No Let-up In Broker Demand for Healthcare Guidance

By Mark E. Ruquet

Brown & Brown CEO
J. Powell Brown

Brown & Brown’s President and Chief Executive Officer J. Powell Brown continues to be bullish about the opportunities healthcare reform offers insurance brokers, saying that clients need their services as the Patient Protection and Affordable Care Act takes hold over the nation.

The public exchanges continue to be difficult to access and offer less to clients in terms of the number of doctors participating in those insurance plans in return for lower cost, said Brown. However, the system is still evolving and the bottom line for business owners is they want to take of their workers.

“Our clients are very interested in providing quality healthcare to their employees,” said Brown. “We continue to deliver that across the board.”

The options in the marketplace are growing, ranging from defined contribution plans where employers give a fixed amount to employees and the employee allocates the dollars, to the traditional plans where the employer chooses a program for employees and pays a portion of the premium.

Brown said there continues to be interest in private exchanges and Brown & Brown has 13 clients in a private exchange representing 1,300 lives. Company sizes range from 27 to 400 employees, he said.

Whatever the direction an employer takes, brokers will remain indispensable, noted Chief Financial Officer Cory Walker, saying, “At the grass roots, it is talking one-on-one.”   

The only certitude around health insurance, Brown said, is “it is expensive, utilized and confusing and we think it is an opportunity.”

During today’s conference call discussing the broker’s results, Walker said the firm’s earnings miss occurred because of acquisition costs related to a major target they did not win. Brown and Walker explained that the acquisition expense was a one-time, non-recurring expenditure that was unique because it involved attorneys and other parties not normally involved in its traditional acquisition targets. Brown said there is a non-disclosure agreement preventing release of additional details.

The acquisition of Beecher Carlson also had an impact on earnings because of "transition issues" that affected the company's writing new business. They wrote "a lot of new business," but the production was slow by their standards, said Walker.

Brown & Brown Net Income Up 15%; Misses 3Q Earnings Target by 1 Cent

By Mark E. Ruquet

Brown & Brown 3Q net income Rises 15%,
but Beecher Carlson acquisition costs
earnings by 1 cent a share 

When a company increases its net income by almost 15 percent one would think there would be celebration. Instead, the first note I see is that Daytona Beach, Fla.-based insurance broker Brown & Brown missed the consensus-earning target by 1 cent.

Is there something wrong with this picture? The NYSE will make its judgment by the end of today, but in the meantime, a net income of close to $58 million for the third quarter sounds pretty good, translated to 39 cents a share, up 4 cents from the same period last year. Revenues jumped more than 18 percent, or $55.5 million to more than $359 million.

J. Powell Brown, President and Chief Executive Officer said one-time, non-recurring acquisition-related expenses accounted for 1 cent per share.  In a statement, he went on to say “all four of our business divisions enjoyed strong quarterly organic revenue growth rates, most notably our wholesale brokerage division," which grew by 16 percent.

Net income for the nine months $167 million, up close to 20 percent to $1.16  share, an increase of 19 cents a share. Total revenue for the nine months was $1.02 billion, up $123 million or almost 14 percent.

Brown & Brown is one of a few brokerage firms with an aggressive growth strategy that involves the acquisition of agencies with revenues ranging from $2-$10 million. However, out of character, the broker made a major acquisition in May buying Beecher Carlson Holdings Inc. for $336.5 million from a private equity firm. Brown called it an opportunity that it could not pass up, allowing Brown & Brown greater access to the niche large account business.

$1 Leads to Oklahoma-based Insurer's Survival

Lisa G. Bays, President and CEO of BancInsure

By Mark E. Ruquet

Property and casualty insurance leaders proudly boast that the industry came through the financial meltdown in 2008 unscathed except for a few. While American International Group received the bulk of the attention among P&C carriers, every now and then a forgotten victim of the collapse comes back to remind us of how devastating it was.

Recently, Oklahoma City-based BancInsure says it is making a come back after the Oklahoma Insurance Department declared the company insolvent and threatened to place it under receivership.

The Oklahoman reports BancInsure was purchased by New York-based private equity firm Foster Jennings Inc. in February for $1. The company received a cash infusion of $30 million from the firm and plans to direct its business strategy at short to medium tail insurance products with low limits.

BancInsure, which insured community banks and other financial institutions, was declared insolvent by the insurance department earlier this year. However, with the investment, BancInsure, under the leadership of President and CEO Lisa Bays, is now re-entering the insurance market, prompting the insurance department to withdraw a legal request for receivership.

On its website, BancInsure said it will take minimum risk positions of 10-25 percent "on profitable niche oriented programs controlled by professional program administrators and using strong 'A rated' reinsurers to protect its balance sheet." The company said it will focus on property, surety and general liability business that will include non-standard auto, low limit surety bonds such as bail bonds and contractors licensing bonds, low value dwellings in non-catastrophe prone areas, marinas, retail general liability, and small niche public and private transportation classes. The company is non-rated and admitted in 48 states.

September Storms Costly, But Not for Insurers

Aon Benfiled's Impact Forecasting says worldwide
catastrophes cost $15b, but insurers paid-out far less. 

