The Insurance Report - August 2003

TRENDS & OBSERVATIONS
By Roland L. Enz - President, California Plus Insurance Service, Inc.

We have been told that the recession is over - and has been for some time now. The federal deficit is heading for numbers that we have never seen before. Our president states that economic growth will pull us out of the death spiral of debt that we have piled upon us, but I have my doubts. The majority of the states, in the union, can’t even put a budget together. California, the sixth largest economy in the world, is in budgetary crisis. I am not a great fan of our governor (Gray Davis), but I do have a problem with the recall process. At this point, it seems that a recall election will probably only make the problem worse.

The investment industry, which so many of us rely on, continues at a lack-luster pace. The market has been on a rebound, but stock prices are only one small part of the investment communities' arsenal. Return on equity and money put to work earning interest makes the wheel of finance work. Insurance is one of those institutions that rely on investment and investment income. Through the past two years, we have seen insurance premium increase, 25, 50 and sometimes 100% (doubled). With the loss of investment income, the insurance industry has had to rely on underwriting to remain afloat. In simple terms, your premiums have to support all operations of the industry. In the past, the insurance industry had investment income to supplement premium. In many cases loss, or the loss ratio, exceeded premium income. But enough of all this bad news.

There is some good news. Insurance premium is supporting the industry at this time. First quarter results are in for property casualty insurers. Even with low interest rates, strong underwriting is helping the industry. Major insurers report a 15.8% increase in their net income. A combined ratio of 97.2% is the average, well below last years 101%. Net premiums rose 16%. Reserves for losses have been maintained and companies are meeting their obligations.

Unfortunately, certain segments of the industry still fall way below expectations. Many insurers are still reporting large loss ratios on their book of transportation business. Companies, as we have seen in the past, are reluctant to come back into transportation if they cannot make a profit. I have been told that some books of business have loss ratios as high as 250%. This does not bode well on an industry that has had so many insurance markets leave the scene.

Workers Compensation continues to be a problem in California. The State Fund has all but stopped writing new business. New markets are reluctant to come in. Those new markets that I have seen are all looking for large accounts. Alternatives always crop up in markets that have problems. If you are looking at alternatives, make sure that you understand all of the ramifications of the programs that you are dealing with. I am seeing trucking companies selling their tractors to their drivers, thus creating independent contractors. If you are considering any of these options, make sure that your attorney has had an opportunity to review your decision and is ready to stand by you.

Truck related fatalities are down. The National Safety Administration has released 2002 numbers. Large truck fatalities are reported to have dropped by 3.5%. Even with this reduction, there were 4,902 deaths attributed to truck crashes. This does not necessarily imply fault, but does reinforce the case for safe and defensive driving. It is estimated that with the new hours of service, 75 lives will be saved and will prevent 1,326 fatigue related crashes. Driving records (MVRs) bare out the fact that aggressive drivers (drivers with speed related violations) are more likely to be involved in an accident than a driver with a clean driving record. In considering this one fact, the aggressive driver will also have more equipment related failures and down time.

At some point, the trucking industry will rebound and with it, so will insurance and other related industries. For now, just hang on and ride it out. If you have any comments, contact me through California Plus Insurance Service, Inc. at 1-800-699-7101.