There are things that you should rent, there are things you should buy, and then there are really bizarre things available for rent that you’re not quite sure what to make of. Today we look at this illustrious third category!
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Much like a farmer bringing in his crop in the fall, U.S. property/casualty insurers have harvested significant reserve redundancies, according to a report issued today by Moody’s Investors Service, leaving a narrower cushion for the next 12 to 24 months.
The report, “U.S. P&C Insurers Harvest Significant Reserve Redundancy,” cites a weak pricing environment as P&C insurers’ primary impediment to building reserves at the same pace as recent years.
Moody’s says that insurers reported less—though still significant—benefit from reserve releases in their 2009 statutory earnings compared to 2008.
“Though we believe reserves are still redundant as of year-end 2009, we expect that as reserve releases taper off, coupled with lower investment yields, insurers will either raise prices or experience continued pressure on underwriting profitability,” says Moody’s analyst Enrico Leo, author of the report. “Continued deterioration for 2008 and 2009 accident years is likely to offset benefits received from older accident years, leading to a reduction in total reserve releases over the medium term,” notes Leo.
Approximately $10 billion, or 1.9%, of prior year-end reserves was posted in 2009, the report says. Moody’s goes on to note that favorable reserve development was seen across most major market sectors and nearly all lines of business. A breakout of the top 50 primary insurance groups illustrates that personal lines reported favorable development of 1.5%, compared to 1.1% in 2008, while diversified carriers reported 2.5% compared to 4% one year ago. Commercial lines insurers experienced less favorable development, reporting just 0.3%, compared to 2% last year.
Reserve releases over the last five years resulted from more favorable conditions of the last hard market, including price increases and improved terms and conditions, favorable loss cost trends and relatively little natural catastrophe activity in 2006 and 2007, Moody’s adds.
“As a result, P&C insurers experienced redundancies in their reserves, which contributed to strengthened earnings and capital positions in recent years,” Leo says.
Following the recent recession, there are pockets of significant opportunity and accelerated growth for the U.S. insurance industry, but a proactive approach is mandated to realize that premium growth. This comes from “The Uneven Economic Recovery and Its Impact on the Commercial Insurance Market,” an article by MarketStance, a resource for demographic data as well as analytical services for the U.S. insurance industry.
According to the article, which provides an overview of the recent recession and details about how this economic downturn differed from past recessions, soft demand for coverage will continue for several more years due to the recovery’s tepid pace. Further, MarketStance found that due to pronounced differences in the geographic experience of the recession, state, county and even ZIP code-specific planning, marketing and underwriting may be necessary for P&C insurers going forward.
“Our research shows that unlike past recessions, this most recent one affected all classes of business and lines of coverage being written by commercial insurers,” says Fritz Yohn, founder, MarketStance. “There was no ‘safe place’ to be in the insurance industry this time around.”
Yohn also says that regardless of their business models or go-to-market strategies, using economic forecasting can become a “game-changing competitive advantage for carriers of all sizes in all markets.”
Home insurance companies have their own ways to avoid paying the full cost of a claim.
The company’s policy form allows it to delay payment of the full replacement cost until actual repair or replacement is complete. Until then, the homeowner is entitled only to the actual cash value of the loss, which is the depreciated value. The effect is to turn a replacement cost policy into a replacement policy. Meanwhile, the company keeps the difference and earns investment profits on it. Indeed, the company may keep the homeowner’s money forever.
If the homeowner does not rebuild, the company never makes the final payment. The insurance company will pay only if asked, of course. Some homeowners, receiving an initial check for actual cash value from the company, do not know about their right to get the rest. Others may read the policy and, as in some policies, find a provision that the additional payment will only be made for repairs completed within 180 days; if repairs take longer, they may not understand that a court will refuse to enforce the 180-day limit if there are good reasons not to do so.
In either event, the homeowner may not claim the additional amount, leaving the company with a profit at the policyholder’s expense. Not satisfied with this provision in the policy allowing them to hold back part of what is owed; insurance companies have attempted to reduce the amount that they owe as actual cash value pending the completion of repairs. Brian Salesin suffered water damage to his home from a leaking washing machine and made a claim to State Farm, the insurer from which he had bought a homeowner’s “extra” policy that provided replacement cost coverage. 1
After investigating, State Farm sent Salesin a check for $20,778.75. From the above figure was subtracted $1,048.44 in betterment and $5,581.79 in profit and overhead for a total amount withheld of $6,630.23. (Betterment here meant the difference between the replacement cost and actual cash value, consistent with a policy term like that described above.)
