Some may recall the first edition of the Brief where I followed up on some prior topics along with some new thoughts not long enough to make a full post. For Halloween and to keep things light during earnings, I am back with Brief #2.
The Insurance Haunted House
Nothing is spookier for an insurer on Halloween than creepy claim creep! If you want to know what scares insurers, see the scary picture below!
AOB Roof Claims: If you want to scare a Florida homeowners’ insurer, make sure to sneak up behind one and say AOBoooooo! Assignment of Benefits have been a jackpot for Florida fraudsters pushing through false claims.
Batty Jurors: They want to punish those no-good companies for being greedy and lying about their harmful products. Give that plaintiff $400M!
Ghost of Torts Past: These scary spectres bring claims 10, 20, or even 50 years after you covered them! Whether it be talc, sexual abuse, or our old pal asbestos, these ghosts are sure to frighten!
President Warren: Speaking of ghosts, what makes an insurance CEO turn white as one? When he realizes Warren might actually win this election.
Trial Lawyers: The most dangerous of the haunted creatures! They can convince those batty jurors that anecdotal data and flimsy studies deserve billion dollar verdicts. Look at them handing out class action awards to all the Trick or Treaters! You get 3% of a candy bar and they keep the other 97%!
The Natural Cat: These animals are true disasters! They cause more damages than the top of the reinsurance tower covers. Someone call Goldman, we need to raise more capital!
Truck Crash Victim: No, it’s not a mummy. It’s someone who got hit by one of your insured’s trucks and you will be paying them $100M for their lifetime medical bills + pain and suffering.
Be careful this Halloween! Look both ways before you cross the street and, if you see any of the “creepy claims”, RUN!!!!!
Mattress Mack Gave It All Back
When I last wrote about Mattress Mack, he was looking for casinos willing to take all his bets. Well, he found it, and then some! Mack bet $13M on the Astros to win…and lost it all! Recall, Mack was trying to “hedge” his liability for free furniture but actually made things worse.
Rather, than spend $3M in the spring to hedge what has now grown into a $20M liability (he kept the promotion going rather than cap it), he ended up spending $13M (you can see $12M of the slips here).
He also could have tried to lock in a loss at say $5M no matter what happened, but no, Mack wanted the action, so he grew his gambling risk to $13M in order to extinguish any losses if the Astros actually won…which they didn’t.
The irony here is this Series was nearly decided by, of all things, a bad mattress! Before Game 5, Nationals ace pitcher Max Scherzer woke up and couldn’t move his neck. This helped the Astros win Game 5, but Scherzer was able to return for Game 7.
I don’t want to go all conspiracy theory on you, but isn’t it suspicious the other team’s star woke up with a bad neck? Did someone tamper with his mattress? Who would have $13M reasons to do something like that? Hmm….
Not surprisingly, Mack said he’s going to run the promotion again next year. He can hedge the Astros now at 4-1, but I have a feeling he won’t do that.
Making Money on the Election Bets
Also in the Mattress Mack post, I offered two interesting prop bet ideas. The Presidential odds for 2020 were 200-1 on Bloomberg and 80-1 on Pence. Those are now down to 100-1 and 33-1. Pretty good trade!
I Haven’t Got Time For The Pain
Don’t click the link unless you want Carly Simon stuck in your head for the next hour. I’m warning you. Don’t. Do. It!
Recall my three rules of pain management:
- Companies know more than investors.
- Companies only raise price in response to bad news (known or pending).
- Nobody wants to admit to bad news first!
The reason only Travelers has confessed is because they are an outlier. No, not an outlier at seeing losses pick up. They are an outlier at being willing to call balls and strikes and respond to events rather than obscure through confusion and delay.
Everyone else is facing the same pressure. They just refuse to admit it until they see more of their peers go first. You ever see those videos of the wildebeests crossing the river? The one brave animal goes first, then a few more follow, and eventually they all swarm the river figuring all but one will get past the alligator?
Yeah, Travelers was that brave first wildebeest (skip to 1:20 in the video and look closely and you’ll see it crossing)! Once we see a few more enter the water, everyone else will trip over themselves to cross and get to the other side.
The only question is how many will make it? A lot of those wildebeest got across the river successfully (we got pricing!) only to find they couldn’t climb the bank on the other side and were stranded (the “big bath” reserve charge).
And for those who want the gratuitous violence, you can see a crocodile attack just after 6:00 and another just after 9:00. Those are the wildebeest who had to go into nature’s runoff.
More Legal Infomercials!
If you think I am being too dramatic about loss trend, I’ll ask who do you believe? The trial lawyers or your lyin’ eyes? Since I first wrote about class action informericals last month, three new ones have appeared! With the same actors! Sorry, I mean “doctors”, not actors. These are actual doctors who coincidentally are expert in every mass tort known to man.
Anyway, from the original “Did Talcum Powder Cause Your Cancer?” we have now added “Cancer Caused By Roundup?”, “Faulty Hernia Mesh? Claim Your $!” and “Lung Cancer From Asbestos?”. Each is an hour long (really a 5 minute episode that is looped for an hour) and each has the same format telling you to call their experts if you want to cash in.
As a reminder, these shows are on all day long on multiple channels. The lawyers are spending a fortune…which means they plan to make a fortune! Doubt them at your own peril!
Axis Opens the ESG Pandora’s Box
My friends at Axis dismissed (or worse, never read!) my compelling case for why companies shouldn’t fall into the ESG trap. Axis announced they will no longer write insurance for coal mines or oil sands companies.
While this wins positive media coverage, my concern is the same I raised when the Business Roundtable changed its mission statement. An appeasement measure will not satisfy critics; rather, it will embolden them to ask for more.
Now that Axis has demonstrated it will sacrifice some small amount of revenue from “dirty energy”, why won’t the activists pressure them to exit all energy business? There is a lot of industry premium from writing offshore energy cat as well as liability for spills. Is Axis willing to let this go?
And what next? Should they not reinsure any auto insurers because cars pollute? Should they refuse to do business in China because of human rights violations? It is very hard to draw these lines because whatever you decide, there will always be an interest group complaining – either you went too far or you didn’t go far enough. Better to not open the lid!