Exactly. They were “channeling” customers into a product that was so confusing that few clients really understood that they were buying a rolling 3 year loss calculation that required the client to roll 7 three years in a row to get money back.
Brokers routinely failed to explain that particular feature of the product, showing clients one year examples of premiums and losses to make it look like a good bet, when the reality was it was a terrible bet, channeling clients away from better options.
Craig: You have only touched the surface of what is wrong with this type of product. Back in the day, we used to call this type of policy a dividend policy. Have a good loss ratio, the claims age out and presto, the client gets a refund. NOT. Why? Consider who controls the most important part of the claim process, setting a reserve. The company. I once asked upper management why, given the horrible loss ratio on the wc book, they wanted us (field reps) to go out and hustle more premiums. They laughed and pulled back the curtain. Under insurance accounting rules, RESERVES are treated exactly the same as PAID. Need to hide profits, or avoid a dividend payout, just raise the reserves. And pray tell, who can argue with the amount? No one. Every year, when it came close to paying a dividend, sprained ankles would go from a $5,000 reserve to a $50,000 reserve. And then there are the RETRO policies. The only way an agent should sell wc, and a company buy coverage, is on a guaranteed cost basis. But too many agents like to appear cutting edge. By the time the problems with the program appeared, the agent was long gone, the CFO was long gone, but the risk manager who argued against it was still/stuck there. But I did enjoy being an expert witness against the agent and carrier.
retired, some carriers do the same thing when calculating profit sharing. The agent could be rolling along all year long with a good L/R and suddenly find themselves just over the accepted loss ratio for profit sharing. Loss reserves suddenly raised in December, no less. If they don’t want an agent to get profit sharing, they won’t. Only way is to not have any losses at all and that is as rare as hen’s teeth.
Agent: I remember those days well. Didn’t want to mention because it is an inside the park story. I thought New York had made carriers get rid of profit sharing, because agents didn’t tell the client about it. Like the client was entitled to some money. My agency visits in the next quarter were never fun. But you err in your last sentence. IBNR, incurred but not reported. Many carriers would put in a large % for that. It is / was all a shell game.
Exactly. They were “channeling” customers into a product that was so confusing that few clients really understood that they were buying a rolling 3 year loss calculation that required the client to roll 7 three years in a row to get money back.
Brokers routinely failed to explain that particular feature of the product, showing clients one year examples of premiums and losses to make it look like a good bet, when the reality was it was a terrible bet, channeling clients away from better options.
Craig, I make it a point to never represent a company with headquarters in California.
Craig: You have only touched the surface of what is wrong with this type of product. Back in the day, we used to call this type of policy a dividend policy. Have a good loss ratio, the claims age out and presto, the client gets a refund. NOT. Why? Consider who controls the most important part of the claim process, setting a reserve. The company. I once asked upper management why, given the horrible loss ratio on the wc book, they wanted us (field reps) to go out and hustle more premiums. They laughed and pulled back the curtain. Under insurance accounting rules, RESERVES are treated exactly the same as PAID. Need to hide profits, or avoid a dividend payout, just raise the reserves. And pray tell, who can argue with the amount? No one. Every year, when it came close to paying a dividend, sprained ankles would go from a $5,000 reserve to a $50,000 reserve. And then there are the RETRO policies. The only way an agent should sell wc, and a company buy coverage, is on a guaranteed cost basis. But too many agents like to appear cutting edge. By the time the problems with the program appeared, the agent was long gone, the CFO was long gone, but the risk manager who argued against it was still/stuck there. But I did enjoy being an expert witness against the agent and carrier.
retired, some carriers do the same thing when calculating profit sharing. The agent could be rolling along all year long with a good L/R and suddenly find themselves just over the accepted loss ratio for profit sharing. Loss reserves suddenly raised in December, no less. If they don’t want an agent to get profit sharing, they won’t. Only way is to not have any losses at all and that is as rare as hen’s teeth.
Agent: I remember those days well. Didn’t want to mention because it is an inside the park story. I thought New York had made carriers get rid of profit sharing, because agents didn’t tell the client about it. Like the client was entitled to some money. My agency visits in the next quarter were never fun. But you err in your last sentence. IBNR, incurred but not reported. Many carriers would put in a large % for that. It is / was all a shell game.