ICT Symposium Focused on Regulation, State of the Market and More

Attendees at the 12th Annual Mid-Year Property and Casualty Symposium presented in July by the Insurance Council of Texas and the Association of Fire and Casualty Companies in Texas (AFACT) were treated to a series of high-powered presentations and workshops that covered topics as diverse as regulation, market profitability and risk assessment.

Kicking off the symposium, Ernst Csiszar, president of the National Association of Insurance Commissioners
and South Carolina’s director
of insurance, said he thinks the debate over state versus federal regulation is beside the point and asserted the focus should be on good versus bad regulation.

Csiszar was essentially “preaching to the choir” of the assembled insurance company representatives with his less-is-more-approach to regulation. “When I look at how we are regulated, what I immediately see are two things: we over-regulate the trivial and we under-regulate the essential,” he said.

Calling the state/federal regulation debate “misconceived,” Csiszar stated: “It isn’t an issue of whether it should be at the state level or whether or it should be at the federal level. Ultimately it doesn’t matter. If it’s bad it’s bad at whatever level it is, and if it’s good it’s good at whatever level it is.”

Assuring the crowd that he doesn’t advocate doing away with regulation altogether, Csiszar called for the implementation of good regulation. “Good regulation in a financial system counts because good regulation builds confidence in that financial system,” he said. “But when you over-regulate the trivial and you’re under-regulating the essential, you’re clearly missing something. The by-product of that by the way is this: … what you’re neglecting is the proper role that markets can play in this entire process and what you’re over relying on, on the other side, is government intervention.”

He noted that balance is the key to creating an effective regulatory system “whether it’s at the federal level or at the state level. We have to find the proper balance between the kind of governmental intervention that doesn’t create harm, or more harm than good, and the proper role that individually accountable people have to play in a market environment. Until we resolve that balance, we can talk all day and all night and it’s still not going to get there—to where you want to be.”

Calling the “regulatory process a true impediment to creativity and innovation in this business,” Csiszar said the emphasis should be on the outcome and on letting the market play a role in regulating itself, rather than relying on legislation to address all problems. “In a competitive market a government has no business setting rates—in a competitive market. I don’t care what it is, whether it is personal lines or whether it is commercial lines. It has no business when a market has a sufficient degree of rivalry, when it’s easy to enter and exit the market, as it is in this business. All you need is a little capital. When it is clear that you’ve got substitute products out there. … If you have a perfectly healthy competitive market, what in the world are you doing setting rates?”

Acknowledging a number of proposals for regulatory change on the table—the possibility of federal standards for one—Csiszar noted that the discussion is far from being over. “We’re really at the beginning of this entire debate. Or as Churchill said, the end of the beginning—but we’re nowhere near the end of this debate,” he said.

Texas—rolling in dough?
Focusing on the ups and downs of the property/casualty market in Texas, Dr. Robert Hartwig of the Insurance Information Institute, said the losses in Texas over the last 10 years were not that far off, in monetary terms, from those suffered by the industry as a whole from the 9/11 attacks. “The cumulative underwriting loss in the Texas P/C insurance marketplace from 1991 through 2002 was an estimated $31.7 billion, almost the same as the $32.5 billion in insured losses arising from the Sept. 11, 2001 terrorist attacks,” Hartwig said.

He noted that some in the media have accused the insurance industry of gouging Texas consumers with high rates while insurers are “rolling in dough.” That is far from the case, Hartwig said, reminding those in attendance that Texas has never gone more than four years without producing a negative return on equity for insurers. The United States as a whole has only experienced a negative ROE once, and that was after Sept. 11, 2001. Commenting that things have looked up for the last year or two, he added that there is “nothing to suggest we’re on the threshold of nirvana in Texas.”

Historically Texas has been a bad investment for insurers, Hartwig said. He listed a number of primary factors that “guarantee long term problems” for the state, including: catastrophe exposures; the state’s tort environment; and a sometimes hostile legislative environment.

Dr. Daniel Finnegan urged insurers to keep a closer eye on the risks of policyholders. Finnegan, president of Quality Planning Corporation, said insurers are severely limited in what they can use to determine risks, but if they would spend more time in obtaining current data each year from policyholders,
companies could generate huge savings.

Texas Insurance Commis-sioner José Montemayor said recent legislation has led to monumental reforms that have resulted in a much more stable market, less intrusive regulation and fair rates. Montemayor said a major transition in the state’s insurance market is looming with the segue into file and use regulation that was okayed by the legislature in Senate Bill 14 during the last legislative session. Texas Department of Insurance staff is working on the rules for implementing the file and use legislation, Montemayor said. He added that while there will be certain times when the department may have to intervene, market forces will take control “as long as the industry behaves responsibly, and I think they will.”

Raymond Mauk Award
Coming under the heading of, “you can take the man out of Texas but you can’t take Texas out of the man,” Bill Thornton, president of Acadia Insurance Company in Westbrook, Maine, was presented the Raymond Mauk Leadership Award at the Symposium. Thornton, who spent nearly 20 years in the insurance industry in Texas, is the seventh recipient of the prestigious insurance award, which honors former Texas Fire Commissioner Raymond Mauk. The award, presented annually at the Symposium, recognizes someone who has made a notable contribution to the Texas property and casualty insurance industry. It is the Council’s highest honor.

Thornton rose through the ranks of the insurance industry, starting off as an agent in Denver, Colo. for Mutual Benefit Life. He moved to SAFECO in 1970 and worked his way up to property manager and eventually commercial manager for the SAFECO office in Dallas. In 1982, Thornton joined Trinity where he served as vice president. In 1990, Thornton became president of Union Standard in Dallas, a position he held for ten years. Since 2000, Thornton has served in his current position as president of Acadia.

Thornton is a past chairman of the Insurance Council of Texas, the Association of Fire & Casualty Companies in Texas (AFACT), the Texas Automobile Insurance Service Office (TAISO), the Texas Insurance Advisory Association and the Dallas chapter CPCU. He is currently on the board of trustees at the Maine College of Art and Portland Symphony Orchestra Board, as well as president of the Maine Pine Tree Council, Boy Scouts of America. Thornton is married with two children.

Topics Carriers Texas Legislation Market Property Casualty Maine Casualty