The Bull Pen: September 2008

You know, we probably have more in common than you think.  Realtors, lenders and insurance agents for the most part are self employed and enjoy a certain freedom that is not available in most professions.  You can set your own schedule, work as hard as you desire and pretty much decide how you live your life.

So why did you choose your career?

We all have our own reasons so let me share mine with you.

For close to twenty years I worked in the energy industry.  I had a wonderful career and all of the perks that go with being highly placed in several companies.  After years of successes and failures I realized that even though I had been commercially successful, I didn't feel like I was accomplishing anywhere near my potential.  It seems like the more money I made, the less I was doing to be a citizen of humanity.

After years of soul searching, I walked away.  Yep, I left a wonderful career to follow my heart.  Now, if you read my bio you may be thinking "whatever".   This guy left a great career to start an insurance agency?  What a load of crapola. 

My reason for starting my own business was a decision to ultimately position myself in a lifestyle where a significant portion of my life would be dedicated to philanthropy and helping people.  Quite honestly, these endeavors have enriched me spiritually but there has been quite a negative impact on my economic position. 

There are days when I look back at my decision and the struggles of building a business in a soft economy and start to question did I do the right thing.  When I start to feel blue I have a file in my office of letters and articles of the impact I have had on the lives of those people I have helped along the way. 

Those letters, articles and such may not put $1 in my bank account or helped me through these difficult economic times but to me they are priceless.  I hope that you take advantage of the freedom that your career has given you and choose to invest some of your energy into serving mankind. 

We all define success in our own terms and to date I do feel that I have been successful and will continue my journey to serve those who need a hand.  Will you join me?

As I say to my fellow bikers which also works in this context, "enjoy the ride"

That's all I have to say about that.

Lets talk about your auto insurance.  If you have a recently licensed teen driver or have one that is will be licensed in the future I hope you read on.  Adding a teen driver can be quite stressful.  Let me walk you thru the process of what you need to do to be prepared. 

To start, once your teen receives his/her driving permit he or she is automatically covered on your auto policy.  You can inform your insurance company of this event but you actually dont add your teen to your policy until they receive their drivers license.  During the permit phase, your teen has the same coverage you have on your policy as long as he/she is driving with you.  Your teen is not allowed to drive solo so should they decide to take the family car for a joy ride your policy will not cover you.

Now, during the permit phase I suggest you have a serious conversation with your child.  Just because the state allows a 16 year old to get a license doesn't mean they are ready for the responsibility.  In Illinois, a teen cannot get their initial license without a parent or legal guardian present.  We all know that most teens really want to drive so now you have some leverage you can use to your advantage.  Personally, I recommend that unless your teen can produce grades of a B average or better you should delay in letting them get their license.  Why a B or better?  Because all major insurance companies offer good student discounts which typically are about a 15% savings on the teen's portion of your premium. 

Adding a teen does increase your cost so having your child have some skin in the game in terms of demonstrating responsibility and reducing your auto premium is a good thing.  In addition, there are programs which will further reduce your teens insurance premium.  We subscribe to a program called TeenSmart as do many other insurance companies.  This program will further reduce your teens portion of your auto insurance another 15%. You can learn more about TeenSmart at the following link http://www.adeptdriver.com/.  

You may be surprised to know but over 60% of teens get into an accident in their first year of driving.  The odds are not good for teen drivers so working together and utilizing programs like TeenSmart will not only save you money but more importantly reduce the odds that your son/daughter will be involved in an accident. 

In 2008, Illinois introduced new laws which restrict how newly licensed drivers can drive.  You will want to pay close attention to these new laws as should your teen break any of these laws, their license will be suspended and your auto rates will skyrocket.  To help parents understand these changes I created the driving log at the end of this blog.  I suggest each new driver fill out the log prior to driving to reinforce good driving habits.  Did you know that if your teen is caught talking on a cell phone while driving its an automatic 90 day license suspension?  I suggest that all teens turn off the phone prior to driving and use the log to reinforce this behavior.  There are other things teens may do that will lead to a license suspension so it's a good idea to understand these laws and the impact they have on your teen and you. 