The controversial deduction was the $5,581.79 in profit and overhead. This was the insurance company’s technique of deducting from the actual cash value an additional amount often described in the insurance trade as 10 and 10. If the job was done by a general contractor, the contractor would incur overhead above the costs of labor, materials, and payments to subcontractors specific to this job, such as the expense of running an office, and also would be entitled to earn a reasonable profit; by convention in the trade, the usual figures are 10% overhead and 10% profit.
State Farm’s in-house operation guide (which the court pointed out was not part of the contract between State Farm and Salesin) justified holding back this 20%. State Farm argued, it was entitled to hold on to not just the difference between the replacement cost value and the actual cash value, but also an additional 20% of the replacement value. Hold on to that difference, that is, and profit from the float of investing it until it was eventually paid, or, if Salesin did not make the repairs, did not use a general contractor, or simply forgot to reclaim it, hold on to it forever.
Even if the home is fully insured to value, the homeowner is entitled to replacement cost, and the work only involves the construction of a replacement house identical to the original. The homeowner will find that the insurance company will not pay the full cost when it initially settles the claim.
1. Salesin v State Farm Ins. Co., 581 N.W. 2d 781 (Mich. App. 1998)
© 2010 John Smith
Shopping for home insurance is just like an everyday shopping experience. It is more or less similar to the mundane perusing in the neighborhood grocery or the shopping mall. It’s about knowing needs, determining budget and limitations, browsing through the variety of options available, and choosing the product or offer that is most suitable for the consumer. To get the best home insurance quotes, one must find the right coverage, the best price, and a suitable agent. However, for first time homeowners, the concept about all of this is almost incomprehensible, and ignorance and misunderstanding could lead to wrong choices. This article aims to act as a guide for those who are looking for home insurance quotes.
The first step is to find out what is needed as well as the limits of one’s financial state and means. This is gravely important, especially in today’s world where it’s crucial to make smart decisions and remain informed about finances and insurance needs. Before going out to purchase home insurance, there are some important factors affecting quotes that must be considered such as the state and construction of the home, and safety conditions. There are a lot of ways to reduce home insurance costs. Some examples are the following: (1) combine the coverage of the home insurance because companies credit the insurance by as much as 10% for insuring both the home and the car; (2) know the home insurance discounts deserved. Such discounts are often available if the home has smoke detectors, fire alarms and etc. and; (3) increase the deductible of the home insurance.
When already browsing, it is vital to compare the prices carefully and select the one that best fits the determined needs. Like in most situations, choosing the most inexpensive product doesn’t necessarily mean it is the best choice. It is preferable to keep in mind that when dealing with insurance, getting the best deal is the main objective. Spending extra goes a long way if it assures quality. Each insurer provides different home insurance quotes and coverage. The consumer should scrupulously investigate the insurer’s background and credentials, ask trusted people such as family and friends for their recommendations and opinions, and ask for possible discounts to decrease the monthly premium.
The next step is the ‘shopping’ process. Searching for the best home insurance quotes is a tiring and frustrating ordeal. But it is far worse to encounter a problem with a purchased policy after filing a claim. A good tip for an easy claim filing process is to make sure of its validity and dutifully record all valuables covered by the policy.
These quotes fluctuate annually, so the last thing to do is to carefully keep track of these fluctuations. Remember that there is always another company that has lower rates for their coverage plans.
Following these steps may help in choosing the best insurer and reducing problems in the future with insurance claims. The key to selecting the best quote and policy is updating with trends and doing research to gain the necessary knowledge. Knowledge is still the best defense for every consumer.
The Government has just published a consultation paper on proposals to change the tax rules for furnished holiday lets so they meet EU legal requirements in a fiscally responsible way.
The proposed changes to the special tax rules for furnished holiday lettings include;
The consultation will run from 27 July to 22 October. The Government will publish its response by the end of the year and intends to implement the changes in the 2011 Budget.
The consultation paper can be downloaded at: http://www.hm-treasury.gov.uk/consult_holiday_lettings.htm
If you have an opinion or a respons to the proposals then e-mailed them to Jacqueline Latter: holiday-lettings-consultation@hmtreasury.gsi.gov.uk
Initial opinions are that the tax changes will have little impact on those who run successful holiday lets, as the ‘actually let’ days are realistic. However, those who holiday let solely to take advantage of tax perks will have to take letting seriously and adjust to the proposed changes – rightly so.
— Kyle Evans @ 2:19 am — 
August 8, 2010