:rolleyes:
If anyone has read some of my other posts (some may call ranting) I expressed concern about the P&C companies and their contracting agreements. In the past, I presented an opinion that the insurance companies are more worried about power and control of agencies than advancing competition or spreading / accepting risk. I discussed that contracting to agencies is often dolled out to the larger players and such arrangements bring no "real" competition to the wide field of brokers. Brokers are left to creating arrangements such as clusters to gain entrance and offer competitive quotes for their clients. In one post I make mention of a conversation with an insurance company warning them that if the industry doesn't change, the legislature will step in and change them. The reps. response was that if that happens, they'll pull out of markets. I reminded her of the social compact that insurance companies have always presented as a reason for the relax of some government control. An example is the relaxed control that they enjoy through the leisure of the legislature, such as antitrust protection.
I think with the recent New York adventure the cat is out of the bag. Consumers are now going to read that their perception of competition was a mask. It's silly to consider but consumers actually thought that brokers can go through just about any insurance company for a competitive quote. The consumer doesn't understand or know about "commitments" that can keep their broker of choice from getting them the most competitive quote. They assumed they were getting a competetive quote but now they may realize they were satisfying an agency commitment or service agreement.
Although I don't like the bad press, it is about time something removes the mask of competition. Perhaps we will begin to see large brokerages open for business and won't be held captive to insurance company rule. Can we only imagine large brokerages like those that exist in the life industry, large brokerages where you can call, get a contract to be doing business that same day and dare I say it, no hundreds of dollar for entrance fees. Although nobody can say whose ox will be gored but I have no doubt, a change is coming. After 19 years perhaps I will see a change in my lifetime.
I don't want to sound like a curmudgeon but there are reasons I see hope in change. There was a time (I spent 17 years) I was a Series 7 Rep. and also an investment advisor in the securities industry. All those years I hoped to see change that would open up that business model to the American form of competition and capitalism. I doubt we'll ever see it happen due to the hold the NASD has on that industry. One can only ask or look which brokerage houses sit on the NASD committee and you can see why it is still business as usual. Now I see a chance for change in the P&C business and I feel a sense of optimism.
Competetive Industry
Moderators: Josh, independent guy
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FiniteReUnderwriter
- Insurance Journal Enthusiast
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- Joined: Mon Dec 29, 2003 6:57 am
You say "...won't be held captive to insurance company rule"?
From what I am reading in the various trade and general press, sounds like the large "alphabet" houses / brokers were the ones who were "ruling" ... and demanding participation in their controlled books of business on their "cartel-like" terms with various bid rigging schemes, etc.?
The real question is who has control over the distribution. If the power was with the insurers, you would see brokerage fees falling .... not going up with large contingency payments.
+++
I get many inquiries from so-called "second or third tier" brokers (local guys, with only a single or a few regional offices) who are facing competitive pressure from large brokerage houses. The alphabets are trying to take away that local broker's long standing clients with all sorts of promises about "value added services" and the depth of support they can provide. These smaller incumbent brokers call me, seeking a new idea, approach or product idea to compete with the large brokerages.
I am more than happy to give them a quote / proposal. But, this has not often been successful, because to these smaller brokers, often it seems the new "idea", "approach" or "product" they were looking for is simply a cheaper price.
It seems to me - based on a dozen or so recent inquiries - these smaller brokers do not know how to compete on the basis of product differentiation and "total value proposition" ... instead they have spent too long on commoditized insurance products ... and only know how to flog the price. That may be reality for personal lines, but not necessarily commercial lines.
In my humble opinion, the smaller broker will never be able outmaneuver the large broker on getting the most competitive price ... based on underwriter relationships, they simply do not have the span of market relationships (or "depth" of contacts) as the big brokers.
But, the one playing field "leveler" that is hard to control or monopolize is intellectual capital. If you have the better "mouse-trap" and can explain it and sell it ...
Same thing exists on the carrier side. Capital is "inert" (it's just money and there are many ways to get it) ... it is the people who deploy it creatively that brings competitive advantage.
