New Hampshire Markets Found Healthy Thanks to Competitive Forces

IIABNH Members Hear from Sen. Sununu, Sevigny and Agency and Insurer Execs

The value of better educated consumers, the need for pricing to stay ahead of claims inflation, the impact of Sarbanes-Oxley on insurer earnings reports and an admission that poor results are sometimes the fault of insurers and not regulators highlighted discussions at the recent meeting of the Independent Insurance Agents and Brokers of New Hampshire in Bedford, N.H.

The agents also heard an update on federal insurance legislation from their junior U.S. senator, who praised the state and agents for encouraging competition in the market.

Thomas Minkler, vice president at Clark-Mortenson, a Keene-based independent agency that is one of the state’s largest, said his 27 years in insurance afford him the opportunity to take a “macro” view of the industry.

“We have just experienced a harder market that many in the industry didn’t know; they only knew a soft market,” he noted. “So we are back to true underwriting and risk analysis and hope we have learned the lessons of the past.”

He said a major difference in today’s market is that in years past insurers withdrew from markets not to their liking, whereas today it is the insureds themselves who are withdrawing by making decisions about self-insurance, high deductibles, and what they want to pay for.

“They now understand loss control, even in smaller businesses. That’s good for the industry but it does put more pressure on us to deliver,” Minkler maintained.

Even in personal lines, he said, the industry has to do a lot more explaining than it used to about prices. “Customers are extremely educated and look to us for more advice,” Minkler said of agents.

In terms of prices, Minkler maintained that agents should be sensitive to insurers’ need for increases because “insolvencies harm agents’ relationships with their customers” but that at the same time, insurers “need to know what rate hikes do to agents also.”

Bill Thornton, president, Acadia Insurance Co., touted his company’s turnaround with its focus on adequate pricing and quality underwriting along with help from parent W.R. Berkley Corp. He said Acadia’s combined ratio has improved to the mid-80s while growth has been between 20 and 30 percent the past several years.

“Prices in the industry do seem to be moderating,” Thornton commented. “But we need to be sure we are staying ahead of claims inflation. We want to make sure we don’t fall behind again.” He said the cost of everything the industry pays for—including medical care, cars, homes, real estate—is going up and insurance rates for Acadia and the industry as a whole must keep pace.

Thornton reminded agents that under the federal Sarbanes-Oxley law, companies must be honest about what they report for earnings and reserves. Under-or-over-reporting could land some executives in jail.

He cited as concerns the industry’s failure to turn a profit and the demise of some large reinsurers, which he said the industry is paying for in rising guaranty fund costs.

But overall, Thornton was positive about opportunities for Acadia in its New England territory and for the industry as a whole. “We are an industry that can do things others can’t. We can take care of people and put lives back together. We’ve got so much opportunity,” he added.

Maine Employers Mutual Insurance Co. (MEMIC) “has as much at stake in New Hampshire as it does in Maine,” John Leonard, president and chief executive officer of the workers’ compensation carrier, told the Granite State audience.

Leonard said the decline in investment income has changed all the modeling in workers’ compensation and made combined ratios in the low 90s necessary. “Workers’ comp writers used to have combined ratios of 105, 110 but those days are gone,” he noted.

He expressed concern over the industry’s reliance on historical numbers in setting future workers’ compensation rates because “we now have runaway medical inflation that doesn’t get reflected in past numbers. We have to worry where medical inflation will take us in the future.”

In returning to the subject of rate adequacy in response to a question, MEMIC’s Leonard acknowledged that poor industry results are not always the fault of rate formulas or regulators. He cited the years of 1998 to 2000 as among the worst ever for workers’ compensation writers but added that the poor results “were not due to inadequate rates but due to discounting by carriers. We gave it away.”

Insurance Commissioner Roger Sevigny said he shares the frustrations expressed by proponents of some federal involvement in insurance regulation that the states are moving too slowly to streamline interstate licensing, market conduct and other areas. “If federal tools can help the states move things forward, it’s not a bad thing,” he said.

An interstate compact for the life insurance industry measure has passed the Senate in New Hampshire and is expected to make it through the House as well, according to the commissioner.

His own state deregulated commercial lines by implementing a file and use system this year but the rate filing response from the industry has been slow. “Nobody trusts what we are doing,” Sevigny said. “We moved quickly and companies almost don’t believe it yet.” He also urged insurers to take advantage of file and use in personal lines. The department has approved the industry’s dog owner exclusion for homeowners to help preserve the market.

In his review of property casualty markets, Sevigny said his analysts have detected some leveling of rates and heightened competition but, more importantly, “we also see some good underwriting.” He said there are some “pockets” of troubles, including markets for seacoast homes and small contractors.

U.S. Senator John Sununu (R-N.H.) told the independent agents that while prospects for asbestos reform are not bright, there is a good chance class action reform might emerge from this Congress. He also said that Rep. Mike Oxley’s “federal tools” for insurance regulation proposal could possibly make it through the House but it is unlikely to see Senate action this session.

“Frankly, I don’t see a lot happening leading up to the election,” the senator reported.