Storm Warnings

Yes, it's that time again when editors (elsewhere, of course) honor the age-old tradition of boring readers to tears with their lists of the "Top 10" or the "Top 20" news stories of the year. Columnists feel obliged to follow suit. To do otherwise puts us at risk of being unceremoniously drummed out of the Honorable Family of Sagacious Commentators.

But why always 10 or 20? Tidy numbers, to be sure, and long validated in hit-record charts and Associated Press football polls, among other places. Dare I suggest, though, that last year's top stories, not just for agents and brokers but for the industry at large, boiled down to a Top 2? Fact is, 2005 was a tale of two storms, one called Katrina, the other Eliot.

Insuring Public-Private Construction (11/01/11)
Big Brokers Beat Expectations in Second Quarter (08/08/11)
Second Thoughts About the China Market (07/11/11)
Federal Flood Insurance Program Gets Extension (01/24/12)
When the Birds Bring Down the Planes (07/19/11)

The former famously made landfall near New Orleans, laid waste to miles and miles of Southern real estate to the tune of billions of dollars, then quickly lost velocity as it moved inland. The latter touched down everywhere the prior year, and we're still uncertain of the overall damage and when or whether it will blow over. The one altered the fate of a world-class city; the other transformed the way a powerful industry conducts business.

What lessons do we draw from these twin cataclysms?

Katrina taught us how much we've still to learn about risk management. Shocking inadequacies at the state and federal levels and among private businesses literally drowned New Orleans and killed and displaced hundreds of thousands of its residents and workers. It may be years, if ever, before the city comes back.

At this writing, a preliminary estimate from Insurance Services Office Inc. pushed the damages from the 1-2-3 punch of Hurricanes Katrina, Rita and Wilma to $50.3 billion, making 2005 the costliest catastrophe year on record for the property/casualty business.

Beyond loss settlements, unpopular rate adjustments and deeply troublesome risk-mitigation issues, looms the larger question of how many Cat 4 and 5 storms we can regularly expect on a planet so consistently challenged by global warming. Beyond that is another big question: What role should the insurance business play in coming to grips with it?

As for Hurricane Eliot, as in Spitzer, the man hardly went away this year. Perhaps his star has waned somewhat as evidence mounts that he's more effective grinding out press releases than in securing criminal indictments, the latest evidence being his failure to secure same against former AIG chief Maurice Greenberg.

Still, Spitzer has some famous heads in his trophy case, and we should expect him to continue to perform his insurance morality play as he marches down the road to the governor's mansion. Marsh, and to a lesser degree Aon and Willis, have already felt the deep bite of this investigative pit bull, but more modest agents and brokers can hardly rest on their laurels. Don't be surprised if he drills deeper.

Think about this too. If elected, which is not an unlikely prospect, what kind of insurance superintendent do you suppose he'll install in New York? A Bob Hunter clone, if not the man himself, springs to mind.

The turbulence from Katrina and Eliot are with us still. Heed the storm warnings.

P.S. This is the first chapter of a new monthly column devoted to agent-broker issues. Do send me your thoughts, complaints, leads and advice as often as you please. Even occasional praise is welcome.

TOM SLATTERY has covered the insurance industry for nearly 40 years. He is managing director of Slattery-Esterkamp Communications in Baldwin, N.Y.

January 1, 2006

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