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Commercial and Personal Insurance Market ForecastGet Ready to Adjust Your Budgets - The Industrygot Hit Hard This YearBy: James E. Krist, MBA, CICPresident & CEO Krist Insurance Services

For three years we have been projecting property and casualty rates to increase, and we are seeing all the signs of a hardening (not hard) market approaching. We have just finalized our fourth quarter planning with all of our carriers and have received feedback from their results this year (bad weather related losses); including investment income (as in none). The results is that capital levels have been impacted, some of the industries’ capacity has shrunk; and reinsurance prices are increasing based upon feed back from several insurance company Presidents.

Why the Adjustments?Weather patterns have been changing ahead of the weather actuaries. As a result of the worst natural disaster year we have ever had (see box charts) insurers lost a ton of money.

This combined with little investment income that is used to offset direct losses, the results is a need to adjust rates to compensate.

Natural Disasters in the United States, 1980 – 2011*Number of Events(Annual Totals 1980 – 2010 and First Half 2011)

n 2011 Is Already (as of June 30) the Highest Loss Year on Record Globally

s Extraordinary accumulation of severe natural catastrophe: Earthquakes, tsunami, floods and tornadoes are the primary causes of loss

n $260 Billion in Economic Losses Globallys New record for the first six months, exceeding the previous record of $220B in 2005s Economy is more resilient than most pundits presume

n $55 Billion in Insured Losses Globallys More than double the first half 2010 amounts Over 4 times the 10-year average

n $27 Billion in Economic Losses in the USs Represents a 129% increase over the $11.8 billion amount through the first half of 2010

n $17.3 Billion in Insured Losses in the US Arising from 100 CAT Events

s Represents a 162% increase over the $6.6 billion amount through the first half of 2010

Red: Geophysical events (earthquakes, tsunami, volcanoes); Green: Meteorological events (storms); Blue: Hydrological events (floods mass movements); Mustard: Climatological events (extreme temperature, drought and forest fires)

Most Least expensive Average expensive Average Rank states expenditure Rank states expenditure

1 D.C. $1,126 1 North Dakota $503

2 Louisiana 1,105 2 Iowa 519

3 New Jersey 1,081 3 South Dakota 520

4 Florida 1,055 4 Nebraska 547

5 New York 1,044 5 Idaho 562

6 Delaware 1,007 6 Kansas 576

7 Rhode Island 986 7 Wisconsin 581

8 Nevada 970 8 North Carolina 595

9 Connecticut 950 9 Maine 600

10 Maryland 922 10 Indiana 612

Personal Lines - Auto Still Bright Spot for IowaAs you can see from the chart below, Iowa still enjoys very low auto rates compared to other states; but there is pressure on Homeowners from hail, wind, thunderstorms, and ice dam. Expect some pricing changes in personal lines.

Personal Lines Auto Insurance – Unintended OutcomesOne unintended outcome from the recessional and online auto insurance shopping, (the “price gun” mentality) is that we have found many insureds are not carrying the appropriate amount of insurance with Iowa’s Minimum limits at $15,000 in property damage. How may cars cost that little amount these days? What if you are liable for a lane change that totaled a Mercedes; and $20,000 per person for Bodily Injury - this does not take much to eat up this limit in an emergency room.

What about your passengers? Have you made sure your uninsured and under insured motorist is up to speed and under your Personal Umbrella? That way you may actually have enough to cover the passengers when you are hit by an insured, whose limits were chosen buy a price gun and not a trained agent who recommend coverage to protect your assets.

Homeowners Insurance TipsWith pressure building on premiums, based upon losses in the state, maintaining a loss free record is paramount. Things to keep on eye on:1) Water intrusion from any source: Make sure you maintain good

seals on all window and doors and basement.

2) Ice dam: Watch the build up of snow and ice on your roof top, and knock it off before it accumulates too much and freezes underneath, causing water to back up under your shingles.

3) Weight of ice and snow: We can only assume that we will continue to have winters with unusual snow fall amounts. We have seen more collapse claims that may have been avoided by keeping an eye on accumulated areas as mentioned in #2 above.

4) Candles and candle fires: A long standing no - no from an insurance standpoint, I can personally tell you that our largest losses ever have come from controllable fire sources - candles. Please be careful as these are very popular at holiday time.

Workers Compensation - Under Extreme Pricing Pressure

2010 Iowa Comp Experience by CarrierLargest writer of Workers Compensation (WC) in Iowa: 133%

loss direct combined ratioTop 5 WC writers in Iowa - average direct combined loss

ratio: 120%Top 10 WC writers in Iowa - average direct combined loss

ratio: 122.5%

Work Comp Premiums EffectedAs you can see in the Average Changes by Industry Group chart, Workers Compensation is under pricing pressure. As you can see, the 4.5% rate increase approved for January 1, 2012 in Iowa is not enough to pick up actual losses of the largest writers. Expect some loss of discounts and dividends going forward. This year we see the beginning of some significant material changes in how workers compensation is being not only priced, but in the actual construction of how it is calculated. Krist Insurance Services President & CEO, James E. Krist chairs the Independent Insurance Agents of Iowa Technical Affairs Committee, and has been involved with examining these proposals filings and is involved with hearings at the Iowa Insurance Division and vetting of these proposals.

