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Tag Archive for 'insurance'

Will Proposed Insurance Bills for New York Backfire?

Insurers fear that a collection of nine different insurance bills up for consideration in the New York state senate will backfire, placing the state on the “worst insured markets” list.


Lawmakers, looking to help insured affected by Hurricane Sandy, have recently approved a post-Sandy insurance reform package that has several methods to better serve policyholders affected by Sandy and other related disasters. This includes:

-Establishing a “homeowner’s bill of rights”
-Creating standards for hurricane windstorm deductibles
-Restricting an insurer’s ability to cancel or not renew a homeowner’s policy
-Reducing time frames to settle claims

One group that has been vocal in the fight against these bills passing is the American Insurance Association (AIA). Believing the legislation is “misguided”, the AIA warns legislators and the public that this group of bills can create a scenario similar to that of legislation that passed in Florida after 1992’s Hurricane Andrew, also intended to help and further empower policyholders who suffer from catastrophic weather. Those laws backfired, creating a 40% decrease in insurers in the state of Florida and consequently, shrunk the insurance marketplace.

For New York, AIA warns that following in the same footsteps similar to Florida will create a tight marketplace where insurance will now come into a situation of high demand, low supply and increased premiums to the policyholder. Part of the increased cost to policyholders may come from the fact of putting more litigious power in the hands of consumers against insurers, which will get passed back down to the policyholder’s premiums eventually.

AIA also stated that insurers have closed 95% of all Sandy related claims with $5 billion going directly to New York with a 1% complaint rate, further defending AIA’s stance that this legislation is unnecessary.

With two weeks left in the legislative session, it remains to be seen if the Senate will bring the measures to the floor.

State Farm Fine-Tunes Risk Assessment, Decreases Rates

A.M. Best recently reported that carriers are looking at more than just rate increases to help them maintain profitability in a volatile property insurance market. Other risk-management initiatives that are being looked at include mandatory wind/hail deductibles, percentage hurricane deductibles and roof limitations based on the age and condition of the roof. Geo-coding and better understanding a specific home’s (versus an area’s) risk is also becoming a new trend in risk management practices.

Looking at “micro-zones” versus more broad measures is one way that State Farm in CA is able to manage the carrier’s risk while also offering more discounts to their client’s premiums. Beginning April 15th, State Farm, the largest homeowner insurer in CA, is dropping rates by an average 12.6% for more than a million customers. When looking at State Farm’s customer base in CA, that means 85% of the homeowners they insure will see an approximate $100 savings in their premiums. Renters will also see some savings upon renewal.

Instead of looking at just the zip code, State Farm’s new rate-setting system breaks down risk factors such as geology and fire danger, based on the exact geographic location of the home. This will position State Farm as having the ability to offer competitive pricing based on a fine-tuned set of risk assessments.

Spending Increase on Personal Lines; Commercial Rates Remain Steady

According to new research by Bankrate.com, more than a third of Americans spent more on insurance last year, while 52% spent the same, and only 7% spent less.

Of those that spent more on insurance in 2012, 62% said they did so due to rising premiums. The second biggest reason for increased insurance spending, according to survey respondents, was due to the purchase of a new home, car, boat or recreational vehicle.

Spending increases on multiple types of insurance was also seen, including homeowners, renters, life, auto and health coverage.

On the commercial side, rates are expected to continue rising later on in 2013 due to above average losses, low investment returns and receding reserve releases. The occurrence of a hard market is not in sight as of now, as both competition in the insurance marketplace and capacity remains high, and price increases continue to differ across the board.

Some suspected that commercial insurance rates would have started to rise in early 2013, but Superstorm Sandy’s effect on the market is predicted to stall or even out current rates that at one point had seemed to be improving.

Insurers across several types of lines and industries will continue to adjust their pricing and coverage in efforts to maintain their profitability. In addition, the rising severity of losses means that carriers to look more closely when processing claims to ensure the claim and the circumstances that caused the loss matches the coverage currently carried by the insured. For restoration contractors, this could result in further challenges with insurance companies, uncovered losses and angry policyholders who didn’t realize their lack of or gaps in their insurance coverage.

Homeowner claim payments rose 173% since 1997

A recent study from the Insurance Research Council (IRC) found that from the time period of 1997-2011, the cost of an average claim payment per insured countrywide rose 173%.

The increase is reported to be rising so rapidly because of increases in claim frequency and heightened claim severity.

This study analyzed both CAT related and non-CAT related claims, with the results of both claims being similar in some aspects.

Non-CAT related claims averaged around $8K and for CAT related claims, the average was $7.5K.

