Тема 30. Страхование.

Text A. Try anything once.

Broad expertise is the order of the day.

Insurers, bless them, don’t have a reputation for being daring. That’s the point, you might say: their job is to soften the impact of life’s dramas. In fact, they are keener on novelty than you might suppose. Take architecture, of all things: Swiss Re’s London office, known to locals as the Gherkin is just across the road from Lloyd’s of London’s inside out colossus, still an eye-catcher 20 years after it went up. Increasingly, insurers are willing to change things in management, too. Several big European firms got new chief executives this week, and none of them are pure actuaries and underwriters, as the industry’s bosses once were. Rather, they reflect the blurring lines between insurance and other financial disciplines.

Start with Swiss Re. When Jacques Aigrain took over from John Coomber as chief executive, the reinsurer’s leadership passed from a man who started with the firm as an actuary 33 years ago – “an absolute classic of the old era”, says a market observer – to a man who joined just five years ago, having spent two decades as an investment banker at J.P.Morgan with expertise in mergers and acquisitions. Nick Prettejohn, newly installed as head of Prudential’s British unit, was in consulting and private equity before heading Lloyd’s of London. Tim Breedon, the new boss at Legal&General, most recently ran his firm’s £187 billion ($329 billion) investment arm.

“In the past, knowledge and experience in the insurance sector was always top of the list” for senior executives, says Simon Hearn of Russel Reinolds, a head-hunting firm. “That now comes halfway up the list”. Analysts say the trend is more evident in Britain and Germany than in France, Spain or Italy. Turnover at the top has also accelerated in recent years.

Several factors account for the shift. Insurers, which make money from premiums and investing to offset claims payments, had a long run of poor underwriting years, which encouraged them to manage investment better. Although underwriting has since improved, they are still under pressure from shareholders to raise their financial returns. This is especially true of life companies, which need to match their assets to long-term liabilities.

Having developed the expertise to manage their own portfolios, some insurers (such as France’s AXA and Britain’s Aviva) have established asset-management arms to handle investments for clients. Others, including ING, of the Netherlands, and Allianze, of Germany, have gone further and offer banking too.

Insurers are also tied to financial markets in other ways. There is now a secondary market in tradeable products that can off-load risk to investors. Securitisation is growing. AXA, for example, recently issued €200m ($242m) of asset-backed securities on its motor-insurance portfolio. Swiss Re last week securitised policies worth $370m, its second such transaction.

Underwriting, of course, remains a cornerstone. Analysts predict that premiums in Europe will rise in sectors affected by the big and costly hurricanes that battered America in 2005 (about half of the losses are likely to be borne by European companies). An added factor is the rising cost of reinsurance, which will be passed along to many primary insurers.

The chief executives taking office this week all lead profitable businesses. Others in the industry, though, face difficulties. Rating agencies have taken a harder line with insurers, especially since the big losses after the terrorist attacks in American September 2001, issuing many more downgrades than in the past.

The slow growth of European markets, especially Britain, is another challenge. Big insurers are increasingly looking to developing markets for both customers and cost savings. Many have joint ventures in India and Chins – although barriers to entry remain and few expect to make money soon. Martin Markus, a partner at McKinsey, says that further cost savings could be achieved with cross-border coordination. Several firms are already servicing claims abroad. Aviva, for instance, now employs 6,500 people in India. It reckons it makes net cost savings of about 40% on activities there including telephone sales, claims management, data processing and invoicing. Mr Markus sees undertapped potential in cross-border underwriting too, including motor insurance.

A final factor is new regulations on capital levels, which favour insurers that are bigger and more diverse, since they generally experience less volatility and therefore a lower cost of capital. (European insurers, which tend to have both life and non-life businesses, are generally more diversified than American firms)

The emphasis on size and diversity is likely to fuel industry consolidation. Analysts say, however, that this is unlikely to be at the pace or on the scale of the last big wave, several years ago. They see greater potential for acquisition of medium-sized insurers within countries than big cross-border deals. This did not stop Mr. Aigrain from helping to secure a recent deal to acquire part of General Electric’s reinsurance business. It looks as if his M&A experience has already been useful. (“The Economist” January, 2006)

Text B. Paying less for home insurance.

