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LIBOR Scandal And Hard Markets

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 Hard Markets And LIBOR Scandal

I was reading a great article on the LIBOR scandal that will likely make Madoff and the Wall Street scandals seem small at best. One of the main concerns that I hear floating around in conferences and among clients is the soft vs. hard market for Workers Compensation.

Hard LIBOR Scandal market
Wikimedia Commons – Fletcher6

I do not want to just redo the article in the above link. One of the great quotes from the article is:

If LIBOR was manipulated, the results could be far-reaching. Since LIBOR is the benchmark for many other rates, an inaccurate LIBOR means millions of people all over the globe might have paid more or less interest than they should have. If rates were artificially low, borrowers for things like adjustable-rate mortgages and student loans would have benefited. But investors like cities, mutual funds, and pension plans may have earned less than they should have.

The extent and impact of LIBOR manipulations is still unknown. The effect on the average consumer is probably small, but as the professor in the video above opined, it could be measurable to people with large loans tied to LIBOR, like those with adjustable-rate mortgages.  

As you can see, the insurance markets will likely be heavily affected overall. There are insurance investments that were tied to the LIBOR. The overseas investments of the very large carriers and brokerage houses will be affected directly.

Safe LIBOR Scandal investments
Wikimedia Commons – Fructibus

In my opinion, the adjustments and corrections to the LIBOR will be felt worldwide. The major overseas index was manipulated so that banks/investment companies such as Barclays could make even more money.  

If you notice from the above passage that any large organizations that would have benefited from higher rates received an artificially lower rate of return. The other side of the coin is to say that markets will stay soft now that the correction of the LIBOR is in place.

The overseas investments markets are now very volatile. The volatility of investment markets will make the market more susceptible to a market hardening. Insurance carriers need to have a stable market to properly set rates. One of the major considerations for setting rates is ROI (return on investment). If the markets are not stable, the carriers must look to their policyholders as being the stable element in their portfolio.  

Bottom Line – I am not inferring a hard market is coming soon. Carriers may look to underwrite the safer companies, and with the changing of the E-Mod formula, a hard market acceleration could occur very rapidly. The best advice is to be prepared at renewal.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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