Volume 46, Issue 9 - October 2011

theBusiness

Maybe This is The Problem
by Lyle R. Hill


I own a small home in the western suburbs of Chicago that I rent out to a very lovely couple that I have known for some time. Itís a comfortable, cozy place in a quiet little neighborhood and while I drive by it every so often just to make sure itís still there, I havenít been inside the place in years. The tenants maintain it as if it was theirs and I have no reason to persuade them to look at it differently. I have the property insured by the same company that insures my home and one of my cars. All my policies have been purchased through the same local agency for almost 30 years. I have never had a claim Ö neither home nor auto Ö during this period. I would think that I am an insurance agentís dream. I met my agent once, many years ago, but all my dealings since have been with others who work for him.


Two weeks ago I received my policy renewal notice for the rental property. The premium amount looked high to me so I pulled out the renewal notice from last year to see how much it had changed. Then I pulled out the notices from the preceding four years to see what the trend had been. Not surprisingly, the premium had gone up every year and the average increase over the 5-year period was not quite 5 percent.

The housing market in greater Chicagoland has been a disaster for the past couple of years. With only a few exceptions, home values have declined in most communities in and around the city. The home values in the area where my little rental property sits have declined too, although not as badly as in other places. So I called my agentís office and complained. The polite women on the other end of the line listened to my grousing and promised to see if something could be done on my behalf. As soon as I hung up from her, I started to shop around a bit to see if it was time for a change.

To my surprise, I found out that the rates for my insurance coverage were competitive. Yes, I could have gotten a little better pricing, but I am with a highly respected firm and the savings would have been insignificant in the scheme of things. So, when the agency called back and offered a modest discount, I thanked them and quickly mailed in my payment.

It is my impression that the insurance industry is well managed, understands the marketplace and has historically been profitable in spite of economic ups and downs and occasional natural disasters that no doubt cost them a great deal of money. If necessary, they will drop certain lines of business or raise prices as needed to assure their financial viability. They seem to know what they are doing and react in professional, logical ways and, while I might not always like their prices, I respect them as an industry.

While looking for some old documents recently, I stumbled across some price schedules for various glass products that dated as far back as 1970 Ö thatís right, 41 years ago! Portions of these schedules are shown above. The chart on the top is from 1970 and the bottom one is from 1984. So if we were buying a 32Ē x 78Ē (a common commercial doorlite size) piece of ¼Ē clear tempered in 1970 it would have cost us $27.38. Fourteen years later in 1984 it would have been $27.73 (a whopping 35 cents more). This represents a 1.2-percent price increase over a 14-year period of time. But here is the scary part: there are places in the country today where you can buy it for what it was going for in 1984 and, if you buy more than a few at a time, you can get it at the 1970 price. And this is just one of many similar examples.

For sure, there have been technological developments, foreign competition and manufacturing efficiency gains during the past 40 years. But there have also been labor, fuel, insurance, tax and energy cost increases. And it just does not seem possible or realistic that after 40 years prices would not have risen by some reasonable and justifiable amount. I personally think this is an industry-wide problem and not just for the tempered glass suppliers either. Perhaps, as has been suggested before, the glass industryís biggest problem is Ö the glass industry itself!

Lyle R. Hill is the managing director of Keytech North America, a company providing research and technical services for the glass and metal industry. Hill has more than 40 years experience in the glass and metal industry and can be reached at lhill@glass.com. You can read his blog on Wednesdays at www.usgnn.com.


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