Things you want to protect in your life do not come much bigger than your home and your possessions.

Your biggest single purchase and your greatest financial commitment is likely to be your home, so it makes sense to protect your bricks and mortar and what is inside against the worst.

From fire to flood, storm to subsidence, loss of possessions to legal liabilities, you cannot afford to cut corners when it comes to safeguarding your home and its contents. Reducing the risk of fire, flood damage and burglary can mean cheaper insurance. While household insurance should be a “must have”, you can maximize your protection and minimize your costs by taking some simple precautionary measures.

Getting the best deal.

The most important thing is to get the right level of cover in the first place. It is a false economy to go for the cheapest policy at the expense of the full cover you need.

While most buildings and contents policies will cover the same “core” risks, terms and conditions will vary, so start by assessing the risks you want to protect against. A local insurance broker can help to assess your needs. For example, the level of alternative accommodation costs that will be paid will vary between policies. This can be very important if you suffer a flood or serious fire, when you may be out of you home for a number of months.

Reducing risks.

Since premiums are based on risk, reducing the risk of fire, flood damage and burglary can mean cheaper insurance.

Some straightforward measures you can take against fire and burglary loss include:

● Fit approved locks to doors and windows. The level of security will depend on the type of doors and windows, so talk to insurers first. Do not forget that in some cases (such as if you live in an area with a high crime rate) insurers will require a prescribed level of security to be installed before they can consider offering cover.

● Intruder alarms. Installing an approved alarm can typically reduce your premium by between 5-15%.

● Occupancy. Reflecting the fact that most burglaries occur during the day some companies may quote cheaper premiums if someone is usually at home during the day.

● Fit a smoke alarm. With the costs of domestic fires rising, some insurers may offer cheaper premiums on both buildings and contents policies if you fit smoke detectors.

Reducing flood damage risks.

If you are one of the two million homeowners whose home is vulnerable to flooding, taking steps to reduce the risk of flooding, or the cost of damage if it does occur, can make house insurance more readily available and possibly cheaper.

If your home is particularly vulnerable you should consider:

● Replacing timber floors with concrete and cover with tiles;

● replace chipboard/MDF kitchen and bathroom units with plastic equivalents;

● replace gypsum plaster with more water0resistant material, such as lime plaster

● move electrical points well above the likely flood level.

Remember that these changes will usually pay for themselves by the reduced damage, often from a single flood.

You should speak to your insurer or broke before taking on these more costly projects to assess their benefit to you.

Shop around

Household insurance is a competitive market, with the cost of both buildings and contents insurance varying between insurers.

You can buy policies from your mortgage provider, bank, and an insurance broker. Even some supermarkets are getting in on the act.

The average cost of a building insurance policy stands at £209, and has risen by only 2% over the past ten years.

The average cost of contents insurance policy is £152 and has risen by 5% over the same period – still a very modest increase in view of the cover provided and amounts which insurers pay out. (From: http:// newsvote.bbc.co.uk)

Text C. Insuring the corporate memory

Computers can cause companies to crash. They are often blamed for all sorts of problems when the real cause is management incompetence, but if the computer fails and stops working the result can be disastrous.

Generally most of the corporate information is in the electronics, there are no longer accounts books, or records of orders, production scheduling is on the machine and so are wage calculations – and then it breaks down. Or a burglar steals it. Or it catches fire in the middle of the night.

Maintenance contracts help, but clearly they are not the whole answer. Insurance is the only way to cover the potential catastrophic results if the computer, or its information, is suddenly absent.

Basically, there are four sections to such policies. First is what the insurance worlds call “all risks”. This normally includes accidental damage such as spilling a cup of tea into the keyboard, jamming the printer with a cigarette end, or smashing the screen.