By Mark E. Ruquet

Natural disasters around the world cost around $15 billion in economic loss during the month of September, but insurers covered a fraction of that, underscoring the lack of global insurance penetration, according to a recent catastrophe report.

Insurers paid out approximately $1.08 billion for insured losses in the United States, Mexico and New Zealand from storm damage and wildfires as the world suffered through an onslaught of heavy storm activity, according to a report from Impact Forecasting, the catastrophe modeler for Aon Benfield, the reinsurance broker and capital advisor for global insurance broker Aon plc.

“As our September catastrophe recap report highlights, tropical cyclone and flood events can simultaneously affect many countries around the world,” said Steve Jakubowski, president of Impact Forecasting. “Due to varying degrees of insurance penetration, a large strain is place on governments in certain regions to provide sufficient disaster relief funding and resources.”

Suffering the worst losses in a single country last month was Mexico as Hurricanes Manuel and Ingrid struck the East and West coasts within 24 hours, resulting in extensive damage and close to 200 dead or missing. Ingrid, which struck the shores of the Gulf Coast of Mexico on Sept. 13, took 23 lives and damaged or destroyed at least 10,000 homes. Official put the economic loss at more than $1.5 billion and insured losses at $230 million.

Manuel, striking the Pacific coast Sept. 13 through the 20, was more costly in terms of lives and losses. Officials said at least 169 died or went missing and 35,000 homes damaged or destroyed. Disaster areas were declared in more than 300 municipalities from torrential rainfall that caused massive flooding. Estimates put economic loss at $4.2 billion with insurers anticipating losses of around $685 million.

Here in the United States, flooding in Colorado and New Mexico from record rainfall from Sept. 9 to 16 killed nine people. The storm damaged or destroyed 20,000 homes and thousands of businesses, as well as substantial damage to infrastructure, with economic loss at around $2 billion, possibly more. The report notes losses to private insurers at about $150 million, but that figure does not include losses to the National Flood Insurance Program. However, officials have said many homeowners lacked flood insurance.

Aside from the flooding, the month saw a major wildfire in California and severe storms in Washington state and Oregon causing more than $10 million in economic damage.

Elsewhere, insurers in New Zealand expect to payout more than $12.5 million from damage caused by hurricane-force winds and flooding rains that swept across the islands. No injuries or fatalities were reported.

If insurance penetration had been more significant throughout Asia, global insurers would probably be looking at significant losses last month. Monsoon rains, tropical storms and earthquakes cost more than $4.5 billion in economic damage. The most significant event was Super Typhoon Usagi that hit China on Sept. 22 causing total economic loss of $3.8 billion, said the report. Capping off a wild month in storm activity in the region, Japan suffered several rare tornadoes between Sept. 2 and 4. The worst of six confirmed tornadoes was an F2 north of Tokyo between the cities of Saitama and Noda damaging or destroying hundreds of homes. Flooding from heavy rains affected close to 1,300 homes. Total economic loss was in the millions of dollars.

Mother Nature Allows P&C Insurers a Profit

First-half 2013 P&C Insurance results
point to strong performance.

By Mark E. Ruquet

Rates are increasing, profits are heading upward and losses are down considerably, all of which points to a very profitable year for the property and casualty insurance industry. Of course, the results are primarily driven by loss experience, meaning Mother Nature still has her say.

Last week’s report on the P&C insurance industry's performance said net income after taxes increased $24.5 billion for the period up from $17.2 billion for the first half of 2012. Investors should have smiled a little with annualized rate of return at an average 8.2 percent, up from 6.1 percent—still a far cry from other industries where rate of return is in the double digits.

According to ISO, a Verisk Analytics Co. and the Property Casualty Insurers of America, sponsors of the report, the industry managed an underwriting profit of 97.9, a four point improvement from last year.

Michael R. Murray, ISO’s assistant vice president for financial analysis said this was the first time since 2007 that insurers posted underwriting gains for the first six months, but the overall rate of return “remained sub-par compared with long-term historical norms.” The average rate of return for 54 years from when ISO began keeping the data is 8.9 percent. To reach the long term average this year the industry needs to improve its combined ratio another 1.2 percentage points.

Robert Hartwig, president of the Insurance Information Institute, said economic growth has helped fuel the increase as customers insure more assets and the workforce grows, aiding increases in workers compensation premiums. However, rate activity is “the most important determinant” to the development in auto, home and major commercial lines that are all trending positively. He adds that “overall industry growth could outpace overall economic growth in 2013, as was the case in 2012.”

“Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade,” notes Hartwig.

Robert Gordon, PCI’s senior vice president policy development and research, observed that the industry’s performance is still subject to the whims of the weather. The industry’s capacity is strong with record-high policyholder surplus of $614 billion making the P&C industry “strong, well capitalized and well prepared to pay future claims.” However, hurricane predictions for the second half of this year called for another very active season, one that has not yet materialized.

“We have been very lucky so far,” said Gordon, noting that last year’s Superstorm Sandy occurred during the last days of October and that there have been 15 catastrophic fourth-quarter hurricanes since 1950, with three of those occurring in the second half of November.

