IBA West Blue Ribbon Conference Focuses on Workers’ Comp

Approximately 300 independent agents, brokers and senior level insurance company executives attended the IBA West 18th annual Blue Ribbon Conference, held May 2-6, 2004 at the Mauna Lani Resort located on the Kohala coast of the big island of Hawaii. The conference attracted the largest number of participants in recent history.

“The proof of success was in the attendance, which was up 25 percent from last year,” said IBA West President Andrew Valdivia.

The four-day event was kicked off by the governor of Hawaii, Linda Lingle, and featured several presentations, many of them concerning workers’ compensation.

“The focus of the event was workers’ compensation but all the presentations were thought-provoking and topical,” Valdivia said.

Thomas Motamed, vice chairman and COO of the Chubb Group of Insurance Companies gave the keynote address, starting with an industry overview. He cited under-pricing, poor underwriting and inexpensive capacity as prime reasons that several insurance companies have failed over the past several years. Motamed said that “underwriting profitability was seriously eroding” well before Sept. 11, and the catastrophe “sucked up any capacity that remained and created a true lack of supply.”

To avoid a repeat of the situation, Motamed urged the importance of disciplined underwriting.

“Sustained profitability is going to depend increasingly on underwriting discipline,” he said. “If we have learned anything from the 90’s, it is that smart underwriting is what separates the winners from the losers. Not only does it generate higher ROE’s, but it also gives us the financial flexibility we need to take advantage of opportunities as they arise, and, on the other hand, to meet our obligations when unanticipated events occur or we experience adverse loss development.

“Chubb is strongly committed to the independent agent and broker system,” Motamed continued. “The answer for us is to jointly evolve to a business model where the cost of the transaction comes down on both sides. This means looking at all opportunities to improve bottom line results by narrowing the expense spread at every stage of the acquisition value chain—from selling a fair price, to delivering superior service, to selecting quality business.”

Motamed said that there is pressure from clients to reduce rates. He said that quality markets will not give in on pricing.

“This is not about losing money; it is about making money,” he told agents. “Your clients want to make money, you want to make money and the carriers want to make money. We should not be ashamed to say that.”

Motamed applauded IBA West’s role in passing the recent workers’ comp reforms, but was hesitant about passing on any savings to employers at this point. He said that Insurance Commissioner John Garamendi is pressuring carriers to pass on workers’ comp reform savings to policyholders, but carriers are in a “wait and see” position. Nevertheless, he acknowledged that “the potential exists to reduce loss costs by allowing for better management of medical care and the use of AMA guidelines.”

Motamed concluded by discussing certain “truths” that are essential for producers to think about when making business plans.

“Financial strength is critical to survival and to companies earning your trust,” he said. “Emerging and expanding losses, and the associated litigation, are facts of life. We cannot depend on legislation to bail us out. We need to perform at a level that positions us to respond to unexpected, worst case scenarios.”
He also said that carriers and producers need to work together to reduce expenses and that carriers are demanding better data.

“Speaking for Chubb, we continue to believe that our strategic relationships with our agents and brokers are a major asset in this market and one of the keys to successful execution,” he said.

Additional presenters included Bob Mike, president of the Workers’ Compensation Rating Bureau; Dianne Oki, president of the State Compensation Insurance Fund; Carol Telles, Workers’ Compensation Research Institute; Mark Webb, assistant general counsel, AIG; Steve Young, IBA West general counsel; John Norwood, IBA West lobbyist; and Marjorie Seagle, Insurance Skills Center.