Risk Strategies' CEO, Mike Christian, discusses personal insurance and insurance gaps to avoid with USA Today.
Risk Strategies Company CEO Michael Christian discusses captive insurance with Advisen Risk Network’s Patricia O’Connell.
"Your warehouse is on fire!" Terrible words to hear late at night – or anytime, for that matter. Without warning, a portion of your invested capital can disappear in a matter of minutes. Both private and public companies require capital to operate and grow. There are many aspects of risk that real estate firms face today in the course of acquiring, selling, managing, developing or redeveloping property. Our team, in conjunction with real estate owners, identifies the risks and then designs, negotiates and implements insurance programs that can provide the capital to rebuilt, replace and continue operations.
The Terrorism Risk Insurance Act (TRIA) is facing expiration on December 31 of this year, and the issue of its renewal is likely to be debated as the expiration draws near. Why is TRIA important? Proponents of renewing TRIA will argue that the federal backstop is necessary to assure a smoothly functioning insurance marketplace that includes terrorism coverage. Property and Workers’ Compensation insurers will argue without the backstop there is insufficient capacity to handle a catastrophic exposure imposed by a terrorism event, especially in heavily populated areas.
Risk Strategies’ CEO, Michael Christian, offers insight on how businesses benefit from harnessing the opportunity in risk, and how this is different from ten years ago.
As we enter the second quarter of 2014, our clients are asking for insight into their insurance renewals. It is widely recognized that the carriers, catastrophe modelers, rating agencies and regulators grossly underestimated the frequency and severity of the North Atlantic hurricanes in 2011 and 2012. However, 2013 turned out to be a big bust with respect to projected catastrophic weather activity. After predicting that a devastating loss-year would turn the market hard, rates instead are drifting upward largely due to an interest rate environment which is making it harder for insurers to produce investment income with their collected premiums. One interesting difference in this marketplace is price increases will not be driven by capacity shortages, which is a typical hard market driver. Rate increases are primarily confined to inflationary levels, except for those risks in catastrophic loss locations, such as waterfront, wind prone and the like.
Many of you have read the news of Target’s 40 million unique user cyber theft during the holidays. Make no mistake, all companies—big or small—are vulnerable to a privacy breach or a network security incident. Cyber liability can be attributable to human error, hackers, digital espionage, data theft, denial-of-service attacks, electronic sabotage, improper employee or contractor access, computer viruses, or programming errors. Despite concern over cyber risks, many companies continue to underestimate or not recognize the potentially serious financial impact of a major cyber event. 46 U.S. states have enacted some type of security breach notification legislation which imposes fines on companies who have a cyber loss. The threat is real and our clients have approached the exposure from both a prevention standpoint and insurance coverage standpoint. We strongly recommend all companies evaluate cyber liability coverage during their next renewal cycle.
As we enter the last quarter of 2013, many real estate holding companies are asking their insurance brokers for insight into their insurance renewals. It is widely recognized that the carriers, catastrophe modelers, rating agencies and regulators grossly underestimated the frequency and severity of the North Atlantic hurricanes in 2011 and 2012. However, 2013 turned out to be a big bust with respect to projected hurricane activity. After predicting that a devastating loss-year would turn the market hard, rates instead are drifting upward largely thanks to an interest rate environment which is making it harder for insurers to produce investment income with their collected premiums.
As is always the case with difficult situations, there are lessons to be learned. In recent years, there have been many worldwide catastrophes. Major events that we would never envision happening are indeed occurring. Too often, we are focused on saving premium and miss meaningful coverage provisions and sub-limits that are vital in the event of a major loss.
A tide of flood insurance rate increases is rolling in, despite the efforts of state and federal legislators to stem it in waterlogged areas, with 25 percent hikes in the offing beginning Oct. 1, 2013. Congress passed the Biggert-Waters Flood Insurance Act of 2012 to put the National Flood Insurance Program (NFIP) on sound financial footing. However, the NFIP is $26 billion in debt from paying off disaster claims.
