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6 REASONS THE INSURANCE MARKET IS GOING CRAZY RIGHT NOW
their assets and smooth out claims payments, the global insurance and reinsurance marketplace has become more interconnected. Tsunamis in Southeast Asia can drive up insurance costs just as easily as hurricanes in Louisiana or tornadoes in Oklahoma. Liability verdicts are getting more expensive. The damages that businesses have to pay out for automobile and trucking accidents, medical malpractice, product liability, and other types of liability- related lawsuits have all gone up in recent years, some dramatically. Legal teams are able to use modern communication technology to better coordinate class action lawsuits, highly organized plaintiffs are now being financed with third-party capital, and the anti-corporate sentiment among jurors are a few of the main factors leading to nuclear verdicts that suck big money right out of the system. And when insurers have to pay out an enormous settlement, those losses filter through the system to ultimately raise prices for everyone else. Risk-free interest rates are almost zero. The interest paid on risk-free government bonds is virtually nonexistent, which means insurance companies have to make up for the lost income from their investment portfolio with underwriting profits, meaning they’ll price their products more aggressively. This has been going on for years. The pandemic shook up the datasets. We haven’t had a pandemic as devastating as COVID-19 since the Spanish flu over 100 years ago. Those kinds of events have a tendency to cause completely unexpected damage to multiple sectors of a society. Since insurers rely on data about the probability of certain events happening, the pandemic messed up all their models and projections as to future claims costs.
Since I started this newsletter, I’ve never once talked about insurance in the cover article. I usually reserve more industry-related topics for articles inside. However, over the past few years, a few things have been happening that compelled me to write about the crazy insurance markets we’re experiencing today. I’ve been in the insurance business since 1988, and for the past 33 years, I would say the market (at least for business insurance) has been fairly stable. The only time I can think of in the past three decades when insurance pricing spiked was in the years immediately following 9/11 … until now. Now, in the wake of the pandemic, I’m seeing that same craziness play out in the insurance market I saw 20 years ago. As best I can tell, this is happening for the following reasons: Everything insurance buys is going up in price. Whether it’s the cost of a tank of gas or the price of lumber and concrete, the price of everything is going up due to the shutdown related shortages. Plus, as the government has tried to stimulate the economy, people now have a lot more money to spend, which is driving prices up on everything. I can’t say whether they’ll keep going up or hopefully go back down as the shortages work themselves out, but right now, they’re up — and that pushes up the cost to insure business assets like buildings, company vehicles, equipment, and more. Weather-related claims have spiked in recent years. In 2020, 22 weather events each caused more than $1 billion in damage. In total, hurricanes caused $41 billion in damages just last year. Five of the six worst California wildfires in history all happened last year as well. Altogether, this means the cost of any insurance against weather-related events has gone up, especially in disaster prone areas. Additionally, since insurance companies themselves purchase reinsurance from other insurance companies to protect
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THE ORIGINS OF DOGECOIN HOWA JOKE BECAME A MULTIBILLION CURRENCY MARKET Would you create an actual cryptocurrency to make fun of other cryptocurrencies? That’s exactly what Jackson Palmer and Billy Markus did, and it’s paid off with an over $70 billion currency market. Now, it’s the fourth-largest cryptocurrency in the world. Dogecoin (symbol: Ð) is a cryptocurrency that provides a payment system (like Bitcoin, another digital currency) that is instant, fun, and free from traditional banking fees. Its playful name and Shiba Inu dog mascot caused the currency to start as a meme, but as people began to actually purchase it, it became worth more and more. Before Dogecoin, Palmer was a product manager at Adobe Inc.’s office in Sydney, Australia. As a “skeptic-analytic” observer of crypto, he joked on Twitter about creating Dogecoin as a way of satirizing the hype for cryptocurrencies. Surprisingly, people were totally on board. So, he bought the domain name Dogecoin.com. That’s when Markus, a software developer at IBM, contacted Palmer. He wanted to create a digital currency but had trouble promoting his project and decided to jump on the Dogecoin buzz. He asked Palmer’s permission to build the software to create an actual Dogecoin. Most cryptocurrencies are fairly serious and sterile in presentation, but Dogecoin was always different. Palmer and Markus decided to market Dogecoin as the “fun” version of Bitcoin. Since Bitcoin had a limited supply while Dogecoin had an unlimited supply, Dogecoin was also faster and more consumer-friendly for new crypto investors. In 2015, Palmer made his departure from Dogecoin, citing the currency’s “toxic community” as a main reason why he left. Dogecoin also had its financial struggles during the 2018 cryptocurrency crash, but today, it’s grown stronger than ever. As of early May 2021, Dogecoin’s price is up more than 13,000% for the year. Even though Dogecoin’s origins are humorous, Palmer and Markus’ business decisions were no joke. If you decide to purchase Dogecoin yourself, whether as a joke or for investing, please do your due diligence to understand the risks of cryptocurrency.