So what is the best thing you can do to help mitigate the increased cost on your auto insurance when adding a teen?  First make sure your teen has good grades (B) prior to getting a license.  Second, have your teen complete a safe driving course like TeenSmart which will further reduce your auto insurance and reduce the probability he/she will get into an accident.

Third..... Buy your auto insurance from me..... When I sell auto insurance to families with teen drivers I make sure you are on a plan that has a feature called "accident forgiveness".  It costs a little more up front but can save you big dollars down the road.  My policy will allow your family to have three at fault accidents a year and not see a rate increase due to the accidents.  Without this feature you can expect a jump near 40% if your teen has an accident for all of the autos you insure.... 

Teen drivers are the highest risk group that we have as insurers so with a little planning and work with your teen you can make the transition to safely add your teen and prepare for the future.   That's all I have to say about that... 

It's been a rough ride for the past few years with the soft real estate market, record foreclosures and more stringent lending requirements.  Lets face it.... It has been crappy.  You really cant have peaks without valleys..  It will take a considerable effort in Washington and several years for our economy to turn the corner.  There is hope for the greater Chicagoland area that may be a significant boost to our economy and greatly improve our real estate and lending market on the horizon.... What hope?  The 2016 Summer Olympics.  While it's not a done deal yet, there is hope. 

The location of the 2016 Summer Olympics has not yet been decided. The remaining shortlisted host cities are Rio de Janeiro (Brazil), Chicago (USA), Madrid (Spain) and Tokyo (Japan). Other cities that bid but were eliminated on June 5 2008 include Baku, Doha and Prague. The final decision will be made on 2 October 2009.

There are rumors that currently Chicago is the front-runner, followed by Rio de Janeiro, Tokyo, and Madrid.

What impact will we see if we are awarded the 2016 Summer Olympics?  Well, in a past life I used to work in Economic Development and still have many friends in the Illinois Department of Commerce & Community Affairs.  The pointy heads estimate that should we win the 2016 Summer Olympics, the greater Chicagoland area will see a net import of 4000 to 6000 workers.  In addition, there would be several hundred million dollars invested in our economy so I hope you see the massive impact we could see in less than two years time.  Construction would begin in the spring of 2010 so if successful, our economy would improve far quicker than other areas.

Personally, I am not a big fan of many of the things that are considered olympic sports but should we be successful with our bid, I may even have to watch olympic badmitton and applaud the impact it has had on our economy.  Keep your fingers crossed...

That's all I have to say about that....

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 their 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 lets 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 this week 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.   So I guess that's all I have to say about it.  I hope you enjoy. 

Do you remember the old sesame street song "One of these is not like the other"?  I think that song directly applies to your home value and your assessed property taxes these days.  Every day we work with new and existing clients and one of the items we review is their property taxes. 

In most cases we see increases each year in your assessed value and property tax.  Doesn't this seem counter intuitive?  We have experienced three solid years of declining property values and yet your property taxes are going up? 

The good news is that with you do have options.  I have spoken to many area tax assessors and appealing your property tax assessment is not as daunting as you may think.  In Illinois more than 50% of people who appeal have been successful.  Typically you need not go thru the official appeal process at all. 

So what do you do if you think your taxes are too high?  Start by researching your market.  In order to be successful in appealing your property tax you need to prove that either your assessment is wrong in terms of what they are assessing your home for.  Examples of errors that can be corrected is if they have assessed your home as 3400 sq ft and it's only 2800 st ft.  These errors are far less common.

Where you will most likely be more successful in demonstrating that your home is worth less than the assessed value based upon market conditions.  In order to be successful you need to demonstrate that other homes in your market have sold for less than assessed values.  This works when you are able to demonstrate market observed conditions (sales) of area homes which are comparable to your home.  You wont be successful unless you are able to find comparable homes to use as a baseline.