With the rising cost and frequency of claims, restoration contractors will definitely be vying for the business, but how will they edge out the other competition?

You can email us at info@theBDAway.com for a free special report on “13 Ways Restorers Kill Sales” so you have an edge on not doing what your competition will most likely be doing in their selling! Please include your name, company and where you’re located!

Forewarned is Forearmed: Understanding the Small Stages of Business Growth-Part 1

In our experience, business owners tend to approach growing their company as one long continuum from the day they open to the day they retire.

And, while growing the business may seem like a foregone conclusion for most entrepreneurs, they soon find out that the reality of growth is much more organic, much messier and far more likely to create new challenges that will stress the owner and his or her management team in ways they never imagined.

We often have the opportunity to see this firsthand as we help restorers grow their businesses by turning on their “marketing engine.” Even so, we are emphatic that “handling the new business will be harder than getting the new business.”

Given the fact that most restorers find growing their business in today’s market one of their biggest and most difficult challenges, they have a hard time accepting this statement. Perhaps they are so focused on having found a new way to grow that they figure that handling the growth will be a nice problem to have and they’ll figure that out as they go along.

This is a problem. They fail to realize there are distinct stages of growth, with different challenges, stressors and potential outcomes. Growing companies can greatly profit from advanced knowledge of the challenges they are likely to face at each step.

Facts of business

Before we get into these distinct stages, let’s look at some general truths about growing companies. The most important is that “growth increases complexity.” What most owners do when confronted with increased complexity is to throw people at the problem, meaning that they simply hire to add the necessary capacity.

But what is the real effect of this strategy? After all, the point of growing a business should be for the company to produce more net profit. If the increased gross profit — and therefore net profit — of a growing business is simply consumed in the salaries and related overhead expenses necessary to handle the growth, then all that a business owner has accomplished is to create a bigger, more complex set of headaches for the same net profit as before.

So, while some new labor resources may be required, the reality is that growth and its attendant complexity requires changes in the way the company operates — a new paradigm that requires new processes, systems and procedures and new ways of measuring and thinking about the business.

All of this requires a transition away from the old, comfortable, safe and yet moribund paradigm that got the business from Point A to Point B, but will not take the company from Point B to Point C, something that is likely to be extremely uncomfortable for the owner and many employees who simply may not be able to make the transition.

Another truth is that for companies to grow, the owners and management team will have to learn new skills to support that growth. Companies embarking on a growth strategy must consider how they will gain this education. There are several industry specific consultancies and programs that can help dramatically, but an intensive self-study program is highly recommended, starting with Peter Drucker’s “The Practice of Management.”

This new, more complex, more demanding paradigm will require not only a revision of all of the company’s processes but also a way of codifying those new processes and integrating them into “the way we do things around here.”

It will also require running the business “by the numbers,” and an owner and key managers must have job and overall profitability numbers in near real time in order to insure that margins are met. For this reason, growing restoration contractors simply must be looking at “enterprise” software solutions as the software backbone to support their growing companies.

There are many theories and models of small business growth, and one of the classic papers on this topic was published by Neil Churchill and Virginia Lewis in the Harvard Business Review. Understanding the stages of small business growth helps owners understand what to plan for, what changes there will be in the company’s structure, the owner’s responsibilities and focus and can serve as a way of diagnosing problems that arise.

This month, we will look at the first two stages of growth, and next month, the final three.

Stage 1: Existence

This is the start-up phase where the focus here is almost exclusively on getting enough business to start your business model.

Overhead costs will be, or should be, at a minimum because the owner will be performing most tasks personally with the help of a few employees of average skill. There will be few, if any, formal systems or planning processes as the business will be run largely “in the owner’s head.”

In the very beginning, the company’s very minimal requirements and nascent capabilities often allow the company to generate business relatively easily. This is especially the case if there is an existing business (such as a carpet cleaning operation) that can support the basic needs of the owner as he begins his foray into the brave new world of restoration.

The first crisis for a start-up will likely be managing cash flow. This is often the biggest problem and impediment to growth, causing owners to develop skills in accurate estimating, efficient management of company and sub-contractor labor so that jobs are profitable, negotiating with adjusters and policyholders for payment, understanding the impact of customer service on getting paid, etc.

This is an extremely demanding phase for any business, but perhaps even more so for restorers given the peaks and valleys nature of the workflow and the challenge of keeping a solid team on staff to do the work properly and profitably.

It is easy for restorers at this stage to want to move too fast in terms of growing their organization without putting into place the necessary systems, processes and procedures.

The people selected may be chosen more for industry familiarity and the “show up” factor (they just showed up on my doorstep — must be serendipity) than possessing the necessary management or other skills that the company will require to grow.

