well-Adjusted: 185 Career Tips for Adjuster Success was published in mid-2001. The ninth book – coauthored with Don Schmidt -- Business at Risk: Risk Managing the Terrorist Threat was published in 2002.

Posted on August 30, 2007

Blogcritics.org reviewer MaryAnna Clemons gave high marks to Rick Vassar's Hide! Here Comes the Insurance Guy "I would not be surprised to find this book as required reading in future business courses in colleges throughout the U.S...I tend to shy away from self-published work - I'm glad I did not in this case...Hide! Here Comes The Insurance Guy: A Practical Guide to Understanding Business Insurance and Risk Management

By Rick Vassar CPCU ARM

This valuable and practical resource will help risk managers and businesses alike improve and control insurance costs, potentially saving your company millions of dollars.

Bulk Discounts Now Available - Quick Turnaround...contact us @ info@vassargroup.com

"Part two of the book is worth the cover price alone..."

by MaryAnna Clemons

Rick Vassar has found a niche subject (business risk insurance) that was lacking in coverage, so he wrote the book on it. And he did a great job doing it. The book, Hide, Here Comes the Insurance Guy; A Practical Guide to Understanding Business Insurance and Risk Management, is a job well done...

We all have to buy insurance for our cars, our homes, even our lives. But business insurance is a totally different animal. If you run a business, you have to have insurance. It's that simple.

Rick spells out what that insurance is, why you need it and why you'll be sorry if you don't have it. He has demystified more than a few insurance terms, opened up the world of risk (and the risk is all yours without insurance) and given compelling case scenarios to show what can happen without insurance.

If I had to pick on something to critique, I'd say that some of his headlines don't seem to match his later words, for example "Why people hate insurance" is the headline and then the anecdote that follows is about algebra. I would argue that people hate insurance because they pay and pay and pay and pay, and then finally, they submit a claim and they get hassled and hassled and hassled, until they finally settle for less than they should be getting from an insurance company. To me, that's why people hate insurance.

I think, though, that Rick was tying Algebra — the subject everyone thinks they'll never need --- into insurance, because at some point in life you'll need both. That is a pretty picky critique on my part, because nothing is perfect.

Back to the good stuff, I really like the way Rick has broken it down for you on the ins and outs of the insurance game. For one, he tells you to get more than one quote - at first that seems like common sense, but when was the last time you got a quote?

I had to think about it and for my car insurance, it's been at least four years. How would I know if I'm getting the best rate if I haven't bothered to shop around in four years? Nice reminder to me.

The same applies for business insurance and going through a broker. The broker is in business for himself or his company, not you. You are the payee and if you aren't paying, they don't make money, which is just part of the reason your insurance rates tend to go up every year, instead of down.

The book breaks down the claims process, defines your risk criteria, gives you the difference between self-insurance and no-insurance (personal alternative risk financing), brokers, lawyers and more.
When you are done reading this book you are going to understand:
The language of insurance
The insurance players who want your money
How to develop a sound insurance strategy
How to invest your time and efforts regarding insurance
And whether you are properly insured or not

Part two of the book is worth the cover price alone: Insurance 101. In this section Rick breaks down the different insurance policies, from cars to homes to worker's compensation: what is covered, what isn't, what you can expect from your insurance, time periods, and more.

Worker's Compensation 101: worker's compensation is mandatory in all states, but Rick explains that small businesses, based on the number of employees, can file for exemptions. He then goes on to explain why you may not want to do that. After all, even if you have two employees, if both of those employees get hurt, you aren't covered (let the lawsuits begin). Even if you think that your cousin Fred would never sue you, or that he won't get hurt because he's super-athletic, think again. Accidents (and fraud) do happen, even with friends and family.

Rick's enduring message through the whole book (174 pages, including Index) is to protect yourself and your business with insurance, while protecting your pocketbook from the insurance man. It's a great book and I'm glad I have it on my business reference shelf.

Since the book is published by iUniverse, I'll take moment to point out that it's very well edited. The book has a great binding that I've been bending, pulling and adjusting on and it's stuck together wonderfully. I would not be surprised to find this book as required reading in future business courses in colleges throughout the U.S. and for new insurance agents to give to their clients (smart marketing in action: educate the customer). The layout is professional and easy on the eyes.

As an avid book reader and buyer, I tend to shy away from self-published work - I'm glad I did not in this case. It's a well done book that hands you information to make your life easier.

http://blogcritics.org/archives/2007/08/22/185635.php


MaryAnna Clemons is a freelance journalist based out of Colorado Springs, Colo., with three children, five horses, five cats, five dogs and one husband. Writing about removing chemicals from our daily lives, the dangers of aspartame and vaccines, as well as book reviews, she is continually trying to cram as much writing into her day as she can. More information can be found @ www.maryannaclemons.com.