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    Friday
    Mar082013

    Using Insurer Financial Ratings to Choose Your Insurance Carrier

    The right to choose is one of our most closely guarded freedoms. But along with that right comes the responsibility of being accountable for the consequences of your choice. If the choice turns out to be a poor one, the consequences can have devastating effects, especially if the decision-making is in a business context.

    When you select an insurance carrier you need to weigh each option against the same set of objective criteria. The goal is to use a set of pre-established conditions that will ensure the selected carrier will have the financial strength to stick with you over the long-term. This concept is the foundation for what insurance evaluation services perform.

    Analyzing a carrier's financial standing is a fairly complex task requiring a lot of intricate calculations. Each of the recognized insurance ratings firms have a somewhat subjective way of arriving at the ratings they give companies. However, there are some common criteria they all use in their evaluations. The first criterion is the company's liquidity. Going-hand-in-hand with liquidity is leverage. Leverage is the amount of money a company borrows to increase its assets either through purchase or investment. The more leveraged a company is, the more debt and conversely, the less equity they have, which affects their liquidity.

    Of course, companies are rated on their investment portfolio because it also affects their liquidity. Their portfolio needs to be diversified with quality securities in order to receive a high mark in this area.  The next evaluation point is risk-based capitalization. This is the theoretical amount of capital needed to cover the risks associated with their operation. If this money is put in reserve, it lessens a company's available liquid assets. It also affects profitability, which is another area for evaluation.

    Other more general aspects that are assessed include the overall conditions of the market, how diversified the carrier's product line is, how competitive they are when measured against other carriers with a similar product lines, the experience level of their management team, how much of their product line is made up of policies that are extremely risky to underwrite and how large a reserve they have to cover risk. An insurance carrier that receives high marks in all of these areas of assessment is one that you can depend on to be around when you need them.

    You have access to this information by reading reports generated by the insurance evaluation services. There are a number of them available, but the three most commonly used are:

    • A.M. Best Company - they are the original insurance raters, established in 1906. They use letter ratings to evaluate not only the company's current financial condition, but also its future outlook. They also have a NR designation, or "not rated." The NR designation includes the general reason why a rating was not assigned. Best lists its ratings scale and insurer profiles on its web site www.ambest.com.
    • Standard & Poor's - they assign an insurer a financial strength rating based on an assessment of whether or not the carrier has the financial capability to meet its obligations as outlined in the terms of its insurance policies and contracts. A Standard & Poor's evaluation uses both hard numbers and subjective factors such as general attitudes toward the company. Their ratings categories and reports can be found at www.standardandpoors.com.
    • Moody's Investor Services - they also use an evaluative approach that includes both objective and subjective factors to determine if a carrier can meet its obligations to its policyholders. You can find their reports at www.moodys.com.
    Thursday
    Mar072013

    Until You Know It's Protected, Keep Your Boat on Dry Land

    Americans love the sense of freedom and adventure that comes from boating. But boating can have a dark side, too. According to the U.S. Coast Guard, there were 4,730 boating accidents that involved 736 deaths in 2009. The price tag of these recreational boating accidents is high: about $36 million dollars per year.  And these figures are probably only the tip of the iceberg since the Coast Guard believes that more than 80 percent of all boating accidents go unreported.

    Given this level of risk for accidents, it would make sense that boat owners would look for a way to protect themselves, but that doesn't seem to be the case. A study conducted by Progressive Insurance revealed that nearly one third of U.S. boat owners don't own a separate watercraft policy. That's probably because boat owners assume that their craft is covered by their personal auto policy or their homeowner's policy. This is a mistake that can cost them big time.

    The standard auto policy covers the boat trailer for liability with the option to add coverage for physical damage. The boat itself, however, is not covered for liability or damage.

    Some homeowner's policies offer coverage for physical damage for boats, but only for smaller vessels. The typical homeowner's policy contains a special property limit of $1,500 on watercraft, which doesn't begin to equal the dollar value of most boats. In addition, the covered perils specific to the boat are also greatly restricted.

    There is also liability coverage available for boats under the majority of homeowner's policies, but once again, it is only applicable to smaller watercraft. The only exception is a boat with an outboard motor. That means that any type of boat you own that is powered by an inboard or inboard-outboard motor is excluded from liability coverage under the homeowner's policy.

    Because most boat owners are unaware how large a property and liability loss they expose themselves to without proper insurance, the Institutional Risk Management Institute (IRMI) has created a list of loss scenarios that demonstrate the need for specialized boat owners coverage:

    ·  Your cruiser collides with a speedboat whose operator fails to yield the right of way, causing extensive damage to your boat. The owner of the speedboat does not have any insurance coverage.

    ·  An expensive fishing boat you just purchased is stolen from your home.

    ·  Your 27-foot-long sailboat is damaged by a hailstorm and high winds while docked at the marina.