It also covers theft, fire and malicious damage (such as sacked employee wiping the memory or throwing the machine at the personnel manager). Some policies have water damage cover as well, and a few provide insurance in transit. All this should include call-out costs, parts and labour to the full reinstatement value of the machine – no deduction for wear and tear if replacing it.

The second portion is for increased costs of working without your normal computer. So if you have to hire another computer or use a bureau (assuming records are still to hand), or hire extra workers, or make existing people work overtime, the insurance company pays. In some cases it will also make good any loss of profits or revenue – say, when the production programme is wholly disrupted.

In some cases the third portion is swept in with the second, because this deals with the reinstatement of records. If a company is silly enough not to keep back-up copies of all data and the disk drive “crashes”, or if there has been a fire in the building and through that or the zeal of the fire brigade all accounts are lost, somebody is going to work a long time feeding all that back into a new machine.

Finally there is the electrical and mechanical breakdown portion. Some companies insist customers have a maintenance contract and will therefore only cover breakdowns through negligence (a misguided employee taking a screwdriver to the delicate machine0, and some will provide what is in effect an alternative to maintenance, though at a substantial cost.

Text D. Horrible business.

American insurers lobby to keep their federal safety net.

In a year when nature has dealt some mighty blows to America’s insurers, it is noteworthy that the industry is nearly as agitated about man-made threat: terrorism. At the eleventh hour, Congress is debating whether to extend the Terrorism Risk Insurance Act (TRIA), which was passed as a temporary measure after the attacks of September 11^th2001 to provide a government back-stop for the insurance industry in the event of further outrages.

TRIA will expire at the end of the year unless Congress acts fast. Insurers are lobbying hard to keep it alive. The Bush administration, however, objects to extending the law as it stands. It believes the market should provide, and considers the current threshold at which a terror attack triggers government reinsurance backing - $5m in insured losses – ridiculously low. If TRIA is extended, the Treasury wants the floor raised to $500m, a figure that America’s insurers (most of them small) think ridiculously high.

This week, after months of little action, a compromise looked possible. On November 15^th, leading Republicans and Democrats on the Senate Banking Committee appeared to reach a deal that would extend the federal guarantee, but reduce the number of insurance “lines” – property, workers’ compensation and so on – that it covers. It would also bump up the minimum–loss threshold to $50m next year and $100m in 2007.Though this is well below what the administration wants, the Treasury thinks it preferable to a House of Representatives committee’s version of the law that it believes could cost taxpayers more. Congress could vote on the compromise within days.

One of the best recent analyses of TRIA was by academics at the University of Pennsylvania’s Wharton School. It found that, as insurers argue, private reinsurers have not stepped in to offer sufficient capacity to cover primary insurers’ potential losses from big terror attacks, even as the end of existing TRIA coverage looms. The study identified several reasons for this. The terrorism threat is hard to quantify; rating agencies have downgraded insurers for carrying what they consider too much terrorism risk; federal tax policy raises the cost to private insurers of certain strategies for spreading risk; state regulations and compulsory insurance, such as workers; compensations, hinder private sector ability to manage risk; and the prospect of federal disaster assistance (like after Hurricane Katrina) reduces incentives for customers to insure against catastrophes.

TRIA now requires commercial insurers to provide terrorism-risk policies, but does not cover all insurance lines. A hot topic of debate is what should now be cut from or added to the programme. Smaller insurers are most concerned that workers’ compensation (which they are obliged to offer) and property should remain included, says William Berkley, chairman of W.R.Berkley, a holding company with insurance interests. Large insurers, meanwhile, are more worried about general liability insurance, which is not covered now. If it is included, says Mr Berkley, “people may not be as careful to protect against terrorism. They’ll assume the insurance company will pay”.

Wharton’s Erwann Michel-Kerjan says there should be a national commission to assess long-term solutions for terrorisminsurance. America is not alone in tackling yhe question. Countries from Britain to Spain and Australia have public-private programmes already. As the OECD warned earlier this year, “mega-terrorism” attacks could exceed even the combined capacity of insurers and governments to cover losses without threatening the economic stability of some countries. ( “The Economist”, 2005)