PAX Insurance premium hikes

Discussion in 'Army Pay, Claims & JPA' started by whosthedaddy, Feb 27, 2008.

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  1. I know that this has probably been done before, but having just received notification of the increases I am not a happy badger. The letter states "This is the first increase in 5 years and is due to a rise in the number of claims". How nice, the insurance company isn't happy about having to pay out because of injuries so they hike up the prices by 25%.

    Now I fully understand economics and all that, but really, can they not spread the increased burden across their whole insurance portfolio? I mean, AIG isn't exactly a small family run insurance company is it? It just seems that we are being spanked for the sake of ease. My 15 units of cover will jump from £45 a month to £58.50.

    Cheers Pax!

    Rant over, how do the rest of you feel?
  2. PAX also said in the leaked letter from last Oct (2007) they would be looking at some form of cover for PTSD. PAX have still not done anything yet.

    Link to letter:
  3. If you can find a cheaper option with the same cover, you would do well.

    I still think its a good price even with the quite steep hike.
  4. The_Duke

    The_Duke LE Moderator

    Read the letter linked in the post above. 10 years profits erased in the last year alone. If (God forbid) the next year or two conitnues at the same rate before dropping back to normal, AIG are looking at being profit free for around 30 years.

    Until such time as the Government offer equivalent benefits as a standard part of the soldiers benefits package, we will rely on commercial organisations to provide insurance. They will not do it unless they have some expectation of profit. They are a business, not a charity.

    If we demand that they do not raise their prices, then we should expect them to walk away from the deal and leave our soldiers without the option of buying insurance.

    Themonstar, the letter says that they may consider cover for PTSD. When an insurance company has been hit as hard as they have on this scheme, they tend to want to get things under control, not extend coverage even further.

    Of course, you will add this to your conspiracy theories which make Al Fayed look reasonable and rational.
  5. How can insurance companies quantify PTSD? I'm not aware of any Insurance company that provides cover for mental illnesses. Further to that, the genuine PTSD sufferers will experience further difficulties due to cheats jumping on the PTSD band wagon in order to make a claim.
  6. How can insurance companies quantify PTSD? I'm not aware of any Insurance company that provides cover for mental illnesses. Further to that, the genuine PTSD sufferers will experience further difficulties due to cheats jumping on the PTSD band wagon in order to make a claim.
  7. Absolute tonk I'm afraid. Like I said in the original post AIG are not a small company, I find it very hard to believe that the claims of servicemen have wiped out AIG's profits for ten years ACROSS THEIR ENTIRE PORTFOLIO!!!!

    Do you not remember after 9/11 your car insurance, home insurance etc all going up slightly? This was 'spreading the cost across the portfolio!' The insurers could simply have massively hiked up the prices for those wishing to insure high profile, high rise office blocks, but chose to spread that risk amongst their thousands of other policy types. That is what AIG should be doing here! Do you not think that would be a little less painful for those of us left with big increases? I am more than aware that they are not in this for charitable reasons, but morally what they are doing is a bit nasty, seeing as how we are an easy target, given the nature of our job.

    Of course, if the compensation scheme offered to HM Forces was a little more robust then there would be less of a need for private accident insurance, but lets not go there!
  8. Why SHOULD they spread it across their whole portfolio? So that their other products are not competetive in the marketplace?

    Insurance is simple you pay according to two things, how much any payout will be and the risk of it occuring. the risk of it ocurring in this case has gone up dramatically. The cost of the insurance is still very good value and you do have a choice.

    As prviously stated you are dealing with a commercial company who have a realistic and not innapropriate expectation of making a profit.

    I agree the Govt should offer decent compensation that would mean we didnt have to have our own insurance but if it did, you can be sure the Pay Review Board would take it into consideration so you would be no better off in the long run.
  9. Then could you, or anyone else please explain why my home contents insurance/car insurance went up so dramatically post 9/11?????? I was at no further risk of someone landing a plane on my house than I was the day before it! No, the insurance companies were simply trying to claw more moeny out of all policy holders so that they could still be competitive for insuring high rise buildings, who were now deemed to be at a higher risk of terrorist action. The same should apply in this case surely? Do you honestly believe that as a result of the floods in this country in the last few years that a few pennies haven't been added to everyones home contents insurance to spread the cost? Let's not be naive!
  10. Ok. Simple lesson about how the global insurance market works.

    Insurance companies provide cover for people who want protection from unpredictable events. These people have something that they do not want to loose without compensation (their life, house, car, possessions, etc). Ultra rich people and very poor people do not have insurance. The former because they can afford to replace any possible loss without inconvenience, and the latter because they have nothing to insure, and couldn't afford to even if they did.

    If you know that you will never have a loss then don't buy insurance.

    Thing is, most of us know that there is a chance of a loss happening, being it a fire destroying our home or some toerag stealing our bergan. So we insure. Insurance is not there to make us wealthy with a nice regular claim, but to restore us, as close as possible, to our state of affairs immediately before the loss. Don't think of insurance as making a wager that something will go wrong, but as spreading the cost of that something over many years.

    Insurance companies have a range of products that they offer. These are organised into 'portfolios' or books of business. Each portfolio is then insurered with a reinsurance company (these are the insurance companies that insure insurance companies). Basically it is spreading the load.

    A typical reinsurance treaty e.g. for AIG's property portfolio in Germany may look something like this:

    0-20,000,000 EUR of loss: AIG to retain (self insure).
    20,000,000-30,000,000 EUR of loss: LLoyds reinsure
    30,000,000-50,000,000 EUR of loss: PartnerRe and SwissRe on a 45:55 co-share.

    Various sublimits and clauses and agreements are built into each layer, e.g. if they have a single site event that costs them 19,000,000EUR (e.g. a fire at a medium size chemical plant), then reinsurance may cut in a lot earlier.

