Insurance Quotes & Advice

The insurance industry has endured it’s share of losses during the current financial crisis, including AIG which was the recipient of an unprecedented government bailout.  Now awash with taxpayer money, AIG is aggressively slashing rates and their competitors are crying foul.

“AIG has intensified its effort to increase its market share, or at least preserve it,” said Edmund Kelly, chief executive of Boston-based rival Liberty Mutual.

“I think it’s fair to say they’re doing some very stupid things in the market,” Kelly told investors on a quarterly conference call last month. “If (AIG units) are not reined in, it could be very destabilizing for the market.”

The bulk of the insurance industry’s profits are usually made up from investment gains rather than it’s underwriting business.  Since the stock market has been in free fall over the past year, the expectation was that premiums would begin to rise to somewhat compensate.

AIG lost a lot of business when it almost collapsed and now they are aggressively trying to win back market share with what competitors are calling absurdly low rates.  It’s competitors will have to follow suit but it’s a very bad time to get into a price war.

The industry may be opening itself to significant underwriting losses in the future by under pricing policies that aren’t commensurate with the risk involved.  It’s competitors feel that AIG is playing with fire with taxpayer money and that the entire industry will suffer as a result.

Despite the government bailout, losses have continued to mount at AIG.  We are seeing a lot of money switching hands as AIG pays off it’s counter parties for all the bad bets it has made.

However, as long as AIG has enough collateral to cover the it’s massive loan, it is unlikely that the government will take any action to stop their rate cutting campaign no matter how stupid it seems.  The big question though, is whether AIG’s actions today will be the cause of a future insurance industry bailout.

A report released by the Government Accountability Office(GAO) states that flood insurance premiums doesn’t adequately reflect risk.

The 2005 hurricanes left the NFIP with an “unprecedented” $17.4 billion deficit, the GAO says in a report recently submitted to the U.S. Senate Committee on Banking, Housing and Urban Affairs. The report, “FEMA’s Rate-Setting Process Warrants Attention,” summarizes the findings of a study undertaken in response to concerns over the financial status of the NFIP, which is operated by the Federal Emergency Management Agency (FEMA).

Really, no kidding, it’s been quite obvious since Hurricane Katrina that flood insurance premiums are too low.  There’s a reason why there isn’t a private market place for flood insurance and it’s because private insurers can’t compete with the government’s program, not and make money at the same time.

A combination of outdated flood maps and subsidized insurance for low income families has proven to be a double whammy for the struggling NFIP.  The Army’s Corps of Engineers is currently re-mapping flood zones but it is a timely process which is expected to take years and cost millions of dollars.

All things considered it could actually be much worse, however, participation in the NFIP has always been absurdly low, one study found that only 17% of homes have flood insurance.  There is a difference of opinion as to whether greater participation would mean higher losses for the program or whether it would be enough to spread the risk sufficiently.

For months Congress debated on the future of the controversial program but in the end could only agree on an extension.  The next Congressional session will have to decide whether it will add wind coverage or forgive the NFIP’s existing debt which were the main bones of contention. 

No matter how you look at it, high risk flood areas are being subsidized by the American taxpayer.  It also promotes development in these areas which could increase the NFIP’s risk profile in over time.

If this were an actual company it would have gone bankrupt already.  The government will have to decide whether it will keep going on this path or revamp the premium structure to at least give the program a chance to break even.

The problems with the U.S. healthcare system have been building for decades, the bloated and inefficient system leaves more than a sixth of the population uninsured.  The rest have to keep up with insurance premiums which significantly outpace inflation year after year.

It doesn’t take a P.H.D. to figure out that our current healthcare system is unsustainable, yet the government has ignored the problem for far too long, leaving it in the hands of a future generation.  Well, the future is pretty much on us now and the new administration is going to have to deal with it.

In about ten years, Medicare goes bankrupt and if nothing is done soon, a significant portion of the population will be severely impacted.  The incoming administration has pledged to address the problems but it will be extremely difficult.

Reforming the healthcare system isn’t going to be quick or cheap.  There couldn’t be a worse time for such a massive undertaking with the federal government undergoing record debt to deal with the financial crisis.

The healthcare industry has already put forth it’s proposal for mandated universal coverage but that only addresses one side of the equation, insurance.  The other, half which is the actual cost of medical care needs to be addressed as well, otherwise the government will just end up paying an arm and a leg for subsidized health insurance.

For the amount of money the government is already spending on healthcare, there is no good reason why this country has over 50 million people uninsured.  If we take a look at other nations’ healthcare systems as a comparison, I think we can definitively say that our government isn’t getting it’s money’s worth.

Hopefully the incoming government can change all that but it’s going to be an uphill battle, especially in this economic climate.