Welcome back to the Bull Pen.  My name is Dean Akey and I will be your guide thru another fun filled edition.  Are you ready?  Let's get started.

You might be surprised to know but quite often someone will come up to me and tell me, "I wish I sold insurance".  It is a wonderful experience to live the dream and help all sorts of folks along the way but it really isn't as glamorous as you may think....Fortunately the dress code for insurance agents changed a few years back which eliminated the requirement for insurance professionals to wear what we called a "Triple Cleveland".  For those of you unfamiliar with the Triple Cleveland it includes white shoes, a white belt and, you guessed it, a white tie.  Back in the day some mavericks experimented with different versions of a Double Cleveland with mixed results.  Well now that the dress code has relaxed I can spend less time focusing on appearance and more on protecting you.  I hope you don't mind me poking a bit of fun at myself and my fellow agents but I couldn't resist. 

Now that I have that out of my system, I do want to spend a few moments to actually share with you some insurance related information.  If you are like me and ride your motorcycle all year, I would like to share some alarming news with you.  There are many motorcycle insurance policies which suspend your coverage during winter months.  So what does this mean to you?  It means that even though you paid your insurance premiums and your policy term is annual, there are policies that suspend your coverage during December thru February.  This means that if you hop on your scooter on one of those beautiful winter days for a ride you are riding without insurance and any protection.  This is far more common than you may think and as a result of reading this article I hope that you check your policy to make sure that you and your family are riding protected. 

If you need help to determine if you are riding with protection or not, your policy declaration pages should tell you if your policy suspends coverage during winter months.  If you still need help, give me a call and I would be glad to lend a hand. 

If your insurance rates have increased over the past few years you may be wondering why.  You may be the perfect customer with no history of claims in the past and wonder why your rates have gone up.  It's a very common question so I put together the following for you. 

The largest component of your insurance premium goes toward paying claims.  All insurance companies measure their claims paying ability by a measurement tool called a "combined ratio".  What this tool measures is how much of a dollar that an insurance company takes in goes out the door to pay claims. 

What you may be surprised to know is that there is a direct correlation between claims and the economy.  How so?  The higher the unemployment, mortgage defaults, underemployment etc the more claims that insurance companies receive.  I am not implying that everyone that is having financial hardship is turning in bogus claims but the data directly supports my point.

Of course there are other components which go into the cost of insurance.  Recently I had a client who experienced a total loss of their home due to a fire.  It was amazing how much the cost of construction and materials have gone up in the past couple of years.  The cost of gas has impacted the cost of materials from lumber to shingles. 

Now let's go back to the discussion on combined ratios.  Many insurers have ratios in the low 90% level.  What that means is that at a 92% ratio, for every dollar that comes in, .92 goes back out the door to pay claims and provide the service.  In this example, the insurer is making an 8% profit.  Since all insurance companies run on the same or a similar type of measurement, when claims go up, rates go up.  The good news is also that when claims go down, rates go down. 

Now there are also other factors that impact insurance rates like natural disasters.  Most insurance companies segment their business by state or regions as individual companies which are subsidiaries of the umbrella entity.  Insurers typically structure their business this way so that should one state or region experience a catastrophic loss, other states do not end up subsidizing the loss.  In other words, when hurricane Ike hit the coast a few weeks ago, the individual regions where the devastation occurred will experience financial losses but the larger entity is still intact.  This protects both the risk and helps insurers demonstrate impacts or poor financial performance to the pointy heads on wall street.  I do want to point out that this segmentation in no way is created to allow any individual insurers to walk away from their claims commitments in states or regions that have experienced a natural disaster.  There are quite a few safeguards in place which prevent this from happening..

Why do insurers use this type of methodology?  The claims paying ability of the insurer must be sound at all times.  Look at the scare that AIG sent thru the market last month with the potential of a default.  Now, AIG's problems were more a result of their investments vs. a combined ratio issue.  My point here is that your insurance company must be sound financially. 

We will see brighter days in the future as our economy starts to turn the corner.  I know this is a fairly brief explanation of the rate issue but I did want to give you the inside scoop.   

When I am not sharing my wisdom with you via my Thunder Roads editorials or running the Rescue Rider program, I run an insurance agency west of Chicago.  I enjoy working with fellow bikers helping you protect what matters most.  If I can help you please drop me a note at deanakey@allstate.com or give me a call at 877-232-9899.  Until next month, enjoy the ride.