    ·  Your sport fishing boat is struck by lightning, incapacitating its electrical system.

    ·  Your daughter's friend is water skiing behind your boat and  falls into the lake, injuring herself, due to the excessive speed of the boat.

    ·  You negligently cause another boat to overturn to avoid a collision.

    ·  Your outboard motor explodes, seriously injuring your next-door neighbor.

    These scenarios illustrate the need to factor insurance costs into the equation when buying a boat.  If you fail to insure your boat properly, your boat loan may become the smallest of your financial worries.

    Wednesday
    Mar062013

    Understanding the Process & Benefits of Deconstruction

    The process of deconstruction involves structural and architectural components of a building being salvaged or removed before demolition. Remodeling and demolition projects produce more than 50 million tons of debris, which normally ends up in landfills. By hiring special contractors to assist in assessing what materials can be salvaged, the process is optimized. Plumbing, lumber, cabinets, some fixtures, concrete and a wide variety of other materials can be salvaged. After being saved, these materials can then be donated to charity or reused for future projects. In addition to this, it may be possible to gain LEED points or tax credits for some materials.

    Basics Of Deconstruction
    It is important to identify any permit issues and potential hazards. The main concept abbreviation to remember for the actual task of deconstruction is this: LOFO. It means last on is first off, which indicates the last piece of material placed during the construction process should be the first object to be taken out. When the deconstruction process is being carried out, the same tool that was used to install a specific object or material should also be used to remove it.

    During the task of removing materials, it should not be necessary to use excessive force. When contractors find themselves reduced to this as the only option, something is preventing the object from being extracted. Evaluate the surrounding area to see if any alterations were made. If not, continue assessing the area until the source of the difficulty is found. For all projects, it is crucial to use proper safety tools. Employees should also be provided with the right safety gear and other materials. Workers should not be exposed to overhead activities, so work on only one floor at a time.

    To keep safety a priority, plan an escape route ahead of time. All exits and hallways should be free of debris. Another important step to take prior to a project is to obtain an estimate, and one of the best sources for this may be the structure's original blueprints. It is also helpful to know what to do with the material ahead of time. In addition to this, it is wise to have transportation for the materials scheduled beforehand. If the items will be donated, contact a charity such as Habitat for Humanity to arrange a time to receive them.

    Costs Of Deconstruction
    When planning a deconstruction project, this is the main area where people will notice an impact. Research shows that the highest value per labor unit varies for each residential construction component. The most valuable materials include following:

    -Plumbing Fixtures
    -Lighting & Electrical Features
    -Massive Dimensional Lumber
    -Wood Timbers
    -Interior Wood
    -Outer Sheathing
    -Wood Flooring

    Before starting a deconstruction project, people may consider various alternatives. These considerations are what lead people to choose the methods and tools used for the process. Although deconstruction is not a cheap solution, it does come with its own set of benefits. For example, it is better for the environment, reduces landfill waste, results in cleaner air and may be beneficial for charities if materials are donated. In the end, it is possible to create financial, environmental and social contributions.

    Comparing Demolition & Deconstruction Costs
    The United States Army uses the following formula to assess market price for materials: MP = MC + PC + TC + P. In this equation, P represents profit, TC represents transportation cost, PC represents processed cost and MC represents material cost. With demolition, there are rental costs involved when working with waste companies. There are also costs for relocating debris, maintaining equipment, paying workers and purchasing safety gear.

    With deconstruction, there are costs for planning, management, hauling, labor, equipment maintenance and training. If salvaged materials are traded or sold, keep in mind they may be considered revenue. However, the benefits include LEED points, possible state funding and tax credits. In many cases, deconstruction provides a great overall solution for building owners. 

    Tuesday
    Mar052013

    Why Insurance Premiums are Increasing

    Insurance premiums are a function of these factors: The perception of future risks, recent catastrophic claims and the return available on investment. Huge fires and other disasters factor in, such as the Colorado Springs blazes earlier this year and other natural disasters have also forced large payouts. Even the devastating Japanese earthquake and tsunami from 2010 affects insurance premiums in the United States, since insurance companies routinely purchase re-insurance coverage from very large companies. And these reinsurance companies, such as General Re, have been increasing their rates. In addition, jury awards and settlement costs in a variety of commercial fields have put pressure on insurance company reserve funds.

    Yes, insurance companies are just like you: They assess the risks they can cover, and then buy insurance themselves to protect themselves against very large but unlikely events that would overwhelm their reserves.

    We saw a similar tightening of the property and casualty insurance world across the board, in 2001, following the 9/11 attacks on the World Trade Center. The direct costs themselves were significant, but reinsurance companies also increased their rates then, in order to cover their own risks and ensure clients were protected in case of acts of war, nuclear strikes, chemical strikes, etc.

