Trouble for our Competition

Joe Sutton -- Oct 23, 2012

I struggle with how to respond to my competition’s misfortune.

Our primary competitor (whom many of you know) uses a small insurance carrier to provide their coverage. We have consistently touted the fact that we thought this was a risky move and that the more responsible thing to do is partner with a large highly rated insurance company. Don’t get me wrong, it is clearly less lucrative, but in the long run it is the right thing to do.

Well, those chickens are now coming home to roost. The carrier our competitor uses appears to be deteriorating quickly. Their cash on hand and policyholder surplus have both decreased. And they just announced that they will have a very large unexpected loss for this quarter.  Most importantly, They were recently notified by A.M. Best of a potential downgrade below A-. Once carriers are downgraded below A-, many lenders and contractors stop accepting the coverage, many brokers become barred from selling their products and association start to pull their endorsements.

I am not saying that they are on the verge of going out of business. There are a number of potential outcomes for them, including being purchased by a larger insurance company. However, the one thing that insurance companies cannot have is doubt, and now there is now doubt. Often times, this downward cycle is a self fulfilling prophecy for insurance companies.

I’ve spent a great deal of time thinking about how to talk about the issues and inform the community, without making it seem like a gratuitous I told you so. In the same respect, I told you so.