Risk, Reward and Reflection
The property/casualty business has never been easy. As history shows, the underwriting community has been successful in creating and delivering insurance products that give consumers and business owners peace of mind. Over time, the level of underwriting sophistication grew exponentially in direct response to an increasingly complex and equally unpredictable world.
Survival in our business is never a guarantee. Year by year and month by month, underwriters navigate through a spectrum of hazards that range from inclement weather to market cycles that test the durability of even the most seasoned underwriters. Our collective sense of hope and optimism seems almost palpable as we prepare for the next season. We are also searching for any sign that our economy is stabilizing and just maybe we can see stronger consumer confidence with indicators pointing to a faster recovery.
Over the past nine months, upheavals in our financial markets brought into focus a number of emerging risks associated with credit and the stock market. As in every crisis, underwriters by their very nature seek out the valuable lessons to be gleaned. More importantly, there is an effort to avoid repeating any of the hard and expensive lessons going forward. Are we now ready to move beyond the disbelief stage to engage in the kind of thoughtful reflection as to address the obvious — that we have become a society financially over extended and one that resides too close to the coast?
Consumer and business interests have actually raised legitimate concerns about the financial services industry. There has been a serious breach of trust and a loss of confidence in a few segments not involving the highly regulated P/C industry. From the view of the shareholder, the sheer magnitude of money lost will limit options for many businesses in the short term.
What is unfortunate is that a well-deserved backlash focused on the financial services industry in general, may have the potential to wash over into the P/C industry. It is highly possible that the average consumer is unaware that the P/C industry is the most highly regulated of all the members comprising the financial services sector. Although the P/C market has also been wounded by current economic conditions, this segment remains strong in comparison to banks and life insurance companies. Despite this fact, we do have to come to terms that our new operating environment will have an additional layer of regulation, federal oversight, which may or may not create value in the long term.
Over the years, having tracked the work of notable social trend researchers such as Madelyn Hochstein and Daniel Yankelovich, principals at DYG Inc, I’ve concluded that the P/C industry needs to take a closer look at the growing entitlement mentality infecting the American psyche. Why is there a belief that consumption should be without limit? How will this play out in a new age of limits when we can no longer afford to subsidize or insure society’s expensive choices? Is there a possibility that the federal government may be hard pressed to bail out Louisiana should another category 5 hurricane challenge that coast? So why is it that the homeowner who lives in a known flood zone or on the Gulf Coast expects and demands affordable property insurance? Is it possible that society no longer wants to understand the cost of its choices? If this is in fact the case, no government bailout or management of systemic risk will make a difference as we move to an economic collision that will impact our industry’s surplus.
I happen to believe that we have both a professional and ethical obligation to educate and inform the public of the emerging risks, especially those risks caused by societal values and attitudes posing a threat to them and the overall economy. If 60 percent of the population is residing in coastal areas, why is it that the alarms are not blaring that climate change (for whatever reason) is becoming an increasing threat? Why are states relying upon quasi-government insurance companies such as state wind pools in Texas, Florida and North Carolina that would not meet the test for solvency?
Clearly, there are no simple answers to these questions. However, if there is any lesson to be gained from the current economic storm, it is that we all need to take a closer look at these social trends. We have an opportunity to re-commit ourselves to educating the public on good public policy, not from the profit vantage point, but from what ultimately serves the common good.