    Fortunately, their worst fears weren't realized, but prudent insurers are in business to cover the worst case scenario, and so they had to plan and set premiums accordingly.

    Fast forward to today, though, and we have a different phenomenon at work. Reinsurers had just started to climb out of the substantial capital shocks of 2008 and 2009 when they got hit with the Japan tsunami, which put pressure on capital pools. But as they work to replenish their reserves, all insurers, all over the world, have been forced to reckon with a new reality: Low interest rates.

    Insurance companies make money in two ways: Bringing in premiums, and investing the "float." Normally, insurers break even or even run a slight loss on premiums. This keeps premiums affordable, but is only possible because they can invest their accumulated reserves at a profit.

    Ten years ago, an insurance company could get 5 or 6 percent on a portfolio of Treasuries. Now that same insurer struggles to get 2 or 3 percent on a AA-rated bond portfolio, and U.S. Treasuries - the traditional mainstay of conservatively-run insurance companies, may well be generating a negative real return after inflation.

    Something has to give.

    That's what we're seeing now: Actuaries have no choice but to increase premiums to cover anticipated payouts in light of the new lower interest rate environment. To do otherwise risks insolvency, which does no service to the insured at all, and even defeats the purpose of insurance.

    The tightening of the reinsurance market, combined with adjustments to account for the lower returns on assets, is now making its presence felt on Main Street: Aggregate commercial insurance ratios increased for the fifth consecutive quarter, and by 5 percent in the first quarter of 2012 alone. That's the biggest increase we've seen since 2004 (remember those summer hurricanes in Florida that year?)

    The two lines responsible for the largest increases, according to a Towers Watson survey, were the two segments most vulnerable to jury award and medical cost increases (workers compensation), and increased reinsurance costs from megadisasters and lower interest rates (commercial property insurance), respectively.

    Insurance markets tend to cycle along with other industries. As reinsurance pools of capital get replenished, or as interest rates rise, allowing carriers to generate more revenue from the "float" rather than rely so much on point-blank premium collection, rate increases tend to moderate, and new carriers spring up to compete for business.

    So if you are seeing rates increase, it's more a matter of prudence in the face of risk and low returns on capital, which affect all carriers everywhere. As a result rates increase to make sure there are enough in reserves to cover future claims . No one is exempt, and it's a bigger issue than any single insurance agency, carrier, or insurance line.

    Monday
    Mar042013

    Are mp3 Players a Safety Hazard at Work?

    "Music hath charms to soothe the savage breast." At least so thought William Congreve, a 17th century English playwright. However, the music Congreve was referring to didn't come out of technological concoctions such as the mp3 player. Had he been alive today, he might be less concerned with the effects of the music and a lot more concerned with the effects of using this technology, especially on the job.

    The mp3 player is fast becoming the method of choice for employees who need their daily dosage of tunes during the workday. While it can be argued that usage of personal music players in the office help employees concentrate by letting them tune out extraneous noise, it should be noted that any productivity gain comes with a price.

    The first safety hazard associated with repeated mp3 player use is a condition that results from the hand movements necessary to navigate through a playlist. The British Chiropractic Association has called the movement "unnatural," stating it separates the joint in the thumb every time the action is performed. The ultimate result of repeating this movement too often is a Repetitive Stress Injury (RSI). In addition to RSI, the prolonged gripping of the device, the repetitive pushing of the small buttons and the awkward wrist movements can lead to carpal tunnel syndrome and tendonitis. As the devices become even smaller with each succeeding product generation, the risk for these conditions will become more prevalent. And as every employer knows, an employee with carpal tunnel syndrome or tendonitis is not only unproductive, but prone to racking up large medical claims.

    The potential for hearing-related problems connected with mp3 player use is another source of alarm. Digital technology permits users to listen to thousands of consecutive hours of music. Older technologies either required users to turn over a cassette or contained only an hour or so of stored music. Either way, the ears had a brief respite from the sound. Also, the higher-quality sound of new music players makes it easier for users to turn up the volume to dangerous levels. High-volume levels can result in tinnitus, a condition in which the sufferer hears continuous buzzing in the ears.

    Many tinnitus sufferers complain of buzzing, whooshing, chirping, hissing, ocean waves and even music in their ears. Some people only experience tinnitus occasionally, while others experience it 24 hours a day. The problem is associated with the sensorineural system, which transmits signals from the inner ear to the brain. An employee suffering from tinnitus is not going to exhibit increased levels of concentration.

    As if this weren't enough, employees walking around with earphones not only block out extraneous noise, but everything else, including warnings of imminent danger such as a fire alarm. This puts them at increased risk for personal injury.

    For these reasons employers who permit the use of mp3 player or other personal music players in the workplace should establish guidelines concerning the length of time an employee can listen and in what areas mp3 player use is permitted.


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    Copyright © 2013, Stanley M. Davis Insurance. All rights reserved.

    This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License.

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