With the summer behind us, I am pleased to report that Pennsylvania Lumbermens Mutual Insurance Company’s results continue to meet or exceed expectations. Our production numbers are on target. Our expenses are stable. We are slightly behind in our planned loss numbers, but ahead in our target investment numbers. In addition, we are enjoying policyholder surplus growth.
Of course, this is before we have fully reflected the cost of Hurricanes Harvey and Irma, which impacted a significant number of our insureds. However, we are comfortable that we have properly protected PLM from the ravages of hurricanes through responsible underwriting and pricing in these areas. We also have a comprehensive reinsurance program standing behind us.
Our thoughts and prayers go out to those insureds, their colleagues, and families who were impacted during these storms and have made corporate donations to Red Cross relief funds for both of these events.
We are here to demonstrate that the faith and confidence placed in us by our customers in Florida and Texas are well-founded. We fully understand that this is when PLM needs to fulfill the promise we made to our customers—as we have for 122 years.
Refreshing our brand, retaining our commitment
Four years ago, we began a new chapter in that long history when ILM and PLM affiliated. A recent review by an outside marketing firm has suggested that our dual branding approach needs to be simplified.
During the years since the affiliation, we have moved all the employees from ILM to PLM. All of the customers have been moved over as well. Both actions were contemplated and agreed to at the time of the affiliation. Systems have been combined and secondary legal entities have been retired or sold.
As we consolidate under the PLM brand, over the coming months you will see us return to using just the PLM name and an updated and streamlined logo design. We are excited to provide you a sneak peek of this refreshed PLM logo now.
PLM will continue to responsibly honor its commitments and obligations as outlined in the original affiliation agreements, particularly in the claims arena. We fully understand and remain committed to exclusively working within the wood niche, providing a consistent and stable marketplace for our customers today and tomorrow.
Commercial auto woes
One of our biggest concerns, as shared by the whole insurance industry, continues to be the losses associated with the commercial auto line of business. To give you a stark thought to ponder, in the first eight months of 2017, our bottom line loss ratio was down on property, general liability, umbrella, but our commercial auto loss ratio was up 15 points. For every dollar we bring in the door on the commercial auto line of business, we are currently incurring 92 cents of loss!
Consider that approximately 45 percent of our loss dollars during the first eight months of the year are associated with automobile claims. We have launched a “take no prisoners” approach to fixing this problem and are detailed and resolute in our actions. Across the entire insurance industry, auto insurance prices are increasing. PLM is taking a multi-disciplinary approach to fixing our auto profitability with enhanced loss control risk management efforts, so you can expect to see a dramatic increase in imperative recommendations from our leadership. We will also be working directly with you to create a customized loss control risk management program.
We have tightened underwriting requirements and looked more closely at new and renewal businesses that include automobile policies and are working to improve the way we handle auto claims. Our entire team at PLM shares our persistent commitment to eradicating these losses. We have informed our underwriting team that the auto policy for each insured must stand on its own; the profitability of an account cannot excuse the unprofitability of that account’s auto policy.
We are also starting to develop loss trend analysis regarding the types of auto losses our insureds are having. It may be hard to believe, but most of the losses we are seeing could have been prevented by the driver. Fewer than 20 percent of our auto losses are the fault of another driver or pedestrian. Just under 50 percent are classified as rear end collisions–perhaps due to distracted driving—while about 25 percent are classified as “right of way violations.”
The point is: most loss events are controllable and therefore can be reduced if the drivers exhibit better driving habits. Consider these examples of automobile losses in excess of $1 million:
- Insured driver was making a left turn into driveway. He collided with a husband and wife on a motorcycle coming from the opposite direction.
- Insured was driving in a yard. He collided with the plaintiff, who was cutting through the yard on a bicycle.
- Insured vehicle stopped in the travel lane. Plaintiff hit insured’s left rear bumper and several lengths of rebar on the bed went through plaintiff’s windshield.
- Insured driver failed to yield at a stop sign resulting in fatal injuries to multiple plaintiffs.
- Insured driver (age 71) crossed the center line and was struck by plaintiff. The plaintiff was pronounced dead at the scene.
- Insured driver was making a wide right turn while plaintiff was overtaken on the right side and went under the passenger side of the truck.
- Insured driver dozed at the wheel causing a rear-end collision with the claimant.
- Pedestrian was walking on the shoulder of a highway when trusses overhanging the insured’s trailer caught his backpack and threw him to the ground.
Now, some might recognize some of these incidents and suggest that there were extenuating circumstances (like the bicyclist cutting through the yard). Yet almost all of these claims were the result of driver error and could have—and should have—been avoided!
I cannot help but underscore a point made in a previous LumberMemo about the financial loss that is not covered by insurance. Consider the incident of the bicyclist cutting through the yard and ask yourself – what was the loss of productivity that the owner absorbed on the day of and the days shortly thereafter? You can ask that question about any of these losses. One minute you are focused on growing your business and serving your customers and the next, a tragic business interruption could destroy it all.
There is a trove of information on our website regarding risk management for the automobile line of business that can be tremendously valuable for you, our producers and our insureds. Further, any one of our loss control representatives can assist you or your policyholder and address any issues or concerns you might have regarding auto losses.
Continued focus on the wood niche
Reflecting on challenges, changes and opportunities this year, we note with some interest the decision by one of our newer competitors to withdraw entirely from the wood niche. Another has chosen to discontinue writing new business on heavy primary manufacturers (sawmills and pallets operations) in the wood niche. We believe this will create disruption in the market as these insureds seek a new home for their businesses.
We have seen it happen too many times in the wood niche. Carriers jump in, make a splash, and underprice business —only to realize in a couple of short years that loss severity is the name of the game. You need to develop not only a quality book of business made up of quality insureds, but charge them an adequate premium to build a large enough fund to pay for the inevitable severe loss.
We continue to be interested in considering businesses in this area, but we only pursue accounts that meet the highest risk management standards and are willing to pay adequate premium.
If you have any comments, questions or feedback regarding anything PLM, please do not hesitate to reach out to me personally at 267-825-9246 or jsmith@plmins.com. As always, I welcome your feedback.