Big “I” Panelists Concerned About Terrorism, Asbestos, Tort Reform

Terrorism, asbestos and tort reform will be key industry concerns according to five insurance company chief executives participating in a panel discussion during last month’s Independent Insurance Agents & Brokers of America (IIABA) convention in Orlando.

Moderator Bob Rusbuldt quizzed the five CEOs during the hour-long discussion. The panelists were: Ramani Ayer, The Hartford; Bill Berkley, W.R. Berkley Corp.; Mike McGavick, Safeco Insurance; Greg Murphy, Selective Insurance; and Ron Pressman, GE Insurance Solutions.

Panelists addressed the effect hurricane claims would have on the industry’s bottom line. Most panelists expected the industry to rebound after what they termed a “very bad quarter,” ascertaining that the industry has had enough good years that one incident should not have any effect on its long-term outlook.

Asked by Rusbuldt if the CEOs anticipated a soft market in 2005, McGavick felt the market might be soft, but that the industry will be searching for the proper approach to take and its real identity. He predicted a rational reaction to the hurricane losses, but hoped the industry would be sensible about pricing and match risk with insurance rates.

Ayer pointed to billions of dollars of insurance losses from Hurricane Jeanne.

“The market has to digest this,” Ayer explained, “70 percent of the losses were in personal lines and 30 percent commercial lines. Commercial lines will feel the impact and it will have a moderating effect on both insurance and reinsurance.”

Pressman felt consistency is most important. He foresees a major problem with loss-cost inflation. “This will narrow the gap between loss-cost and inflation, and where we are and where we should be,” Pressman said. He emphasized a sane approach, indicating that the issue here is “less taxation without representation.”

Berkley cautioned that the industry has to be careful not to shoot itself in the foot. He pointed out it will take about 18 months to know if current loss estimates are correct. “The world isn’t irrational,” Berkley said. “There is a huge problem with growth price increases, or lack thereof, and it will be costly in the long run.”

Berkley commented that very few customers focus on price. He said that while it is easiest to sell an insurance customer on price, agents should focus on service and obtaining customer confidence. He said that European countries have the right idea. Insurance companies there put a percentage of their income aside during the good days to prepare for catastrophes when those funds will be needed.

Ayer agreed, saying that it is important to obtain new customers, but at the same time maintain the customer base. He said agents may see flat to negative growth, but they should be careful not to forget that it is a very competitive market.

“One man’s new business is another’s renewal business,” Ayer warned.

Ayer said that low interest rates will play a big role in which way the industry goes with a trend to watch the bottom line closer by reviewing balance sheet items sooner. He predicted a “moderating” but not a flat market.

“The most important factor is to focus on the people of Florida and to help them recover from the hurricanes,” Pressman commented. After that, the primary focus will be on the financial impact–one-half billion dollars of net losses will have to be factored into the future.

“I hope this will be a wakeup call for the insurance industry,” Pressman said. “It has to be realized that these crises will occur and it’s essential to determine how they can be underwritten.”

Berkley agreed, saying that the insurance industry has consistently encountered returns of from 20 percent to 30 percent in the past, “we have Florida to thank for imposing a tax.” He said that for those who must pay the piper, the quarter may be unprofitable, but he didn’t foresee any long-term impact.

The CEOs said the results of asbestos lawsuits had been a blow to the industry and one that should be moderated by legislation. Some of the decisions have resulted in huge rewards to victims who only had scarred lungs.

Pressman described existing legislative decisions as “just another tax.” He pointed out that 2 percent of the gross domestic product is spent on class action suits.

“On the topic of asbestos we have clear medical criteria,” Pressman explained. “Payment of claims should be speedy, with set amounts determined by the medical effects to the victim.” He pointed out that instead of getting a million-dollar settlement, cases often get bogged down in the courts and by the time it is ready to go to court, the victim already has died.

The panelists agreed that the industry needs to do a better job of communicating with the public about the value of insurance and how well it has responded in times of crisis, like 911 and the Florida hurricanes. “We’ve been doing a lousy job of communicating,” Pressman said. “We need to be bullish and make sure people know our capabilities.”

Rusbuldt asked if it was important to bring new blood into the insurance industry and the panelists agreed unanimously that it was. They pointed out that very few, if any graduating college students consider insurance as a profession.

Ayer described Hartford’s independent agent training program. His agents determine who their brightest talent is and nominates that employee to spend 30 days in the classes that emphasize training, sales and producer classes. He said the classes have been so popular that it has been necessary to increase their number to meet the demand.

The panelists thought mergers and consolidations will continue but that before they occur there will be a closer look at long-term growth potential. “These will make it harder for small agencies to survive,” Berkley said. “The inherent problem is that companies can’t do business with small agencies and there will be an increase in pace.”