But having said that, look at the recent press about pricing falling in commercial lines during the 3rd quarter by 20% or more. Who says price competition is dead? For those brokers who want to find a price-competitive quote for their clients, appears the market is awash with them now.
But, at the next cycle, you will again be on the bread line unless you can "build that better mouse-trap".
From what I am reading in the various trade and general press, sounds like the large "alphabet" houses / brokers were the ones who were "ruling" ... and demanding participation in their controlled books of business on their "cartel-like" terms with various bid rigging schemes, etc.?
The real question is who has control over the distribution. If the power was with the insurers, you would see brokerage fees falling .... not going up with large contingency payments.
+++
I get many inquiries from so-called "second or third tier" brokers (local guys, with only a single or a few regional offices) who are facing competitive pressure from large brokerage houses. The alphabets are trying to take away that local broker's long standing clients with all sorts of promises about "value added services" and the depth of support they can provide. These smaller incumbent brokers call me, seeking a new idea, approach or product idea to compete with the large brokerages.
I am more than happy to give them a quote / proposal. But, this has not often been successful, because to these smaller brokers, often it seems the new "idea", "approach" or "product" they were looking for is simply a cheaper price.
It seems to me - based on a dozen or so recent inquiries - these smaller brokers do not know how to compete on the basis of product differentiation and "total value proposition" ... instead they have spent too long on commoditized insurance products ... and only know how to flog the price. That may be reality for personal lines, but not necessarily commercial lines.
In my humble opinion, the smaller broker will never be able outmaneuver the large broker on getting the most competitive price ... based on underwriter relationships, they simply do not have the span of market relationships (or "depth" of contacts) as the big brokers.
But, the one playing field "leveler" that is hard to control or monopolize is intellectual capital. If you have the better "mouse-trap" and can explain it and sell it ...
Same thing exists on the carrier side. Capital is "inert" (it's just money and there are many ways to get it) ... it is the people who deploy it creatively that brings competitive advantage.
But having said that, look at the recent press about pricing falling in commercial lines during the 3rd quarter by 20% or more. Who says price competition is dead? For those brokers who want to find a price-competitive quote for their clients, appears the market is awash with them now.
But, at the next cycle, you will again be on the bread line unless you can "build that better mouse-trap".
"Look at the recent press about pricing falling in commercial lines during the 3rd quarter by 20% or more. Who says price competition is dead? "
Oh no don't get me started on the hard market soft market spiral. To me the hard market is discussed in the same manner as people talk about the stock market, as if it has a mind of its own. Well no it doesn't. The only mind either market has are the minds of people behind the scenes.
Who makes the decisions for the appetite for certain markets, the insurance company, who makes the decisions for pulling back from those markets, the insurance company. Since they first started insuring the ships at sea, nothing has changed. There are still hurricanes, still house fires, still painters accidently over spraying and hitting the neighbors car, etc. It goes on year after year after year. The difference is that the insurance company decides to start the soft market cycle and the insurance companies start the hard market. This creates animosity for clients. Prices drop because of over abundance of products & services (econ 101). In the P&C world the abundance or lack of abundance is created by the production center / insurance company. I could take a big guess and say that if insurance companies had to adhere to anti-trust policies you would not see the continuing hard market / soft market cycle. You would see a more market orient trending of business pricing.
The need of insurance has never changed and will not change. Unlike other markets where consumption can control pricing, the P&C production center / insurance company controls the cycle of the hard market soft market. Is there no other way to trend business? No matter which line you are talking of, insurance is still insurance, accepting risks and managing those risks.
Oh no don't get me started on the hard market soft market spiral. To me the hard market is discussed in the same manner as people talk about the stock market, as if it has a mind of its own. Well no it doesn't. The only mind either market has are the minds of people behind the scenes.
