Letters to the Editor

For the last couple of weeks, Weekly Industry News has focused on State Farm, Allstate and AIG leaving California’s homeowners market. Lots of reasons but mainly an inability to afford to cover homes in the wildfire prone state and an insurance commissioner who refuses to allow the insurers to raise their rates to cover the cost of insuring homes in those areas.

Late last week, Anthony Verreos of Verreos Insurance in Brisbane, California sent Weekly Industry News some comments on what’s going on in the Golden State. His comments were interesting.

Here are a couple of questions from the editor of Weekly Industry News for regular readers, and for those selling homeowners policies in the 9 Western Alliance states. What do you think about insurers leaving the homeowners markets in California and about Oregon Mutual leaving the same market in Oregon?

Do you think this is a trend and something that is going to spread to other states?

Below are Verreos’ comments on insurance, the dangerous dog insurance issues in Arizona and more. He makes some interesting observations.

Hi PIAW Editor:

On the Homeowner market — I’m not sure if it was in your last weekly letter that I saw comments from CA DOI Commissioner Ricardo Lara. He actually said something halfway friendly about insurers, and noted the department is doing all it can to help resolve the crisis. 

Naturally, he didn’t have much good to say about the industry in general, about agents brokers roles in particular (in 53 years I’ve never heard any of that), and while he took credit for stopping cancellations for a year due to wildfires, he didn’t take any credit for creating this crisis by failing to work with insurers since he took office, and constantly fighting rate increases.

You reference to other states and their emergency state created insurers should be a new topic all of its own, because my impression is that they are not all the same models. 

I think the CA Fair Plan associationI is set up essentially as a quasi governmental non profit, with the provision that any insurer who sells fire insurance in CA automatically is subscribed to a fractional ownership of total CFP losses for the year. 

Therefore, as the CFP sales and losses grow, those losses are going to be billed to State Farm and others who sold the most fire insurance that year. The benefit to the insurers is that instead of owning 100% of a total wildfire loss on policies they write directly, for CFP losses they will only have to pay @ 18% to 23% or whatever their market share is.

The other side is they get no premiums to offset those losses. The taxpayer is not involved. That may be far different in other states.

The dog Liability issue is poorly explained by insurers in general. Every year there are one or more trade press articles published with the same type of snarling or vicious dog pictured next to a headline stating how many millions more insurers paid out this year than last year. The deception involved is what gives the industry its bad reputation with consumers and consumer advocates.

1. How many dog bites are reported nationally?

  • They tell us the insured claims, not the total reported bites.
  • They do this with catastrophe losses too. 
  • X billions estimated total losses and only 10-20-50% insured?

2. How many biting dogs were insured of the total bites?

  • Wouldn’t that be good to know?

3. What’s the breakdown of severity and mean settlement cost total?

  • Averages are not valuable information.

4. What percentage of bites are considered minor cuts/punctures, major/deeper/multiples, and worst cases/deaths?

  • And what cost ranges to insurers are typically associated with each of these groups of claims?

 5. What is the basis in rate making to assign a premium charge to each policy to cover potential dog bite claims?

  • It may vary substantially.
  • What percentage of policyholder even own a dog, 2 dogs or more?
  • It seems to me that every policyholder pays for these dog bite losses, and has no idea how much of their annual premium goes to cover these losses. 

6. Insurers can seem stupid at times, but generally, they know exactly what they are doing, so when we look at the rates they charge for liability which is a catch all basket of potential loss causes for bodily injuries and property damages, the only thing that is clear, is the premium being charged are maybe 10% or less of the total policy premium is, in many cases, far lower than that. 

This tells anyone paying attention that Liability claims are not a problem, and that portion of a policy may be very profitable to insurers, If this is not correct, then why not raise those rates? 

7. The article on the new AZ dog bite laws caught me eye, but I didn’t follow the link to see what’s behind it. The article I could read, was a typical government action banning discrimination which is all the more crazy in a business that is all about discriminating between different levels of risk on a fair and legal basis. When government takes away that ability, insurers normally react by taking away their products! 

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