One underwriter asks another “How do we know we are doing much better this year than last year?
The second underwriter replies “What was this year is last year plus or minus this year’s change.”
The first underwriter replies “If change is the only constant why do we need to measure it? You don’t know if something is better if you didn’t know how to measure what it was before.”
Three underwriters on the way to a conference decided to stop along the way and get a hotel room. It was late at night, but they saw in the distance ahead a hotel with a neon light that said “Vacancy.”
The three underwriters asked to rent three rooms, but was told only one was available. “How much is it?” asked the lead underwriter. “It’s $30” replied the clerk. So each underwriter forked over $10, received the key and went to their room to retire for the night.
But the clerk soon realized that he overcharged the three. Instead of $30, the actual room rate was $25. So he gave his assistant $5 and said “I’ve overcharged for room 34 – return this refund please.”
On the way to room 34 the assistant thought “I will give each of the three men $1 as a refund, and keep the remaining $2 as my tip!”
The men were delighted to receive their refund of $1 each. So each originally spent $10, but received $1 back for a net cost of $9 each. That means the three in total spend $27 for the room. And of course the bell hop kept $2 as his “tip”. But where is the missing dollar?
This is much like a TPA showing a renewal increase of 4% when it is really much more than that. Here is how that works:
Fixed from $250,000 to $250,000 (no change), stop loss from $250,000 to $312,500 (+25%), agg attachment from $1 million to $1 million (no change) = 4% “rate increase”
Fuzzy math? A 25% increase in stop loss premium at a 4% “renewal” seems reasonable, doesn’t it? “Sir, you should be happy your getting only a 4% overall rate increase this year. Never mind my 25% increase in stop loss commissions for an additional $9,375 . To renew, just sign here………… (15% of $312,500 – 15% of $250,000 = $9,375 “commission bonus.”
