Property & Casualty Insurance

RECENT NEWS
Insurance Journal  May 22  Comment 
NJM Insurance Group, a West Trenton, N.J.-based property and casualty insurer, has promoted Mitchell A. Livingston, Esq., to chief operating officer (COO), making him the first in the company’s 104-year history to hold the position. Livingston...
Insurance Journal  May 18  Comment 
FCCI Insurance Group (FCCI), a provider of commercial property and casualty insurance, has promoted Tiffany Hawkins to regional vice president, and Trey Stone to assistant vice president in the Gulf Coast Regional office located in Ridgeland,...
Insurance Journal  May 15  Comment 
Hamilton Insurance Group, the Bermuda-based holding company for property and casualty insurance and reinsurance operations in Bermuda, the U.S. and at Lloyd’s, announced that William C. Freda has been appointed to the position of chairman of the...
Insurance Journal  May 9  Comment 
Private U.S. property/casualty insurers lost big in 2016, reporting a $4.7 billion net underwriting loss driven, in part, by significantly higher catastrophe-related property losses, according to ISO and the Property Casualty Insurers Association...
Insurance Journal  May 1  Comment 
CNA Financial Corp. announced first quarter 2017 net income of $260 million and net operating income of $235 million, compared to $66 million and $91 million for the first quarter 2016. Property & Casualty Operations’ net operating income...
Insurance Journal  Apr 28  Comment 
Zurich North America, a provider of property and casualty insurance and a company dedicated to improving the lives of children and families, has made a $10,000 donation to the Philadelphia Ronald McDonald House. Paul Horgan, head of North America...
Insurance Journal  Apr 26  Comment 
Ed, the London-based reinsurance, wholesale and specialty broker, announced the appointment of John Plummer as chairman of Property & Casualty. Plummer takes up his role with immediate effect. Plummer brings over 30 years of experience in the...
Insurance Journal  Apr 17  Comment 
Sompo International, the Bermuda-based specialty provider of property and casualty insurance and reinsurance, announced that Victor Sordillo has joined the company as senior vice president, loss control leader. Sordillo is responsible for...
Insurance Journal  Apr 12  Comment 
Keystone Insurers Group, a Northumberland, Penn.-headquartered property and casualty insurance partnership, has named Charles A. “Tripp” Craig III director of business development. Craig has 30 years of experience in the insurance industry,...
Insurance Journal  Mar 29  Comment 
Norman-Spencer Agency, Inc., a national property and casualty insurance provider, has launched a new nonprofit division. This division offers three programs — Food Distribution & Thrift Stores, Foundations & Grant Making, and Housing & Shelters....




 
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Insurance companies in this industry sell property insurance (insurance on homes, cars and businesses) casualty insurance (liability insurance). These companies make money by collecting premiums for the policies that they issue and investing those premiums in the market. If the total amount that a company collects from premiums + the gains that it makes from its investments exceeds the amount that the company has to pay out in claims, then the company is able to turn a profit.

A Tale of Insurance

“The Pitch”

Sometime before the age of 25 you will probably find yourself sitting across from a friend or friend of a friend that is trying to sell you life insurance. The pitch will sound compelling and if you are married rest assured that there will be a love component to the sales presentation. You will hear the classic, “Carlos, if something were to happen to you wouldn’t you want Stephanie to be financially secure?” As I and everyone that has ever heard this line bobs their head up and down in agreement, the next line, like a boxer’s knock out punch follows, the salesman says “Not only will you be taking care of Stephanie, in the event that something happens, it is a pretty good investment.” You are knocked out. You look lovingly into your wife or husband’s eyes and say to yourself, how did I go so long without this product? I need life insurance.

The rest of the sales presentation is quick because very few people understand the math. You are presented with an illustration that shows you investing way more money every month than you can afford and it shows it growing at an astronomical rate that will let you own multiple mansions by the time you are 65. After a few civilized discussions back and forth between you and your spouse and the obligatory can we afford so much every month countered by the salesman “How can you not afford it” you sign on the dotted line and the salesman leaves. You are now the proud owner of a permanent life insurance policy and the salesman is counting their commission

As the salesman walks out the door you are left with mixed emotions. On one hand you have protected your spouse. You love your spouse. On the other hand it is an entirely unsatisfying experience because a few minutes before you had this extra money every month to do as you pleased and now it is gone. You are left thinking of what you can no longer do with the money. Not only is it gone and not only do your future prospects for a vacation, new car or whatever suits your fancy look diminished, you look cheap. You look cheap because the salesman showed up and pitched or depicted an unreasonable monthly payment. Their job is to sell you the highest possible monthly payment. This means the insurance strategy is to go high with the illustration and then work down to a level that you can afford. It works. Of course within a few years you will cancel the policy and all your money will be gone. So avoid this purchase if you possibly can.