Modification Factor -“X – Mod”- A BIG DEALAs you may know, when your Workers Compensation premiums exceeds about $3,800 for three years, the employer earns an experience modification factor; a way of saying that you premiums will go up or down by this factor. It is a three year moving average around a standard deviation of expected losses. It takes three years to go up and three years to go down.

We routinely recommend that we look at medical only deductible to eliminate the small frequent loss to save substantial premium over time by correctly insuring small losses. Expected changes include:• Modchangingonmedicalonlydeductibles:Therehasbeen

a proposal made and accepted by the Insurance division to basically change in how the mod is calculated with medical only deductibles - effectively driving up rates 1-2% over 3 years.

• SplitPoint:Oneoftheinternalintricaciesofthemodcalculationis that it only takes into account the first $5,000 of any claim. The balance of the claim is counted as excess, as a percentage of the balance of the claim. It has been filed, and hearings held this month to examine, that this split point increase to $10,000, $13,500 and $15,000 over the next 3 years, and then tied to a national index. This will have a big effect – looks like a good mods will get better; and a bad mods will get worse and minimum premiums will go down with the actuarial curve looking like it will have more increase then decreases in premium dollar count. It is possible that the assigned risk pool will be a very popular place.

• Rates:The2011ratefilinghasbeenmadeandapproved-we are getting about a 4.5% increase across all codes - see Average Changes by Industry Group chart.

Krist Insurance Workers Compensation SolutionsKrist Insurance Services thinks that we have been proposing the same solutions over time to mitigate increases. Avoidance of claims is best which is best done via Loss Control and Risk Management. We have plans available can make an effect NOW, techniques for you to consider which will reduce claims now before these change take effect. You will be very well positioned as an

employer to avoid Workers Compensation claims as the economy ramps back up by training and ongoing top of mind awareness for your employees of work place safety and how to avoid claims.

Mod MasterFor our clients that have a mod, we have been incorporating into our service plans the use of a software program that depicts this well. This tool enables us to help you see the impact of each claims and the minimum, mod you can expect, and a comparison to it.

We will then develop a strategy with your company and its experience to mitigate claims in line with the carriers program and ours.

Indemnity Agreements Change/CertificatesOn April 7 2011, Iowa Governor Terry E. Branstad signed SF 396 that prohibits indemnification provisions in construction contracts with a July 1, 2011 effective date.

Indemnity agreements will still be allowed in Iowa, but such agreements will be more limited based upon fairness and public policy grounds. In short, SF 396 requires a negligent party to be responsible for its own actions and this responsibility cannot be passed on to others.

July 1, 2011 Iowa changed its legislation to reflect that you cannot in essence make someone else responsible for your negligence

Krist Insurance Group of Iowa, LLC6600 Westown Parkway, Suite 250West Des Moines, IA 50266

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Free Life InsuranceYou can now get your life insurance for free. With new Return of Premium (ROP) products you get all of your premiums returned to you if you outlive the term of your policy.

Example: You purchase a 10 year term policy with an annual premium of $1,000. If you live longer than the 10year term of the policy, you would get a check for $10,000.

Price War Still RagingLife insurance carriers are still having a price war. Rates have been dropping now for the last several years. People keep living longer and the cost of life insurance premiums keep falling.

Using KristInsurance@ KristInsurance.com For Service RequestsRemember, using Kristinsurance@kristinsurance.com for all your service requests gets it in queue even quicker for a response.Try it! We want to be the best at customer service!

which changes many contracts. If you are in construction, have you changed yours or examined them to make sure you are not in breach?

Please obtain your own legal advice on this issue as we are not lawyers and this is a legal situation. Do examine the contracts you use and see if changes need to be made and or updated. Krist Insurance sees that more owners will need appropriate insurance to cover their property and liability exposure as they cannot make the general and or subcontractors do it any longer.

Cyber Liability - Zip codesZip codes are now considered personal information. If your business does not store credit card information but stores zip codes, you could be liable for a breach that only involves zip codes. Zip codes are now federally protected information and can generate the required federal notifications, including buying all of your customers who you hold data for, credit reports from each of the three bureaus. This is could be very costly to a business, and is in addition to any third party penalties you may have incurred as a result of the hack. This is generating significant interest in Cyber Liability insurance. Krist Insurance has many carrier solutions,

but more importantly is prepared to provide you important risk management advice on this subject.

Cyber Liability is a fairly inexpensive insurance solution to the growing cyber market, and we have been seeing a substantive number of customers examining this coverage and picking it up as part of their risk transfer package. It is a huge growing area of crime, and you may want to consider separate coverage. There are many forms in the market that may not do what you want. It is not uncommon for us to have more than one cyber insurance policy for any one client based upon their exposures.