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By Marty Pay
MBA, CLU, LUTC-F, contributing writer 

What is going on with my insurance?

Marty's Musings


February 17, 2024

Marty Pay, MBA, CLU, LUTC-F.

In 1972, before you needed to be a computer technician to work on a car, I went to Insurance School on S. Figueroa in Downtown Los Angeles.

I remember the instructor telling us around the corner was the Coliseum and if you filled it up with 100,000 people, you could pretty much determine the range of time when everyone in the stadium would die. Wars, famine, depressions did not affect the "law of large numbers" which is what insurance is based upon.

Insurance companies determine the percentage of loss, reasonable expenses and a reasonable percentage of profit and submit the number to the Department of Insurance who verifies the numbers. It's all been straightforward and relatively simple. But what if the insurance companies can't determine what the percentage of loss will be? What if they can't adequately charge enough rate to cover an unexpected Earthquake loss, as happened in Northridge in 1994? Or what if the Insurance Companies can't determine the percentage of loss for the wildfires we've been having the last few years? What do they do and how does it affect the consumer?

Nationwide, the insurance industry has suffered massive losses. Their combined loss ratio in the second quarter of 2023 was 114.9%. Translated this means for every $100 the companies take in they pay out $114.90. No business can do this indefinitely! So, companies react by pulling out of areas and states entirely. Almost everyone has been affected by the changes. Many companies have stopped writing insurance in California altogether because they can't make a profit. This is now starting to apply to Commercial Insurance as companies combined loss ratio is well over 100%. They are not going to stay if the prospects look dim.

This doesn't even include areas in the brush, such as we have in Tehachapi. Areas like these are forced to do Fair Plan and wrap around policies to make a complete homeowner's policy, and the rates aren't inexpensive.

Agents and brokers are really feeling the hit from both sides. Companies have reduced their commissions, and turnaround time on quotes are weeks instead of hours. For example, a quote you could normally just walk into a local agent's office and obtain in a few minutes now might take a few weeks and have several requests from the insurance company before they'd consider writing it. How does an agent staff for this when everything takes more time with less commission to pay employees?

Is there a silver lining here, is the market beginning to change? Most definitely things are looking up. Two of the largest insurance companies in the state received 30% and 20% rate increases, which isn't a lot, but it allows them to stay in California. Another major carrier posted a 96% combined loss ratio for the 3rd quarter of 2023 which means they made a little money for the quarter. In the same quarter a year earlier they were around 121% so the future is looking up. One of the major commercial writers is looking at coming back in the second half of the year, so this may make it easier for our local businesses to maintain and acquire insurance.

When I retired last year after 50 plus years in the business, I remembered looking back at the insurance cycles I had gone through. After each one, the industry came back stronger and more consumer friendly. I'm confident it will this time, as well.

Marty Pay was an Agent for 18 years in Los Angeles and 33 years here in Tehachapi, he has an MBA and a CLU teaching Business and Financial Planning at the University level.


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