Shocking. Who would have thought that a business designed for an insured to pay a premium payment to transfer the risk from themselves to the insurance carrier might actually have to deal with risk? Several standard carriers like Chubb and CNA are reporting record profits as we hear that reinsurers are giddy about higher attachment points and rising profits. Surplus line carriers have become the new home for what has historically been standard business.
In fact, in a recent Insurance Journal article about the Surplus Lines markets, a company executive stated that he does not believe that these “standard” accounts will ever make it back to a standard carrier. Sadly, he may be correct as the standard insurance company underwriters are clearly scared of risk.
This reminds me of 2003 when about twenty-two Workers’ Compensation carriers failed and several of our carriers told us that they did not think that they would ever write a Workers’ Compensation policy again… Today, these same carriers are offering incentives for any Workers’ Compensation policy we will place with them. It was fear back then and fear today. Yes, it looks like the inmates are running the asylum once again and the Insurance Commissioner is AWOL.
In the world of property insurance, if we really thought that these commercial buildings were about to burst into flames, why have we not organized and pushed our city and county officials to build more fire stations? The answer is that local fire departments are struggling to justify their existence due to lack of fires. If only about 1% of all fire department calls are for fire, does anyone think we do not have adequate fire protection capacity for our urban communities?
The surplus lines carriers are clearly making obscene profits as we move loss-free property accounts into their offices at three to four times the expiring standard premium. Fear has gripped the standard carriers, and surplus lines carriers are more than happy to fill their otherwise ugly book of business with your beautiful commercial buildings, apartments, and homeowners associations. Non-admitted surplus lines carriers do not have the same requirements or regulation by the Department of Insurance.
It’s time to wake up. Standard insurance companies have a social responsibility to manage the standard business with competitive rates. If they are too scared to be in this market, they should exit all lines from the State. To the detriment of property owners, the highly profitable rates of surplus lines carriers are eating the lunch of the standard carriers. And, the standard carriers don’t care… Why? Because, unlike in 2003, many of these same carriers are making money writing Workers’ Compensation policies. If we have learned anything about this market, the profit from Workers’ Compensation will be short-lived.
There are those that think the government should run the insurance business and simply move our premium payments into the tax column. If standard carriers don’t get back to the business of providing standard protection for businesses and individuals, this important industry is likely facing more regulation or extinction.
I understand the realities of Proposition 103 and the failure of the Department of Insurance to properly follow this law, however, this current crisis comes from not allowing the free market to find competitive rates due to over-regulation that has delayed rate increases. Those “consumer advocates” that boast of the money they have saved the policyholders of California by delaying appropriate increases have not spoken to a property owner who just had to purchase coverage from a surplus lines company or the Fair Plan. We have all been fooled by these insurance watchdogs, and the competitive insurance market in California has disappeared… Their industry funded efforts have resulted in an unhealthy insurance market for which the Insurance Commissioner had the responsibility to maintain. Insurance rates are not to be inadequate nor excessive—this is the definition of a healthy insurance market.
Yes, the transfer of risk to an insurance company is a risky business in which insurance companies have made profits for decades and decades. It is time for leadership here in California to lead.
Tom Quirk
Rocklin, CA