Ransomware continues to be an extremely popular method with cybercriminals to extort vulnerable companies, and the pandemic has only made things worse. According to Joachim Mueller, CEO of German financial services company Allianz, “Business interruptions, pandemic and cyber, are all strongly interlinked, demonstrating the growing vulnerabilities of our highly connected world.” Essentially, an increased reliance on data and IT systems, a sudden increase in employees working remotely (and, therefore, without as much oversight), and companies continuing to drag their feet when it comes to proper cybersecurity protections for their data have all coincided to create the perfect environment for ransomware attacks. According to a 2020 report from London- based Beazley Group, ransomware attacks have gone up 130% in just the past year. This has understandably sent insurance companies reeling. With so many companies making claims to make up for the money they lost paying hacker ransoms in order to regain control of their data, cyber insurance premiums are estimated to go up 20%–50% across the board, hurting both companies that haven’t invested in cybersecurity measures and companies that have. Recently, regulators and legislators have jumped in to try and mitigate the effects that increased ransomware attacks are having on the insurance industry. The New York Department of Financial Services (NYDFS) developed a framework, recommending that cyber insurance policies require victims of ransomware attacks to notify law enforcement. Legislators are contemplating laws that would do something similar. Obviously, regulators, legislators, and cybercriminals aren’t waiting around for companies to get their cybersecurity situation under control. If your company doesn’t have adequate cybersecurity protections in place already, review your options for backing up vulnerable data you cannot afford to be ransomed or lost. Businesses just can’t wait any longer to get themselves the protection they need.
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Pregnant Woman Saves 4 Children From Drowning in Lake Michigan
It’s hard to convey just how terrifying the sounds of crashing waves, foul weather, and screams can be through just words on a page. Nevertheless, the story of Alyssa DeWitt, a 27-year-old pregnant mom, who saved four children from drowning in Lake Michigan, deserves to be told. You could make a pretty strong argument that carrying a baby and becoming a mother are pretty remarkable — and even heroic — things to do. When you save lives while you’re doing those things — well, that makes you a pretty extraordinary person. Alyssa DeWitt decided one day to take her kids to the lake. The winds were fairly strong, and they almost decided against going, but she ultimately put her two kids, a 6-year-old daughter and a 2-year- old son, in their van and drove from their home in Manistee for a fun day at the beach. When DeWitt arrived, she immediately saw a group of preteen and teenage girls make their way down to the water. She remembered being concerned for their safety considering how big the waves were that day. Her concerns became warranted when she saw one of the girls signaling to her. “I knew immediately something was wrong,” she told reporters from the Detroit Free Press. DeWitt pulled her kids out of the water and put them in the van. Then, she dashed over to the slippery pier, where she saw the girls trying unsuccessfully to get out of the rough water. Even though she was five months pregnant, DeWitt laid down on the ground and started trying to haul the girls up. The waves didn’t make it easy. Every time she got close, it seemed like another wave would come and push the girls back down. “I’m going to die,” one of the little girls lamented at one point. But DeWitt wasn’t about to let that happen. Eventually, she was able to get all the girls on shore, relying on what DeWitt could only say was “pure adrenaline.” DeWitt sustained a swollen wrist but was otherwise fine following the incident. Her baby was fine, too. She was very proud of her daughter, who helped keep her younger brother calm throughout the ordeal.
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world, so insurance companies are still grappling with the ramifications of more cybersecurity breaches.
Underwriters hate uncertainty, and they charge higher premiums when they don’t have confidence in their ability to accurately forecast the future. Cybersecurity threats continue to proliferate. As I write this (and probably as you read this), massive data breaches are occurring all over the world, and they are expensive to fix. According to IBM, the average cost of a data breach in 2020 was $8.46 million. Hackers will exploit weak cybersecurity systems to steal sensitive company data and hold it ransom. If the company pays them, they use cybersecurity insurance to cover the cost (if they have it), which drives up the costs for everyone else. This is a new frontier in the insurance
I can’t say exactly howmuch premiums for business owners will go up or how long insurance costs will continue to rise. The world we live in feels very volatile at the moment, but if the past is any sort of guide, we will get through this period of time and move on to calmer waters just like we eventually did after 9/11. I hope this helps you understand a little better why your insurance premiums are most likely going up.
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INSIDE This Issue 6 Reasons the Insurance Market Is Going Crazy Right Now page 1
How a Joke Became a Multibillion Currency Market Protect Your Business from Ransomware Attacks page 2 Pregnant Woman Saves 4 Children From Drowning in Lake Michigan page 3
Go Back-to-School Shopping for Your Home Office! page 4
IS YOUR HOME OFFICE MISSING SOMETHING?
Look out for Apple and PC sales! Replacing your current technology can be expensive, but back-to-school sales are the perfect way to spare your wallet. Have an amazing computer already? You can still benefit majorly from staying tuned! During last year’s back-to-school sale, Apple offered 20% off their AppleCare+ service, which gives you two incidents of accidental damage protection every 12 months. Dropped your laptop or spilled coffee on it? They’ll fix it, no questions asked. Invest in the new office chair you’ve been wanting. Don’t sacrifice your posture just because you’re working from home. Whether remote working has turned into a permanent or a part-time solution for your job, you deserve an office chair that can help keep your back straight, preventing pain and slouching. Many big-box stores will be offering sales on office chairs, so take the opportunity to sit in a healthier way today — before the expensive holiday season rolls around! Just because you’re an adult doesn’t mean you can’t have the joy of back- to-school shopping too. We hope you treat yourself to something that’ll make your remote routine even better. Top 3 Tips to Take Advantage of Back-to-School Deals
Everyone loves back-to-school season because of the shopping spree! Students can get tools they’ll actually use for the entire year while they’re on sale while saving a few extra dollars in the process. But you can get that very same feeling as an entrepreneur, too. Here’s how you can make the most of back-to-school deals this year for your home office. Upgrade your home office’s amenities. Are you a seltzer water fan? Every year, Amazon almost always has an “Off to College” sale, featuring various products that make dorm life a little bit easier and more convenient. If you want to do the same for your home office, look into a tabletop fridge — or an electric tea kettle, if tea is more your style. Some affordable decor, like wall art or small potted succulents, can spruce up your office without making a mess. If you’re looking to organize your space, consider buying desktop shelves to free up clutter. Then, you won’t have to leave your desk to stay in the zone!
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