Who makes the decisions for the appetite for certain markets, the insurance company, who makes the decisions for pulling back from those markets, the insurance company. Since they first started insuring the ships at sea, nothing has changed. There are still hurricanes, still house fires, still painters accidently over spraying and hitting the neighbors car, etc. It goes on year after year after year. The difference is that the insurance company decides to start the soft market cycle and the insurance companies start the hard market. This creates animosity for clients. Prices drop because of over abundance of products & services (econ 101). In the P&C world the abundance or lack of abundance is created by the production center / insurance company. I could take a big guess and say that if insurance companies had to adhere to anti-trust policies you would not see the continuing hard market / soft market cycle. You would see a more market orient trending of business pricing.
The need of insurance has never changed and will not change. Unlike other markets where consumption can control pricing, the P&C production center / insurance company controls the cycle of the hard market soft market. Is there no other way to trend business? No matter which line you are talking of, insurance is still insurance, accepting risks and managing those risks.
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FiniteReUnderwriter
- Insurance Journal Enthusiast
- Posts: 22
- Joined: Mon Dec 29, 2003 6:57 am
Points well taken.
The laws of supply and demand still rule, and there is certainly a price for risk that will "clear the market"?.
But my view of the marketplace is perhaps a bit broader. Many of the deals that I see include "ART" market entities / structures, such as: Captives, RRGs, Trusts, Large Deductible Programs; transfer of risk via other than insurance contract (e.g., hold-harmless / indemnity agreements); and the conscious choice by some clients to retain certain risks on balance sheet and simply finance them.
When traditional insurance is "dear" because of availability or price, many (but admittedly, not all) clients are able to easily shift to other mechanisms to manage their risks. Again, I admit a bias towards commercial risks.
I suspect that antitrust is not driving market cyclicality (i.e., in the extreme, price fixing and monopoly power would make prices more stable, albeit at higher rates). Rather, I think it is a combination of short-term memory loss (or selective memory) by some underwriters and their senior managers (can't remember what happened in the last soft market "¦ or more often, CAN remember ... but want to get bonuses this year and know that the true results on some long-tailed lines will not be known for 5 or more years later), and/or irrational performance metrics that reward such behavior by line underwriters and others (top line production targets, market share, etc.).
And on occasion, an insurer may even succumb to the pressure of trying to "outgrow" its problems, by trying to plug holes in its financial statement and cash flow by growth alone (and short term price swings to get the biz). A short-lived strategy for sure, as it will eventually catch up with them.
Superimpose on this "irrational" carrier behavior the "rational" expectation of the client to buy when the product is "cheap" and retain risk (or use alternative means of transfer or financing) when the product is "dear"?.
Both supply and demand have some role in the commercial insurance pricing cycle "" it's not all "supply-push" (Econ 102 "¦ wink).
It has been said that the "risk business" is very different than other types of transactions "¦ in that the true cost of the product sold is not known until years after the deal is done.
But in many ways it is not unlike some other financial markets "¦ there will always be those who will "take a view" on the future and price the product accordingly. Whether that "view" is influenced by things like perceived underwriting selectivity, legislative tort reform, changing population / jury demographics, expected duration of liability reserves (claim reporting and payment patterns), or plain ole' interest rates and the carrier's expectations of investment income, there will always be someone who thinks they can do it better, cheaper, faster "¦ and will price accordingly.
And in usual fashion, the rest of the lemmings will see the movement, be unable to resist, and will move ever closer to the precipice"¦
Regards,
The laws of supply and demand still rule, and there is certainly a price for risk that will "clear the market"?.
But my view of the marketplace is perhaps a bit broader. Many of the deals that I see include "ART" market entities / structures, such as: Captives, RRGs, Trusts, Large Deductible Programs; transfer of risk via other than insurance contract (e.g., hold-harmless / indemnity agreements); and the conscious choice by some clients to retain certain risks on balance sheet and simply finance them.
When traditional insurance is "dear" because of availability or price, many (but admittedly, not all) clients are able to easily shift to other mechanisms to manage their risks. Again, I admit a bias towards commercial risks.
