Agents at IIABNY Meeting Told to Prepare for End to Hard Market

Investigations into brokers’ placement service agreements and the end of the hard market were among the topics at the Independent Insurance Agents and Brokers of New York (IIABNY) 2004 Annual Business Meeting held last month.

Featured speakers New York Superintendent of Insurance Gregory V. Serio; John Cavoores, president and CEO of OneBeacon Insurance Group; V. Daniel Robinson, president of New York Central Mutual Fire Insurance Company; and Robert Williams, Agency Group president for Progressive Casualty Insurance Company, discussed a softening market, the homeowners market, and the controversy over placement service agreements.

“It’s coming. It’s going to get softer,” Williams said. “We’ve seen signs of softening nationally.” He estimated that personal lines would soften first, followed by commercial lines six to nine months later. As for New York State, the upstate region will soften quickly, he predicted, while downstate should see similar effects within a year or so.

“Clearly, the hard market is beat,” Cavoores added. “There’s more capacity coming into the market and there’s been more capital coming into the market as well. The rate of price increases has decelerated.”

The auto market has improved dramatically, Serio noted. “The data that we’re seeing is the best that we’ve seen in a long time. It has now been a consistent improvement. It’s also been a structural improvement.”

Agents had questions regarding the investigation by the New York Department of Insurance and Attorney General Elliot Spitzer into placement service agreements (PSAs) with brokers—specifically Marsh, Aon and Willis.

“The payment of PSAs is not similar to what happened in the mutual fund industry, however, it’s going to cause disclosure,” Cavoores said. “As an industry, we cannot keep the policyholders in the dark about the arrangements that are being made by independent agents with insurance carriers to get the best business.”

Serio wouldn’t comment much on the issue, but did say that his agency “has been working on this for a long time” and that his office and Spitzer’s have been collaborating on it. Serio defended Spitzer, saying, “He’s been a lot more right than wrong.”

Cavoores noted a potential crisis in the homeowners market, citing rising rates in many northern states. “Rates on the homeowners side have gone up and I think availability is less than it probably was two or three years ago.”

Of particular concern are changing hurricane models. “When hurricane models change, the rating agencies look at the results from these changed hurricane models and require insurance companies to buy more reinsurance,” Cavoores said. “[The rating agencies] look at their retention more carefully and look at the hurricane levels that they are applying to coastal and wind exposures. So the rating agencies put pressure on the companies. The reinsurers see that as an opportunity to sell more limits.”

Robinson said mold also needs to be addressed, commenting that consumers have been made well aware of the problem. “They want to clean differently than they may have before so there’s a lot more money being spent on water damage claims today than there were five years ago,” Robinson noted.

Serio boosted the formation of captives in New York. “You want to have captives as an option, along with everything else that you have. It provides one more set of options for New York businesses, or more importantly, non-New York businesses that want to come in and do their business here in the state of New York … Really what you are talking about is adding to the economic vitality of New York.”