David and Goliath: Battling Insurance Giants

If you remember, I thought an excellent approach would be to go with a theme “ No news IS good news for your insurance carrier”   A very subtle way of saying that “are you tired of hearing about your insurance carrier in the news?”     Financial stability is one of the most important considerations in picking an insurance carrier.  You want the carrier to be around when it comes time to pay claims.

□    AIG – The Federal Government had to bail them out due to the leveraged investments they made.  They will have to pay back the money given to them by the Federal Government and will not be able to add to surplus until these loans are paid back.  The Parent company took a $60,000,000,000 loss in the 4th quarter and almost a $100,000,000,000 loss for the year.  Although the carriers seem to be OK, their parent has a long way to go before coming out of the financial troubles they put themselves into.  Their plan is to put the carriers into a separate entity and sell off other assets since this is their core business.  The recent bonus bad press makes it extremely difficult for them to go back to the Federal Government if they need additional funds.  Best’s is holding off doing anything to their rating until some things sort out.

□    Harford Ins Co. – Has also taken some “asset hits” and raised money from Allianz.  They are trying to sell off assets so that they can reestablish some of the decrease in asset values and pump up their surplus.  They are not out of the woods yet and had a recent rating drop by Best’s to A.

□    United National – Not in the news….

That all being said, it is the job of the agent to make a due diligent effort to place their insured’s with a financially stable insurer.  They should at a minimum get alternative quotes for the insured so they have options besides their current carrier (who has been in the news).  This is even more important for non-admitted paper where the accounts are NOT covered by the guaranty fund.  The onus of responsibility increases for the surplus lines license holder since they have some responsibility to check out the financial viability of the carriers they do business.  Depending on the state they may have a higher responsibility.

What is the responsibility of the association who endorses a carrier that is “in the news”?  They have an exposure to help protect their members and provide solutions for their members.  Since a number of associations get an over ride or share marketing dollars they “gain” by having an endorsed program and thus have some responsibility to make sure the program is stable and with a financially stable carrier.  That is why they carry D&O to cover them for the decisions they make. 

Now how to market to them:

  1. You have to be subtle.  You can’t come out and say the competition is financially unsound.
  2. Go with something like, “are you tired about hearing about your insurance carrier in the news?  Isn’t insurance to help you sleep at night?”
  3. Push them to at least get an alternative.  Base their decision on what is best for them.
  4. Drill down to find out the attachment to the current program, price, terms, stability of market?  What would it take to get them to move?

Written by: Ken Kukral, President and CEO of International Excess Companies, 4/9/09

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