If there is one positive prospect for the industry in the coming days, it is that the government shutdown should not affect the industry, said Hartwig. 

“Property & casualty insurers are well positioned to ride out increased financial market volatility attributable to the shutdown as well as the looming debt ceiling debate in mid-October,” Hartwig said.

No Surprise: Price Drives Insurance Purchase

By Mark E. Ruquet

J.D. Power & Associates releases consumer studies
on primary driver of insurance purchase.

It appears no matter how insurers cut it, price remains the primary driver of insurance purchase and satisfaction in the personal lines space, according to two J.D. Power & Associates surveys.

In the past two weeks, the consumer satisfaction research firm released its Auto Insurance Shopping study and Household Insurance and Bundling studies, indicating how much the cost of insurance influences buying and satisfaction.

In a study of 5,500 auto insurance shoppers, J.D. Power found rate increases drove more buyers to shop for auto insurance while price satisfaction took a hit, dropping 13 points to 808 on a 1,000-point satisfaction scale. Price satisfaction is the lead driver of overall new-buyer satisfaction, some indication that mature buyers are seeking more from their insurer.

Customer retention averaged 97 percent—good news for carriers and agents—but 8 percent shopped for a better rate. Those that did switch insurers saved about $387 annually, about where it stood the previous year.

The survey also noted the importance of a carrier developing a user-friendly website for buyers as 20 percent of new buyers purchased auto insurance online.

Jeremy Bowler, senior director of the global insurance practice at J.D. Power, recommends that, “communicating new offerings and allowing customers to tailor their policies helps demonstrate the value of the policy and improve customer satisfaction.”

Turning to homeowners insurance coverage, in a study of more than 21,000 respondents, purchasers of renters insurance are more satisfied with their insurer than homeowners insurance customers and the main driver of that satisfaction: price.

In its customer satisfaction index, carriers scored an average of 809 from renter insurance customers, while

coming in with an average score of 787 on homeowners. J.D. Power said price satisfaction is 45 points higher among renters than homeowners.

Due to a younger customer base, the online experience is more important for renters than homeowners, said the research firm. Among renters, 22 percent said the carrier’s website mattered while 11 percent said assisted online interaction was important.

Insurance agents not writing renters insurance are missing an opportunity not just in current sales, but attracting future customers who one day will mature into homeowners, observed J.D. Power. Twenty-five percent of consumers rent, but 46 percent are uninsured, says the study, indicating the potential for growth.

Bowler called agents that concentrate on selling only high-dollar products for higher commissions “shortsighted because agents who satisfy the large renter population today are more likely to retain and service their growing household insurance needs over time.”

Insurance agents should also note that bundling policies is an effective way of keeping their renter insurance customers. The study found that retention rates were 91 percent for those with bundled polices compared to 67 percent for those not bundled.

As far as carrier rankings for homeowners insurance, Amica Mutual comes out on top with a satisfaction ranking of 842, and State Farm was next in line at 813. For renters, while State Farm has the largest share of the market at 26 percent, followed by Allstate at 12 percent, Nationwide had the highest satisfaction rating at 823. State Farm ranked fourth with a rating of 811 and Allstate was just behind at 807.

Of all the insurers, USAA ranked highest for both renters and homeowners, but was not part of the overall ranking because it is only open to U.S. military personnel and their families. The company scored 901 for renters and 894 for homeowners.

Glitches in Healthcare Insurance Enrollment a Good Sign

Logo for the federal website to access affordable healthcare.
The site suffered some glitches yesterday as close to 3 million
tried signing up. 

By Mark E. Ruquet

There were computer glitches and failure of service notices at the launch of enrollment for health insurance on government exchanges under the Patient Protection and Affordable Care Act. That was a good thing.

Why you may ask? One simple reason: demand outstripped capacity.

Federal officials said close to 3 million people went online at HealthCare.gov, the federal exchange, yesterday. Many received error messages and were probably frustrated. Some people spent up to three hours trying to access the system, but got nowhere.

So does that make it a failure as some pundits predict? A great federal boondoggle? Another sign of government incompetence? Nope. This is a journey on a road the United States has failed to travel, and the rest of the developed world as long since eclipsed, to provide medical coverage to all its citizens. There is great demand for affordable healthcare coverage, and the private market model has failed to fulfill that mandate.

In this information technology age, we are well aware that the launch of any new service comes with glitches. As the President pointed out in his address yesterday, Apple experienced glitches in its launch of its newest software and that did not make front-page news. We are not surprised when there are problems. We know developing technology has issues—as infuriating as that may be at times. However, that does not diminish the reality that we have a healthcare crisis in this country and this is a step in the right direction.

PPACA may not be perfect, but those in opposition have not proposed a reasonable alternative, except gutting the program. That is not an answer. When the president came out yesterday to speak he was flanked by U.S. Secretary of Health and Human Services Kathleen Sebelius and surrounded by individuals who would benefit from PPACA. Too bad the White House could not have sent a more powerful image by having the Secretary and the CEOs of health insurance companies there instead.