I suspect that antitrust is not driving market cyclicality (i.e., in the extreme, price fixing and monopoly power would make prices more stable, albeit at higher rates). Rather, I think it is a combination of short-term memory loss (or selective memory) by some underwriters and their senior managers (can't remember what happened in the last soft market "¦ or more often, CAN remember ... but want to get bonuses this year and know that the true results on some long-tailed lines will not be known for 5 or more years later), and/or irrational performance metrics that reward such behavior by line underwriters and others (top line production targets, market share, etc.).
And on occasion, an insurer may even succumb to the pressure of trying to "outgrow" its problems, by trying to plug holes in its financial statement and cash flow by growth alone (and short term price swings to get the biz). A short-lived strategy for sure, as it will eventually catch up with them.
Superimpose on this "irrational" carrier behavior the "rational" expectation of the client to buy when the product is "cheap" and retain risk (or use alternative means of transfer or financing) when the product is "dear"?.
Both supply and demand have some role in the commercial insurance pricing cycle "" it's not all "supply-push" (Econ 102 "¦ wink).
It has been said that the "risk business" is very different than other types of transactions "¦ in that the true cost of the product sold is not known until years after the deal is done.
But in many ways it is not unlike some other financial markets "¦ there will always be those who will "take a view" on the future and price the product accordingly. Whether that "view" is influenced by things like perceived underwriting selectivity, legislative tort reform, changing population / jury demographics, expected duration of liability reserves (claim reporting and payment patterns), or plain ole' interest rates and the carrier's expectations of investment income, there will always be someone who thinks they can do it better, cheaper, faster "¦ and will price accordingly.
And in usual fashion, the rest of the lemmings will see the movement, be unable to resist, and will move ever closer to the precipice"¦
Regards,
Now there is something I can agree on and that is the reason that change must happen. It is only a matter of time until government entities will start wondering about the methods used to set prices. Knee jerk price setting send ripples of negativity throughout the American business cycles. I doubt if you'll find a politician that would stay seated with the statement from a company, "we raised our prices because we wanted to reach our goals and bonuses."
The last paragraph I beg to differ. Maybe the clients that you work with can retain the risk, use alternate methods or use captives. I would say it isn't the average model of business in America. I like working the construction (small to medium) industry and there is no way that they are "well heeled" enough to just accept the risk when markets get hard. The only risk they can assume / finance is the leveraged premium that normal markets supply them.
Often the insurance industry, by it's own actions, bring the ton of bricks upon its head. I often wonder if the insurance industry has ever heard of public relations?
<<Rather, I think it is a combination of short-term memory loss (or selective memory) by some underwriters and their senior managers (can't remember what happened in the last soft market "¦ or more often, CAN remember ... but want to get bonuses this year and know that the true results on some long-tailed lines will not be known for 5 or more years later), and/or irrational performance metrics that reward such behavior by line underwriters and others (top line production targets, market share, etc.).
<<Superimpose on this "irrational" carrier behavior the "rational" expectation of the client to buy when the product is "cheap" and retain risk (or use alternative means of transfer or financing) when the product is "dear"?.>>
The last paragraph I beg to differ. Maybe the clients that you work with can retain the risk, use alternate methods or use captives. I would say it isn't the average model of business in America. I like working the construction (small to medium) industry and there is no way that they are "well heeled" enough to just accept the risk when markets get hard. The only risk they can assume / finance is the leveraged premium that normal markets supply them.
Often the insurance industry, by it's own actions, bring the ton of bricks upon its head. I often wonder if the insurance industry has ever heard of public relations?
<<Rather, I think it is a combination of short-term memory loss (or selective memory) by some underwriters and their senior managers (can't remember what happened in the last soft market "¦ or more often, CAN remember ... but want to get bonuses this year and know that the true results on some long-tailed lines will not be known for 5 or more years later), and/or irrational performance metrics that reward such behavior by line underwriters and others (top line production targets, market share, etc.).
<<Superimpose on this "irrational" carrier behavior the "rational" expectation of the client to buy when the product is "cheap" and retain risk (or use alternative means of transfer or financing) when the product is "dear"?.>>