HEADLINES - HEADLINES - HEADLINES
For many, a fear of flying has been a way of life. Since September 11, the number of people afflicted with this difficulty has increased. It is a difficulty because statistics prove that it is an irrational fear. Travelers are deciding to drive rather than fly because they think that it is too dangerous to fly.
In 1998, according to statistics published by the Aircraft Owners and Pilots Association, there were 683 fatalities due to aviation accidents while there were 41,480 deaths on the nation's highways. Even taking in to account the disaster of September 11 when 266 aircraft passengers and crew were killed, it is many, many times more dangerous to travel by automobile. People that make this choice say, "I know, I know, but I just feel safer."
The same kind of irrational behavior seems to control when decisions are being made by insurance companies. At this time last year, we were in the midst of a "hard market" for Property and Casualty insurance. Prices were rising at rates that were excessive and coverage was being curtailed. Insurance companies were withdrawing from segments of the market. Insurance buyers were scratching their heads, wondering what was going on, not understanding that the insurance industry goes through these cycles (which in themselves are irrational) every so often. But at that time it seemed that there was a light at the end of the tunnel. With the price increases that were in place it seemed that the irrational behavior of the industry would soon subside. Then came September 11.
Now there are few alternatives to planning for the financing of unexpected losses. One alternative to paying high prices for insurance is to assume more risk yourself. In a prior issue we suggested some ways to accomplish this ("America, Your Insurance Has Been Canceled, Again," September 2000). Since that time we have been talking about assuming more risk and the benefits that result.
But it seems that, in many cases, there is once again an irrational fear. Even where it is clear that there are benefits to be derived and that the risks being assumed do not pose a serious threat to the goals of the organization, the fear of not having insurance in place to cover a loss weighs heavily on the side of buying insurance. Many insurance buyers seem to be saying, "I know, I know, but I just feel safer."
We don't blame the decision maker in this situation. Our society has learned to rely too heavily on insurance as a means of financing loss. Laws require that we buy insurance. Mortgagees require that we carry insurance. Contracts and leases require that we carry insurance. Customers require that we carry insurance. We are told by lawyers that it is a good idea to have insurance. We are told by insurance brokers that it is a good idea to have insurance.
Insurance is necessary in some cases but it is not necessary in many cases. Careful analysis can tell when you should buy insurance and when you should not.
-- Michael B. Coyle, CPCU, ARM
Vol. XV, No. 1
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We thought that the renewals of January 1, 2002 and later would be interesting and we certainly have not been disappointed. Premiums are up anywhere from 30% to as much as 200% and "increased reinsurance costs" seems to be the undying refrain. Whether this is actually the result of reinsurers underwriting the increased terrorism risk or merely a self-fulfilling prophecy is open to debate. For the most part, the major increases seem to be confined to the Property and "Umbrella" markets, at least for now. It is interesting to note that Directors & Officers Liability premiums, while increasing in line with general hard market before September 11, have not experienced the same kind of subsequent astronomical increases seen in other lines. This, of course, was before the Enron and Global Crossing bankruptcies, and their attendant accounting problems. You don't even want to think about what is going to happen to the market for Accountants' Errors & Omission coverage. In other news, Michael F. Walker, CPCU, ARM, CIC, has joined Aldrich & Cox, Inc. as a Risk Management Consultant. Mike, previously the principal consultant with Walker & Associates Risk Management, brings almost 35 years of commercial insurance and risk management experience to A&C. Prior to his becoming an independent consultant, Mike spent over 30 years in the insurance agency business in Rochester, NY, including 25 years with his own agency. --- Ed.
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