Your column "The Inside-Outside Story," (Risk & Insurance® December 2004, page 16) connected well with a workers' comp rate assessment and determination project I'm currently performing for Oklahoma workers' comp. Our state-specific loss-ratio trends (in the single digits) for 2005 are positive. This trend implies that the cost of medical losses is increasing more rapidly than employee payrolls, while the cost of indemnity losses are slightly decreasing.
While carriers and business owners over the past decade have shifted resources to emphasize return-to-work initiatives, workers' comp financials from an underwriting perspective seem nowadays to be pointing to medical costs as the drivers of loss-ratio trends.
I hope carriers, employers and legislators do not lose sight of what really matters, which is the best affordable care for injured workers. The most productive approach to controlling these costs is an effective risk-identification and risk-reduction program to prevent workplace injuries and illnesses.
Commercial lines underwriting manager
Your article, "Small Brokers Scared of Getting Whacked," (Risk & Insurance®, January 2005, page 19) may have left some incorrect impressions.
First, the description of bonuses that insurance companies pay to small agents is inaccurate. Insurers pay these bonuses if the agent produces at least a specified amount of premium and if the agent's accounts produce no more than a specified amount of losses. The companies base the amount of the bonus on the amount of premium versus the amount of losses, after applying factors for future loss development and losses that have not yet been reported. An agent's bonus can be wiped out by a couple of large losses.
Second, the article predicts that insurance buyers will begin to question the need for agents and brokers. There is no evidence that this is happening. The Independent Insurance Agents & Brokers of America recently reported that the market share for property-casualty insurers that sell through independent agents and brokers increased again in 2003, the most recent year figures are available. The market share gains were in both personal and commercial lines of coverage. The evidence shows that consumers recognize the value that agents and brokers bring to the table.
The IIABA report also showed that those companies' expenses are comparable to those that sell insurance directly to the public. Insurance buyers get no inherent price advantage when they buy directly from a company. Indeed, they lose the expertise of a professional agent or broker when they buy directly. Insurance policies are complex products that a direct response salesperson, no matter how well-qualified, cannot adequately explain over the phone or the Internet. Professional agents and brokers explain coverages and counsel clients every day. They are not mere middlemen.
The illegal actions of a few individuals have brought intense scrutiny on insurers and their producers. However, the facts show that the overwhelming majority of agents and brokers deliver honest, valuable service to their clients, and the clients are rewarding them with more business.
Director of Research
Independent Insurance Agents & Brokers of New York Inc.
New York, N.Y.
April 15, 2005
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