It has been some time since I have spoken on COVID-19 and how it has affected our insureds and Pennsylvania Lumbermens Mutual.
Let me start by suggesting that our clients are reporting truly mixed results. Some of our customers have closed their operations, while others are experiencing booming business. We estimate that more than 80 percent of our clients were deemed as essential businesses and continued to operate in some fashion throughout this difficult time. Depending upon the type of operations – hardware stores, building material dealers, light wood manufacturing, pallet manufacturing, heavy wood manufacturing, or sawmills – their business sales have either dropped, flattened or grown. Early on, we felt that about a third of our customers fell into each bucket. Over time, based on conversations with many of our insureds, we are pleased to report that it seems a smaller percentage of insureds are dealing with a drop in sales, than those that are flat or growing. Our goal as a company is to help all our insureds through this difficult period as seamlessly as possible.
Our business’s cash flow, like many of yours, has been negatively impacted, but we think we have weathered the worst in this area. We have noticed over the last 30 days significant improvement in cash flow. While many states have implemented regulations requiring insurance companies to hold in abeyance any cancellations for non-payment of premium, we have done our best to not only comply with these requirements, but also to try to demonstrate good business judgement as these regulations have started to lift. Many insureds have responded and worked with us in this area. Our goal is to continue to use good business judgement as we work with our policyholders to collect the roughly $9 million of premium that is 30 days past due to PLM because of these regulations. Our customer service staff, led ably by Traci Barber (firstname.lastname@example.org, 317-875-3790), would be happy to take your calls regarding premium payment difficulties. We encourage you to reach out sooner rather than later, for us to work together and try to head off a problem before it becomes a catastrophe.
On the subject of claims, we saw fewer new claims reported in late March and April than normal, but the drop was not as significant as we expected. Further, we saw a surge in claims activity in May. This was probably because very few of our insureds had to completely shut down, remove vehicles from their auto policy, or reduce their sales exposures on their policies as their business did not perform as poorly as they initially expected (or we expected). Again, this is an uneven observation, and not meant to diminish the pain that many PLM insureds have endured during this difficult time.
While the roads were less congested, it seems that some drivers have begun to regard it like the Wild West, ignoring speed limits and more. Thus, while we were seeing an estimated 10 percent fewer new claims in late March and April, the severity associated with these claims has been up.
In terms of business interruption claims, we’ve seen a very limited number. However, these claims are currently working their way through the claims process. Early on we suggested that we did not believe COVID 19 was going to “trigger” coverage for these claims, and we still feel that way. Nevertheless, we have retained coverage counsel to review this entire matter to gain an independent second opinion. While the intent of this communication is not to alter coverage in any way, we continue to feel the way we did when I first spoke on this topic in late March or early April. We do believe that we will see at some point in time some claims activity in the general liability arena, although we are uncertain as to how that will play out. While we do not write workers’ compensation directly, we would expect that there will be quite a bit of claim activity in the workers’ compensation arena.
Our premium volume remains “on plan,” and we continue to write new business at a good pace while enjoying positive renewal retention. Our ability to retain an account at expiration jumped in the fourth quarter of 2019 and has since remained very high. More than 90 percent of our insureds have renewed their coverage with PLM over the last three quarters. We think this continues to speak to the value of a PLM relationship.
While we have not achieved underwriting profit through the first five months of the year, we have improved our underwriting results on a year-over-year basis, and reported a slight operating profit (underwriting loss plus investment income) in May.
The chaos in the investment marketplace has taken its toll on our policyholder surplus as we saw a dramatic drop in surplus in our first quarter. On the positive side, in April, we saw our surplus surge back, and move further upward in May.
Like many of you, we have reworked our budgets this year. We have not changed our goals from a top line volume or profitability viewpoint at this time. However, we have reduced our expense budgets, have frozen staffing, and have delayed salary actions as we navigate our way through the COVID-19 pandemic. Our team has been wonderful in overcoming the challenges that COVID-19 has presented and we are proud of the actions and effort they have taken and extended.
Our staff has been working diligently to ensure our claims, renewals, endorsements, new business, and other policy documentation services are running smoothly and are being handled effectively, despite our entire team working remotely. If you feel otherwise, please let me know!
A couple of weeks ago, our loss control and business development representatives began to venture back out into the field. Interestingly, being office bound for so long, they had time to work on developing a number of new risk management and loss control tools including a self-service risk management product for our smaller insureds and a virtual tool for some of our larger accounts. While we will never move away from face-to-face interaction, we believe these tools will improve our ability to assist our insureds when combined with an enhanced “loss control toolbox” in managing their businesses more effectively from a risk management viewpoint.
We have always been very supportive of various wood associations, and have spent quite a bit of time at trade shows to meet with customers, brokers, and potential customers. To date, 61 shows have been outright cancelled with 29 more being postponed. To be honest, we miss you. We have been picking up the phone more trying to reach out to many of our wonderful insureds, who are really like members of the PLM family, but it has been difficult to make up for the face-to-face interactions that we enjoy at the various trade shows. Rest assured, when your associations begin to reschedule events in person, we will do our best to be there!
I would be remiss if I did not close this communication with a comment or two about the protests and civil unrest that are ongoing in our country today. America was founded on the concept of protest, and we believe free speech is guaranteed to all Americans.
We recently had a request to support one of our insureds with added security to their premises. After a conversation with the insured it became clear to us that it was their intention to add armed security. In our minds, property can be replaced and that is what we are in business to do; lives cannot, and we consequently denied the request.
We at PLM work diligently within our communities as an organization to advance diversity and inclusion initiatives and to advocate for those who are underserved and underrepresented in our business and industry. Suffice to say, we believe our actions have spoken and will continue to speak louder than any words. We will continue to take the steps necessary to diversify our organization because it is the right thing to do from both a business and societal viewpoint. Making a business decision based on nationality, religion, the color of one’s skin or gender is unacceptable, and from my experience, is also bad for business. As an organization, we are guided by this belief and I believe it is deeply embedded in our culture.
When it comes to coverage, riot and civil commotion is in our property policy (subject to policy language). If you suffer a loss, we will respond accordingly.
I invite your thoughts, comments, and questions.