Insurance Quotes & Advice

The financial services sector has struggled over the past year but insurance services remain one of the few bright spots.  In an era of shrinking profits and hemorrhaging balance sheets, banks have had to turn to non-traditional avenues to shore up profits.

“Fixed annuity sales in banks have doubled in the last two months,” said Kenneth Kehrer of Kehrer-LIMRA in a press statement. “Bank sales of fixed annuities rose 47 percent in February, following a 36 percent increase in January. Year-over-year, fixed annuity sales were up 180 percent.”

A third survey by Bank Insurance Market Research Group (BIMRG) showed that banks that sell insurance earned an average of 44 percent higher net income in 2007 than financial institutions that do not offer the same products.

Deregulation of the financial services sector that began in the 1980’s have allowed commercial banks to slowly encroach on what was the insurance industry’s private domain.  While insurance services doesn’t offer spectacular profits their slow but steady track record has a lot going for them.

In these difficult economic times, insurance offers one of the few safe havens for consumers and firms alike.  The tendency of investors to retreat to safe and sound investments as equity markets undergo a period of weakness and volatility should ensure that insurance services and annuities espescially will remain brisk throughout the economic downturn.  

A lack of a private market for flood insurance prompted the federal government to create the National Flood Insurance Program(NFIP) in 1968.  Operated under the Federal Emergency Management Agency(FEMA), the NFIP accumulated losses of over $17 billion in the aftermath of the Hurricane Katrina disaster.

While the legislation to reenact the program would forgive this debt, it just goes to show how risky it could be for the insurance industry to enter this market unless they charged much higher premiums than the government.  However, Nationwide Insurance is lobbying Congress to include flood coverage in their home owner’s policies.

Nationwide’s plan, which would require congressional approval, calls for the Columbus, Ohio-based company to sell flood insurance at the same price as NFIP policies. However, policyholders would have the option of buying flood coverage beyond the limits of the national program.

In the aftermath of the August 2005 storm, thousands of property owners in Mississippi and Louisiana without flood insurance sued their insurers for refusing to cover damage from Katrina’s wind-driven storm surge. “We see this (plan) as a viable alternative to much of the litigation that occurred post-Katrina,” Zimpher said. “No one, whether it’s insurers or consumers, benefits from litigation.”

There is no question that it’s a bold move on Nationwide’s part and it would solve the wind vs. water debate, but is it feasible?  Other insurance carriers have taken the opposite approach and have decided to scale back wind coverage to protect themselves from potential litigation.

It would be a risky plan, as the losses by the NFIP showed, yet it could work as there is a large untapped market out there for flood insurance.  A recent survey by the Insurance Information Institute estimated that only 17% of Americans have purchased flood coverage but one would assume that Nationwide believes that they would do a better job than FEMA at marketing the product.

However, Nationwide is not exempt from a number of large insurance carriers who have canceled policies for some homeowners along the Gulf Coast in an effort to reduce exposure from hurricane claims.  Now while it would of great benefit to get more people to purchase flood insurance, since the current numbers are almost laughable, there is a concern that homeowner’s with the highest risk profiles would still be left in the dark.

The drive for regulatory reform of the insurance industry has slowed to a crawl in Congress and at this point it is unlikely any movement on a Optional Federal Charter(OFC) and the creation of a national insurance commissioner will happen this year according to the Insurance News Net.

The OFC, which will enforce a single central regulator to replace current state-run systems, has been a long-time divisive issue between members of the Optional Federal Charter Coalition and the Coalition Opposed to a Federal Insurance Regulator.

The schism and the recommendations coming from the two factions are expected to make it even harder for lawmakers to agree on a direction which will effectively regulate financial companies and markets.

Back in March, Treasury Secretary Henry Paulson called for sweeping changes to regulatory oversight for the entire financial services sector including the insurance industry.  Troubles in the financial sector from the subprime fallout have paved the way for the federal government to openly challenge the states’ century old strangle hold on insurance regulation.

Although state commissioners are vehemently opposed to a single federal regulator, they did support legislation for the creation of an Office of Insurance Information.  That office would help coordinate policy efforts between state regulators and foreign insurance commissions.

Beginning in the early 80’s federal deregulation of financial services helped blur the lines between the insurance, commercial and investment banking sectors.  One could argue that the insurance industry is faring much better in the current economic slowdown because it is under state control as opposed to it’s financial brethren which are under federal oversight.

While the current state system of insurance regulation is widely acknowledged as woefully inefficient, many are concerned that the withdrawal of control from states’ hands might not be in consumers’ best interests.  With little action expected to be taken this year, you could see support of a national insurance commissioner slowly trickle away if financial markets improve by the time the next congressional session reconvenes.