Lets me create an example for you.  Lets assume your home was built in 2000, is 3000 sq ft, 4 bedrooms, 2 bath, 3 car garage 2 story, average construction.  Now lets say your home is assessed at $450,000.  If you are able to provide your assessor with sale records of other homes that are comparable in your market that sold for $350,000 you have a reasonable argument.  If the homes that have sold are a little larger, smaller, newer or older, you can factor that into your case and are still allowed to submit this information. 

One important note is that the homes you use to illustrate your case must have sold.  Your assessor typically wont consider listed homes that may be identical to yours in every way as supporting information until they have sold.  Its not that difficult to take on the "man" in this case and win.  Speaking of the "man", the Kane County Board of Review will teach you if and how you can contest your property taxes.  The exerpt below is from the BOR and they will be offering you free classes to learn the process and help you understand if you have a reasonable case to move forward. 

It's been three brutal years in the real estate market so if this can help you improve your cashflow good luck.

Kane County Board of Review Offers Property Tax Clinics

The Kane County Board of Review will offer eight Property Tax Clinics for Kane County taxpayers this fall. The clinics will:

· Help taxpayers understand how property taxes work, including an explanation of recent changes in the law.

· Dispel myths about taxes and assessments.

· Explain the appeal process, and provide the necessary forms and rules for filing appeals.

· Provide an opportunity for taxpayers to make sure they have all homestead exemptions to which they are entitled.

The clinics will also include information from the Kane County Board's Help for Homeowners initiative.
The clinics will be held on the following dates:

· Tuesday, October 7

· Tuesday, October 21

· Wednesday, November 5

· Tuesday, November 18

· Tuesday, December 2

· Tuesday, December 16

All clinics will begin at 6:00 p.m. and will be held in the Auditorium of Building A of the Kane County Government Center, 719 South Batavia Avenue in Geneva, Illinois.

The clinic is not a forum to discuss any specific individual assessment; these questions are best directed to the Assessor of the Township in which the property is located.

Both taxpayers and practitioners (attorneys, appraisers, brokers, etc.) are welcome to attend. For more information, call the Board of Review office at (630) 208-3818

Ok, lets get this train a-rollin.  I think you will discover from me that I have a quite different approach to the insurance business.  Let's face it, most people would rather go to the dentist vs. spending time with their insurance agent.  The thought "what is he/she going to try to sell me now" is a common theme. 

It's a daily occurrence to meet new folks looking for a deal on their insurance only to discover that they really dont know what they are buying.  I never blame the customer for this phenomena... It's the insurance agents that they have dealt with in the past who didnt invest the time to go over exactly what you buy.  Many of my peers may feel it too complicated to explain but nothing could be further from the truth.  Insurance is really quite straightforward.

In future posts I will take some of the mystery out of what insurance is and is not.  I do like to share anyone who will listen what I consider a fundamental element of your insurance.  Your relationship with your insurer should be one where you look to your insurance company to protect the risks that you are uncomfortable holding yourself.  These risks include things like repairing or replacing your home from damage, protecting your liability should you be sued, repairing or replacing your auto should you have an accident and so on....

There are no substitutes to having adequate liability & property protection.  These are items which you should not cut any corners on.  Where many people stray is by asking their insurer to protect risks that quite simply are better held by the consumer.  When you ask your insurance company to provide protection for small risks you quite simply are separating yourself from your money. 

Lets take car rental coverage for example.  Most people judge their auto insurance policy by its price.  It's very common to see potential clients that have lower than suggested liability limits to save a few dollars but carry car rental coverage.  The average person has an accident every 7 to 10 years.  If you look at the cost of providing car rental coverage on your policy you will quickly discover that the cost exceeds what you will recover over time 9 out of 10 times. 

Once again, we are talking about managing the risks that you are uncomfortable holding yourself.  If you need to rent a car for a week because yours is in the shop as the result of an accident that was your fault that may be a bummer but you wont loose your estate over it.   If you carry a lower liability limit in order to afford your car rental coverage and ever are sued, now you have some risk that can wipe you out.. 

There are many other items I would like to share with you but let me stop here and you let me know if you would like to hear more.