While most of the attention on the Obama administration’s health care law has been on providing coverage to tens of millions of uninsured Americans by 2014, workers with employer-paid health insurance will feel the effects. The Affordable Care Act’s "Cadillac" tax won’t go into effect until 2018, but it’s already causing trouble. Companies hoping to avoid the tax are beginning to scale back the more generous health benefits they have traditionally offered and to look harder for ways to bring down the overall cost of insurance.
The property insurance market has been firming throughout 2012; with renewals for risks throughout wind and flood prone areas being the most challenging. Key markets for coastal perils have cut back capacity and are carefully analyzing this book of business.
As we gaze forward in an attempt to discern what type of marketplace 2013 will bring as it pertains to insurance costs we must first reflect on the events of 2012. Factors that affect the pricing, and capacity, of the insurance marketplace are historical loss experience, investment returns, projections on future catastrophic events and historical premium rate environments.
As all of you know, the East Coast, particularly New York and New Jersey, recently experienced one of the most powerful storms in modern history. The initial insured loss estimate is between $10 billion-$20 billion, with economic damages of approximately $30 billion-$50 billion. The storm could impact up to .5% of the US GDP for the 4th quarter. It could take the region years to fully recover. As is always the case with difficult situations, there are lessons to be learned. In recent years, there have been many worldwide catastrophes. Major events that we would never envision happening are indeed occurring.
It is our belief insureds will be faced with continued pricing pressure through the remainder of 2012. Although as stated earlier, insurance capacity remains strong this could dampen the increases sought by most carriers. It will be extremely important for corporate management to build strong relationships with their underwriters. In addition, loss prevention measures combined with claims management and contractual standards are increasingly important, thereby presenting the best possible risk to the underwriters. We recommend building strong risk management relationships with your broker and underwriters early action will allow for the negotiation of the most competitive program the markets will offer.
The insurance marketplace has been characterized throughout 2010 as competitive. Buyers with good loss histories have experienced modest reductions on all lines of insurance throughout the 2010 renewal cycle. Carriers underwriting property and casualty insurance remain reasonably well capitalized with competitive conditions fueled by the recession. Average rate levels for most lines of coverage have been trending flat to lower throughout 2010.
Carriers are reporting a reduction in capacity and re-insurers are negotiating increased rates on most renewals. The firming of the market is being driven by the large number and cost of catastrophic events in 2010 and 2011. Some of the notable catastrophes in include New Zealand and Chilean earthquakes, Australian floods, the Deepwater Horizon oil rig disaster, US Tornados and significant flooding throughout the Midwest and Southeast.
The insurance marketplace has been characterized throughout 2010 as competitive. Buyers with good loss histories have experienced modest reductions on all Iines of insurance throughout the 2010 renewal cycle. Carriers underwriting property and casualty insurance remain reasonably well capitalized with competitive conditions fueled by the recession.
In just about every metropolitan area nationwide hungry customers can appease their appetites by visiting the neighborhood taco truck. The traditional taco truck sells more than just tacos these days - a lot more. Today's mobile food vendors sell everything from gourmet cupcakes to lobster and the variety of foods available seems endless.There are more mobile food trucks than ever before. The number on the road, and in cities nationwide, has exploded in recent years.
Getting the financial piece "right" is the ultimate goal of every M&A transaction. Understanding the variables that affect the intrinsic value of an acquisition can save millions of dollars. A recent purchase of a company whose balance sheet carried an accrual to cover the unknown future costs of a regulated insurance product, showed how proper perspective and guidance are crucial in increasing value. The curious deal owner, working hard to create opportunity, utilized an in-depth thought process on risk, creating value efficiency for his investors. Since insurance is an expense item that falls directly to the bottom line, the insurance savings produced from his due diligence methods, were leveraged by the deal multiple, so to speak, and created a financial win.