This can also be a time of really challenging stress for business owners, especially if they don’t have a carpet cleaning or other business to fall back on.

Stage 2: Survival

The good news here is that the company’s basic premise has proof of concept. The crisis is now one of generating a necessary profit as the company grows to the next step.

Owners are likely putting out fires on a daily basis and the toll of the start-up phase may have drained them of energy and financial resources.

If the business is growing, the problem becomes a very serious one — can the company generate enough cash flow to stay in business and add the necessary fixed expenses (equipment, trucks, technicians, first managerial position such as Project Manager) as well as maintain the current capital assets and replace them as they wear out?

Again, in the restoration industry this can be dramatically exacerbated by unforeseen circumstances like “The Winter That Wasn’t of 2011-2012″ where the expected work from frozen pipes, ice dams, etc., never materialized.

Keeping a talented crew together at this point to handle the peaks in the work is extremely challenging, and many companies at Stage 2 are unable to keep everyone working on a full-time basis. This creates a quality problem as well as massive training problems, as there can be a revolving door of technical talent.

The Project Manager at this stage is a key employee, and owners typically do everything possible to keep this person in place, often ignoring whether or not they have (or can develop) the necessary managerial qualities that will help the company grow.

At Stage 2, the company is still relatively simple; systems are still rudimentary at best, requiring the involvement of the owner in practically every decision. Planning will mostly revolve around cash flow forecasting and it is now critical that the company utilize a basic accounts receivable process to get paid as quickly as possible.

The crisis of cash flow at this stage also creates a dangerous potential pitfall for restorers. When a company is desperate for cash, it is easy for the emotional demands of running the business to spill over when negotiating payment with adjusters.

If Stage 2 companies manage their challenges effectively, they may grow to Stage 3. However, many Stage 2 companies do not meet these challenges and stay in a perpetual crisis where the owner wonders why he ever got into the restoration business in the first place. Given the boom and bust cycles of the industry, he may lurch onward from one fortuitous job to the next, hoping that the lean times in between doesn’t exceed his ability to cover payroll and stretch his suppliers.

Our experience is that many restorers can stay in this place for a long time — even 20 years — never doing what is necessary to understand and break free of Stage 2 and move on to Stage 3.

But if they are able to get past Stage 2… they will find Stage 3 quite interesting. Stay tuned for Part 2, Coming Soon!

Beware Electronics: 23.4 Million Lightning Flashes Increases Chance of Loss

Between 2004-2006, the cost of insurance claims for lightning strikes nearly doubled, although the actual number of claims shrank dramatically. An industry trade group says “fancy new TVs and videogame consoles are to blame.”

With 23.45 million lightning flashes being recorded nationwide in 2011, and as the general public consumes more and more technology each day, the risk of loss due to a lightning strike grows as well. Electronics such as flatscreen TVs, computers and videogame consoles are all susceptible to power surges.

These types of insured losses related to lightning strikes totaled almost $1 billion in 2011 alone!

Are policyholders protected when they incur this type of loss or to that note, do they have enough coverage if the lightning was to cause damage to the property?

Our BDA Client Network, which is made up of restoration contractors nationwide, find that in times of loss, many policyholders do not have sufficient coverage to fully cover the damages incurred to their contents or property. And when that happens, it can creative a negative impact on the relationship between the policyholder and the agent, as the policyholder almost always assumes they have enough coverage.

If you are a restoration contractor that has come into this type of situation, we’d love to hear about it! You can reply to this blog post or email us at info@theBDAway.com

You can also read the full story at:

http://tinyurl.com/cgeewbr

Insured Losses from 2010 Catastrophes Hits $38 Billion

Natural catastrophes around the world increased dramatically in 2010, with both costs and insured losses far higher than in previous years.

According to the Aon Benfield Annual Global Climate and Catastrophe Report, there were 314 separate natural catastrophes worldwide, from events such as earthquakes, floods and severe weather. They caused economic losses of nearly $252 billion in 2010, with insured losses of nearly $38 billion.

In 2009, 222 events combined to produce $58 billion in economic losses and $20 billion in insured losses.

The top 10 insured loss events of 2010 accounted for $23 billion in insured losses, about 61% of the total. They were five severe weather events, one winter storm event, two earthquakes and two floods. The remaining $15 billion insured losses were a combination of winter storms, severe weather, flooding, tropical cyclone activity, earthquakes and wildfires.

The highest insured loss of 2010 was the Chile earthquake in February, estimated at $8.5 billion in insured losses. The flooding in Pakistan caused the greatest single event economic loss, reported at more than $30 billion.



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