Insurance Quotes & Advice

It was reported that the property/casualty insurance sector recorded $1.3 billion in losses for the first quarter.  Insurers saw a decline in underwriting and investment income over the same period from a year ago.

The property/casualty insurance industry suffered a $1.3 billion net loss after taxes for first-quarter 2009, which constitutes a $9.8 billion adverse swing from the industry’s $8.5 billion in net income after taxes in first-quarter 2008. And reflecting the swing to a net loss after taxes, the insurance industry’s annualized overall rate of return on average policyholders’ surplus dropped to negative 1.2 percent in first-quarter 2009 from positive 6.6 percent in first-quarter 2008.

With the stock market reeling the deep investment losses should not come as a surprise.  What is most disconcerting is the sharp swing in underwriting income, where losses more than quadrupled from $.6 billion to a staggering $2.5 billion.

We are seeing a general decline in insurance demand and the nation’s job losses are finally catching up with the industry.  Insurers have had to cut premiums in order to attract customers which have resulted in the large underwriting losses.

The annuity sector faces probably faces the most serious difficulties ahead, they are tied in paying out contracts whose values are guaranteed at a time when their own investment values have yet to recover.  Another major concern for the sector is the potential for a large catastrophe payout since the east coast is in the middle of the Atlantic hurricane season.

Earlier this week The Hartford was forced to accept $3.4 billion in TARP funds and there are other carriers facing liquidity dangers as well.

Insurer’s took a big hit in 2008 as a busy Atlantic hurricane season took it’s toll on an industry already hard hit by the financial crisis.  Property and casualty insurers are expected to spend over $25 billion for insurance related payouts for 2008. 

U.S. property/casualty insurers are expected to pay out $25.2 billion in 2008 property losses, the fourth highest annual total in a decade, according to new data released Tuesday from an industry group.The 37 catastrophes, defined as events with $25 million or more in insured property losses, include hurricanes, severe weather, winter storms and tropical storms, said the Insurance Service Organization’s Property Claim Services Unit (PCS). Hurricanes caused the largest amount of loss, currently estimated at $13.3 billion in insured damage. Severe weather events — damaging winds, large hail, tornadoes, and flooding — caused an estimated $10.5 billion. Winter storms caused $1 billion in losses, and two tropical storms caused $300 million.

With many Americans already struggling with the economy and rising unemployment, higher home insurance premiums are not a welcome sight.  Unfortunately the industry has little choice in the matter, the high payouts and a falling stock market have combined to create a shrinking bottom line.

We’ve already seen industry giant AIG narrowly avoid collapse due to government intervention but they aren’t the only ones who are struggling and many analysts are wondering if the insurance industry will require their own bailout like the banking system.  A number of insurers have already tried to acquire small regional banks in order to become eligible for TARP funds.

Homeowners are increasingly seeking bundling their insurance as many companies offer discounts if property and auto insurance is from the same carrier.  AIG flush with government funds has also tried to slash premiums in order regain market share it lost when many thought it was about to go bankrupt, much to the chagrin of the rest of the industry.

Still with a negative outlook for much of the industry in 2009, homeowners will have likely have to cope with rising premiums for some time.

The Federal Trade Commission(FTC) has ordered nine major insurance companies to provide information on their use of credit based scoring in determining home insurance premiums.  The use of credit based scoring has been controversial, many consumer advocacy groups feel that it unfairly profiles certain racial groups.

The orders require information from the nine largest private providers of homeowners insurance, which have roughly 60 percent of the homeowners insurance market in the U.S.: State Farm Mutual Automobile Insurance Company, The Allstate Corporation, Fire Insurance Exchange, Nationwide Mutual Insurance Company, The Travelers Companies, Inc., United Services Automobile Association, Liberty Mutual Holding Company, Inc., The Chubb Corporation, and American Family Mutual Insurance Company.

Credit based scoring has been mainly used by the auto and property insurance sectors.  A number of states have attempted to ban it’s use over the years but insurers have vehemently opposed them.

Florida’s state regulator was one of the leading figures against credit scoring when Congressional hearings were held on the matter back in May.  The last study by the FTC was convened in 2003 and was completed last year,  it found that credit based scoring was an accurate measure to determine risk.

Needless to say that finding was slammed by a number of groups.  There is a lot of evidence that credit scoring may be an accurate measure of risk but there is also a lot of evidence that certain groups are disproportionately affected.