    Firstly, AIG (or any insurance company) has to pay for their re-insurance. Pay attention to that sentance; it is important.

    Secondly, there is only so much money that the re-insurers have.

    Thirdly, insurance and reinsurance companies are only allowed to insure assets up to a certain multiple of their proven assets, staying within extremely strict cash liquidity rules. If a motor insurer have 5,000,000 EUR in the bank, it is allowed to insure between 4 and 6 times this amount (i.e. a total fleet of cars worth 20-30,000,000 EUR). By having reinsurance it is able to increase the number of cars it is allowed to insure (because the reinsurance company shares the risk).

    So when 2 planes slammed into the World Trade Centre in New York, guess what happened? There was a fúcking huge insurance claim. Not only for the cost of the buildings (several billion USD), but for the lives lost and the business interruption of those companies that were unable to work (most companies in south Manhattan). Edited to add: while at the same time there was a collapse in the stock markets, further seriously reducing the reserves of the insurance and reinsurance companies, which resulted in them having reduced liquidity.

    All this money had to come from somewhere. Tie that in with a particulary bad hurricane season (which reinsurers had paid another couple of billion USD for), various acts of God and Man around the world and the reinsurance market simlply ran out of liquid assets. In industry terms, the insurance market 'hardened'.

    The result of this that there simply wasn't enough cash in insurance world to meet all the liquity and other regulatory requirements. As a result portfolio's had to become more profitable in order to be accepted as a risk by the reinsurers. There are two simple ways of doing this: increase risk management and training and awareness of all the people you insure (costs a huge amount of money and takes time) or double the premium overnight.

    Which one do you think they chose?

    That is why your insurance premiums rose as a direct result of 9/11.

    The massive increase in premiums and shortage of reinsurance cash led to several new funds being set up (in fact several hundred) in Bermuda, Guernsey, etc as investors took refuge from the falling stock markets and took advantage of the renewed profitability and high yields of the insurance market. All this new cash (took a few years to filter through) meant that between 2004-present we had a soft market (i.e. reinsurance was cheap).

    So why is your insurance expensive now?

    Because people realised that they had to be more aware of their exposure should a 9/11 reoccur: people in Switzerland discovered that they not only insurered bits of the twin towers, but they reinsured bits as well. It hurt.

    Also, insurance companies used to invest most of their wealth in the stock market. These reserves are measured in the trillions of dollars. Want to destroy your country? Make investing in it unnatractive or risky to insurance and reinsurance companies (you will at the same time manage to pish off the pension companies). Now the stock markets are not doing too brilliantly, managers are being forced to ensure that every part of their business is profitable.

    Without a profitable book of business (across all 'lines' or types of cover), then the insurance company will be unable to buy reinsurance, and will thus have to reduce the size of its portfolio in order to meet regulatory obligations.



    PS. I know that the above is a vast simplification, but as I get up to 2k per day briefing my clients I am buggered if I will give all the information on here for gratis :)
  11. Double post again. :(
  12. Dread, very informative post, thank you. But the question is should AIG be cheaply stumping the Forces for this risk or could they not quite easily load a couple of pence onto all policies without becoming un-competitive?

    I know that they have risks and need to make profits etc, but it still hurts when my premiums go up 25% in a single leap!
  13. They could do. However the person who did would promptly be sacked at the next shareholder meeting.

    AIG are answerable to their shareholders, to whom they have a legal obligation to return a profitable return on investment.

    The government could choose to launch a fund whereby soldiers buy units (same as PAX), and the government on the day decides how much each unit should cost and the limit on recompense, and then fund the entity so that it remains liquid. But they won't.
  14. You're right, they won't. They're too busy spending our money bailing out a failing bank!
  15. The_Duke

    The_Duke LE Moderator

    Some overlap with Dreads post, but I have spent some time trying to simplify a very complex issue, so I will post it anyway!

    Ok, here we go…..

    Have you ever heard of the phrase “If you owe the bank £1,000 it is your problem; if you owe them £1,000,000,000 it is theirs”? That is the principle underlying the nationalisation of Northern Rock, and also the PAX / World Trade Centre comparison.

    When a book of insurance business is suffering from losses greater than the premium income, then insurers must act to bring it back onto a profit making basis. Where it is on one specific account, and the rest of the portfolio is running OK, then that account is the one which must bear the additional costs.

    Where the losses are so catastrophic that it is impossible for the increases in premiums to be borne by the effected accounts alone, then the cost is levied across the whole portfolio.

    We know that PAX have declared losses which have wiped out the last 10 years of profits. These losses are probably measured in millions or possibly even tens of millions of pounds. Whilst these are significant amounts to you and me, they are not deemed catastrophic for insurance industry purposes. Therefore, they need to be recouped from the risks in question.

    To give a comparison, a particular Syndicate in Lloyd’s of London was writing a $30,000,000 account of personal accident business. This means that they accepted $30m of premiums from clients, and could realistically have expected to make between 12% - 15% of profit (before salaries, costs, expenses etc) on that income (say $4.5m per year). That particular syndicate suffered $350,000,000 of personal accident losses from the World Trade Centre alone. The London insurance market accepts around £500,000,000 of premium income from personal accident business, so as the worst case scenario you could extrapolate that loss out to £5,833,000,000 of WTC losses!

    There is no way that they could have attempted to recoup those losses from the various contracts which suffered losses without spreading the “debt” over hundreds of years, so it was levied across the whole industry. It will still take decades to recoup the overall industry losses.

    Whilst the people who deal with PAX on a day to day basis have great sympathy for the armed forces, to the owners of AIG, this is just one small account, and it must have a chance of supporting itself if it is to continue.