By JARED SHELLY, senior editor/web editor of Risk & Insurance®
Gathering at the Waldorf Astoria in New York in mid-January, members of the Insurance Information Institute discussed the state of the business in the wake of two tough years of property/casualty losses.
Here's what we learned:
The Sandy Wake-Up Call
Although Hurricane Sandy produced 110 mph winds and more than $65 million in damage, it could have been much worse, said Vincent J. Dowling, managing partner at Dowling & Partners in Hartford, Conn.
"It was a wake-up call for what could have been," said Dowling during a panel discussion. In its wake, it's becoming almost as hard to underwrite property/casualty losses in the Northeast as it is in the hurricane-ridden state of Florida.
But, while people in the Northeast have now joined those in the Southeast in realizing they could be the victims of a natural disaster, the rest of the country is still in the dark.
"I wish Irene and Sandy would wake people up," said Texas Insurance Commissioner Eleanor Kitzman. "They can't predict what's going to happen and they need insurance."
As bad as the last two years have been, the industry still hasn't suffered "the big one" yet, said Dowling -- perhaps a disaster that's more devastating than Sandy or a few consecutive years of large property/casualty losses.
Small businesses were hit particularly hard because they usually don't have business interruption insurance, which could cover lost revenues until a business reopens, said Liam E. McGee, chairman, president and CEO of The Hartford.
"As an industry, we need to do a better job of educating our customers that flood is not a covered peril. We need to do a better job educating our entrepreneurs [about] what is covered and what is not under business interruption," said McGee.
For Crawford & Co., technology played a key role in the aftermath of the storm. While it allowed Crawford insureds to easily file claims, it left claims adjusters dealing with some irrational client expectations -- even after Crawford assigned more than 600 adjusters in 16 U.S. states to administer claims.
"We saw claims coming in very quickly, far greater than any other previous catastrophe we dealt with," said Jeffrey Bowman, president and CEO of Crawford & Co. "In this instant gratification society we live in, the expectations were unreasonable."
Still, the speakers were not shy about touting their industry for its rapid claims response after Sandy.
"Where we really shine is at claim time ... . Sandy was a great opportunity for the industry to step up and it did," said Edward B. Rust Jr., chairman and CEO of State Farm Mutual.
But after Sandy and Irene in consecutive years, executives are bracing themselves for what might happen if the industry suffered large property/casualty losses for many more years in a row.
"This industry has a remarkable way of healing itself if given time ... ," said Rust. People mistakenly think that since it's a "one in 100 year event, so OK, I have another 99 years" until the next occurrence.
What happens in Washington ...
Almost all (95 percent) of the insurance leaders in attendance believe that Washington gridlock over the U.S. debt will affect the economy, according to a survey conducted at the conference.
The Hartford's McGee said he personally believes, with" a great deal of conviction," that Washington can solve the budgetary debt crisis. That would lead to some serious economic progress.
"We're walking away from some really robust growth" if the politicians don't take meaningful action.
But with a still fragile economic recovery, said Rust, "there is real concern that the wrong action out of Washington will cause people to cut back on consumption, which will impact housing and cars."
Whatever measures are taken, they should be sustainable, said Nikolaus von Bomhard, CEO of Munich Re. There's no reason to have "the next generation having to solve the problem for this generation," he said.
Insurance Execs Sound Off
In the survey taken by the conference attendees, 74 percent of leaders think the federal government is interested in further expanding its regulatory oversight of insurers. Meanwhile, just 23 percent believe the U.S. economy is on the right track in 2013. An overzealous government and a slow economy could be a dangerous mix.
"As the economy continues its recovery, exposures will continue to grow, implying further increases in insurance premium volume," said Steven Weisbart, senior vice president and chief economist with the I.I.I.
While 68 percent of respondents expect an improvement in commercial lines, 61 percent do not expect an improvement in workers' compensation. Seventy-four percent of respondents believe that premium growth will be higher overall in 2013, while 21 percent believe it will remain flat and 5 percent believe it will be lower.
Matthew Mosher, senior vice president at A.M. Best, summed the opinion succinctly: "The industry is moving along but not setting the world on fire."
4. Opinions are Split on Solvency II
On Solvency II, which could establish insurance standards across the European Union, opinions were mixed.
Richard Ward, CEO of Lloyd's, said that the "principle is to be applauded" because if "we can harmonize these 27 [EU] countries, and the approach they take to capital and regulation, it would be good for the industry." Implementation had been set for 2012, but has been delayed. Ward said he hopes it will happen by 2016.
But Michael S. McGavick, CEO, XL Group, was not as convinced that it will help.
"What problem are you trying to solve? Insurers did well during the crisis and were a bulwark against its contagion," he said. "Solvency II reminds me of an overbuilt airplane rumbling down the runway, and as it fails to take off, they just keep laying more runway. They need to look at the design of the plane."
January 22, 2013
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