ECONOMIC FACTORS FUELING P/C RATES
Economic factors such as rapidly increasing claims costs, not some alleged conspiracy aimed at taking advantage of the American public, is driving increases in insurance premiums, according to the Alliance of American Insurers (AAI). "As the insurance industry recovers from its disastrous 2001 results, consumerists and some regulators have expressed concern that the industry is taking advantage of the situation to increase rates and recover lost profits. However, a careful examination of the financial results of the last few years shows a tremendous pressure on rates from claims costs rising faster than premiums," according to Lenore Marema, vice president of legal and regulatory affairs for the AAI. "The Alliance urges state insurance regulators to ignore consumerists' cries of 'wolf' and refrain from rushing to regulate a problem that the market can best deal with. Time and again we have seen cases where over-regulation has hindered markets' recoveries. Given the weakened state of the economy, it is vital that we don't make that mistake again," she said. Marema noted that comparing premium growth with the growth in losses for the property/casualty insurance industry during the 1990s reveals an interesting picture. In 1990, insurers' profitability was at a very low level of five percent of premium and less than an eight percent return on equity. By contrast, members of the Fortune Service 500 exceeded an 11 percent ROE. Through most of the early 1990s, profitability improved because premiums increased faster than claim costs. Premiums increased at an average annual rate of 3.3 percent, while claims increased by only 1.3 percent a year. By 1997 industry net income stood at 13.6 percent of premium, equaling an 11.9 percent ROE. However, this return still trailed the Fortune 500 median ROE of 13.9 percent. Also during this time, income from investments held to a fairly tight range of 14 percent to 15 percent of premium. As a result, during this period of very small increases in claims and steady investment returns, insurers were able to earn a reasonable rate of return, albeit below the median of other industries. However, after 1997 the insurance world began to change. From 1997 to 2000 premiums increased at an even smaller growth rate than in the previous eight years, while claims took off increasing an average of 7.1 percent annually. 2001 saw an even more pronounced increase, jumping more than 17 percent. Over the four-year 1997-00 period claims increased 43.8 percent while premiums increased only 15 percent. If one ignores last year, which included Sept. 11 losses, losses still outgrew premiums by a considerable amount—22.7 percent for claims to only 8.3 percent for premiums. "With losses outstripping premiums by such a large amount, great pressure was being exerted to increase premiums, which is evident in the 8 percent increase experienced in 2001," Marema said. "One has to keep in mind that the 2001 premium increase was entirely independent of the events of Sept. 11. By the time of that tragedy, insurers already were establishing rates for Dec. 2001 and Jan. 2002 renewals." In addition, she notes that although premium increases in personal lines were larger than those in commercial lines, they "still failed to keep up with increases in claims costs." From 1997 to 2000 premium increases averaged 3.7 percent, but claims increased 4.5 percent. In 2001 personal lines claims jumped 14.3 percent and premiums increased 8.6 percent.
AIA SAYS CREDIT SCORING EXPANDS CONSUMER CHOICE, MAKES PRICING MORE ACCURATE
Credit-based insurance scoring has expanded choice in the marketplace for consumers and allowed insurers to more accurately price their products, the American Insurance Association (AIA) told a group of state legislators recently. "Insurance scoring is directly responsible for a larger and more competitive personal lines marketplace across the country," David Snyder, AIA vice president and assistant general counsel, said. "More consumers have more choices when shopping for insurance, and that's a fact that often gets overlooked in the ongoing debate over insurer use of credit information." Snyder spoke on a panel about the use of credit information in insurance transactions at the National Conference of State Legislatures' (NCSL) annual Fall Forum. The use of credit-based insurance scoring has also allowed insurers to more accurately underwrite and price their products, allowing consumers to pay a more accurate price. Because insurers can more accurately pinpoint the risk a particular consumer presents, they can charge them accordingly," Snyder explained. Insurer use of consumer credit information is expressly permitted by the federal Fair Credit Reporting Act (FCRA), Snyder told the panel, and AIA firmly believes that its use is further regulated by existing state rating and unfair discrimination laws. In the event that individual state legislatures believe there are gaps in the law in their particular state, Snyder encouraged legislators to consider the model act on credit-based insurance scoring adopted recently by the National Conference of Insurance Legislators (NCOIL).
