Saturday, November 3, 2012

A Myth About Property & Casualty Insurance Companies

A Myth About Property & Casualty Insurance Companies

Whenever there is a natural disaster or catastrophic event insurance companies become the target of angry people who believe the institutions are evil conglomerates amassing large fortunes as the expense of the premium paying policyholder.  The truth is far different.

In the interest of full disclosure, I admit I’ve worked in the insurance industry for 30 years for several carriers. It has been my good fortune to work for companies that believe in customer service, fair and equitable claims handling, and doing the right thing.  Most people would find it difficult to believe that many companies do not make much of a profit on underwriting. And since interest rates have plunged there is little to be made from investments.  A typical expense ratio for a property and casualty insurer is around 30%  - that equates to 30 cents of every dollar in premium taken in is spent on infrastructure, salaries, office rents, postage, computer systems, etc.  In 2011 the industry overall paid losses or claims amounting to 60% for commercial business or 60 cents for every dollar of premium. For personal lines homeowners, personal auto and valuable articles the industry paid approximately 70% or 70 cents for every dollar of premium. When combined with the expenses, that means on average insurance companies earned 0 to 10 cents per dollar of premium.

Most insurance claims personnel are fair and honest people who have a tough job. When people have auto accidents or storm damage they are frustrated and stressed before they even report a claim. Most people have never read their policies and don’t know what is covered and what isn’t. They are often surprised and angry to find out after a loss that something they assumed was covered isn’t.

Most property or homeowner policies do not cover flood damage, war, nuclear damage, power failure, back up of sewers or drains, earthquakes, volcanic eruptions, or damage caused by vermin.  Property insurance was originally intended to cover fire damage only with the first insurance policies being written after the great London fire. It gradually expanded to cover wind, lightning, vandalism, theft, and water damage resulting from the sudden accidental failure of an appliance or plumbing.  Different policies by different insurers offer various levels of coverage.  But even the broadest All Risk policies have exclusions.

The best advice I can offer is to encourage you to read you policy before an adverse event. Ask your agent to go through the policy with you. Most of us buy our insurance policies based on the rates or cost rather than the coverage offered. Consider a policy with broader coverage but a higher deductible.  Do your research. You often get what you pay for.

After a storm like Sandy, most property and casualty companies are prepared with catastrophe teams to go to the site of devastation and work long hours to help their policyholders. After Katrina they lived in trailers for weeks far from home, fell off roofs, were bitten by snakes, wrote checks, listened while people cried, stood stoic while be screamed at by unhappy people, empathized, and helped people start over. It will be the same now after Sandy.

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