The scenario I’ve described above is being played out in living rooms across America and most of the developed world every day. It is effective. It is your responsibility to be better informed. The product that this couple just bought is terrible. It is costly, there are better cheaper alternative, it is unlikely that it will deliver what it promises and it is not an investment worthy of consideration. This tale is in the section marked Young Tales because if you haven’t heard the pitch yet, it will be playing in a theatre near you in the not too distant future.

Before I give you my recommendations on insurance we need to understand it a little bit better. There are two types of life insurance. The first is called term and the second is called permanent. Term insurance is not considered an investment because it does not have any value at the end of the term. It is pure insurance since if you are still alive at the end of the term the policy has no cash value. Term insurance is competitively priced. It is readily available and if you have a life insurance need like so many people do, is the preferred route to take when purchasing life insurance. Permanent insurance is considered an investment because since the policy is permanent, it has no term. So term insurance means for a while and permanent insurance means till the day you die. Term insurance will never have a cash value while permanent promises to make you rich but the reality is that very few and I mean very, very few permanent policies actually deliver.

In the last sentence I imply that permanent insurance might, if all the stars align, have a cash value. Let me explain. In most cases, if you cancel your permanent policy within a few years of purchase it will have no cash value. You have upon reflection purchased a very expensive term policy. How can this be you might ask? How can I pay an insurance company a monthly amount that is many times more than I would pay for an equivalent term policy and if I stop I have no money in my investment account? The answer is the permanent life insurance salesman. He or she has most of the difference between what you think you should have and what you actually have. The commission that the salesman receives for selling a permanent life insurance policy is approximately equal to the entire amount that you pay in the first year. It’s an outrageous amount to pay someone yet it is the traditional business model of most insurance companies. Is there a solution? The answer is yes. It is called no load permanent insurance and there are many reputable companies that sell it. However, I can say without equivocation that for those that just need life insurance a term policy is the preferred route.

Many permanent insurance providers, like the mutual fund industry did almost two decades ago, have moved to distributing no load permanent insurance. This means that if you change your mind after a few years you aren’t stuck with the huge upfront charge. This effectively means that the permanent insurance industry is now divided into load and no load permanent insurance. The difference in cost between the two is significant in the early years. I have seen no load permanent policies that after 3 years of making payments or paying premiums, if you change your mind, the policyholder gets almost all their money back. I then compare what they would get with the loaded version and they would get nothing back. This is significant because despite the phrase permanent in the lexicon of insurance sales the reality is that people do change their minds. When purchasing a permanent policy you should allow for the possibility of changing your mind.

So who needs insurance and what type should they purchase? My philosophy is that life insurance should be purchased to avoid disaster. If you are single and die chances are that no one will suffer economic hardship from your death. The same is probably true if you are married without children. If you fall into one of these two categories you don’t need life insurance but if you feel compelled to purchase it anyway make sure it is a term policy. If you have children and you are still in the wealth building stage of your life then you should without a doubt purchase term insurance. Get enough to replace your income for at least 10 years. With these three categories I’ve probably included more than 95% of Americans. This means most people either don’t need life insurance or need term insurance. What about the other 5%?

The remaining 5% fall into various little subgroups. The distinction here is not one of marital status or children. This 5% group is unique in that they are not wealth building; they are already wealthy. So the question becomes do wealthy people need life insurance? Let’s look at my philosophy. It states that life insurance should be purchased to avoid disasters. So you may ask, aren’t wealthy people essentially self insured? If something happens to them don’t they have enough money so that their survivors will avoid disaster? The answer in most cases is once again yes. Most wealthy people are self insured and except for those that have their wealth tied up in illiquid investments have no need for life insurance. So why do so many wealthy people buy life insurance? The answer is simple. They don’t need it but they want it. They want it to make sure that when they die that they can pass on as much after tax wealth as possible to their heirs. It is in these cases and these cases only that I recommend permanent life insurance. When I do however, I recommend the purchase of no load permanent life insurance. The no load version is such a superior product to the high cost, commission generating version that I can’t see why anyone would pay more for less.

In summary, if you’re building wealth and don’t need life insurance don’t buy it. If you do then a term policy is your best solution. If you are wealthy you don’t need life insurance unless your wealth is illiquid because you are self-insured. If you are wealthy and decide to purchase it anyway to maximize what you leave your heirs, do yourself and your heirs a favor and buy the no load variety in case you change your mind. If you own a permanent policy I suggest you look at switching to a term policy. A Tale of Insurance

Companies in the Property & Casualty Insurance Industry (75)

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