LIBERTY MUTUAL AUTO RATE CHANGE APPROVED IN NEVADA
Nevada Insurance Commissioner Alice Molasky-Arman has approved a rate change for private passenger automobile insurance filed by Liberty Mutual Group. The statewide average change of -0.3 percent for Liberty Mutual Fire Insurance Company and +3.3 percent for Liberty Insurance Corporation became effective Dec. 16, 2002 for new business and Jan. 20, 2003 for renewal business. Base rates will change overall and by territory. Territorial changes were capped at 5 percent to limit disruption. The company is also changing several rating rules that will impact certain policyholders. No policyholder will see more than a 20 percent increase as a result of the filed changes. Liberty Mutual Fire Insurance Company insures 24,811 vehicles and Liberty Insurance Corporation insures 1,476 vehicles in Nevada. The last change was +0.0 percent effective June 10, 2002 for new business and Sept. 8, 2002 for renewal business.
CDI ANNOUNCES TOLL-FREE TELEPHONE LICENSE RENEWALS
The California Department of Insurance (CDI) announced the addition of another method for California resident licensees to renew their licenses. CDI is now able to process renewals for its California resident licensees through the Producer Licensing Bureau's toll-free number (800) 967-9331. When calling the toll-free number, the licensee will be connected to CDI's Interactive Voice Response (IVR) system. The IVR will guide the user step by step through the renewal process. There is no additional fee for using this service. "Improving services to licensees is a high priority at the California Department of Insurance," said outgoing Insurance Commissioner Harry Low. "Toll-free telephone license renewal is another fine example of meeting the needs of our constituents. Agents and brokers can renew their license quickly and easily and keep servicing the insurance needs of California consumers." The IVR will ask the licensee the same questions that are stated on the traditional mail-in renewal application. The licensee will answer the questions by using the telephone keypad. After receiving the required information, the IVR will request the licensee to submit a credit card payment for the appropriate amount of the renewal. The credit card information will also be submitted using the telephone keypad. The agent's licensing record on CDI's Web site is updated immediately and the renewed license is mailed within 72 hours. California law requires insurance agents and brokers to renew their licenses every two years. Agents may renew on the telephone if they are within 90 days of their license expiration date. When renewing on the telephone, agents and brokers will pay their normal renewal fee by credit card. Credit card transactions are encrypted and no one but the agent and his or her credit card company will have access to the credit card number. In addition to the IVR, California resident licensees may still renew their licenses through the Renewal Application Process through Internet Delivery (RAPID) system located on CDI's Web site at www.insurance.ca.gov or by mailing their renewal form and fees to the CDI Producer Licensing Bureau. For all agent, broker and business entity questions, call CDI's Producer Licensing Bureau's toll-free number at (800) 967-9331. Questions and concerns can be submitted via e-mail to http://www.insurance.ca.gov/docs/FS-IVR.htm. Be sure to include your name, telephone number, license number and return e-mail address in all CDI correspondence.
INSURANCE JOURNAL ONLINE GETTING WORLDWIDE ATTENTION
Reaching out across the world, the Insurance Journal Web site, Insurance Journal Online, recorded more than 85,000 impressions from outside the U.S. in the month of November. Mitch Dunford, vice president of sales and marketing, noted, "We have been amazed by the amount of international traffic we've been acquiring over the past year. Approximately seven percent of our total Web site traffic is generated from outside the United States. We see a significant amount of traffic from the U.K., Germany, Bermuda, Australia, South America, and the Middle East. In October, it surprised us when we received traffic from Antarctica." Joshua Carlson, web manager, added, "In response to this international traffic, we have implemented technology so Internet advertisers can advertise strictly to this international audience. We hope this will be of benefit to some of our reinsurance customers." For more information, contact Dunford at 800-897-9965, ext. 123 or visit www.insurancejournal.com/newsfeed.
