At Big I, Insurer CEOs Assess Impact of Hurricanes

Insurance company leaders hope the industry will respond rationally to the financial effect of recent hurricanes and also use them as an opportunity to do a better job of explaining the industry to the public.

Five insurance company chief executive officers participating in a panel discussion during last month’s Independent Insurance Agents & Brokers of America (IIABA) convention in Orlando discussed the hurricanes along with terrorism and asbestos claims. Moderator Robert Rusbuldt, CEO of IIABA, quizzed the five company CEOs: Ramani Ayer, The Hartford; William Berkley, W.R. Berkley Corp.; Michael McGavick, Safeco Insurance; Greg Murphy, Selective Insurance; and Ronald Pressman, GE Insurance Solutions.

Citing the spate of hurricanes in the Southeast, most panelists expect 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 dampen the long-term outlook.

McGavick felt the market might be soft in 2005 but predicted a rational reaction to the hurricane losses. He said he 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, “Seventy 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 sad.

Berkley cautioned the industry not to shoot itself in the foot, noting 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.”

Ayer said that low interest rates will play a big role in which way the industry goes. He sees insurers more closely watching the bottom line 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. “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.”

The panelists agreed that the industry needs to do a better job communicating with the public about the value of insurance and how well it has responded in times of crisis, like 9/11 and the Florida hurricanes.

“We need to be bullish and make sure people know our capabilities,” Pressman said.

The CEOs also said the asbestos lawsuits had been a blow to the industry whose effects should be moderated by legislation. Pressman stressed that “payment of claims should be speedy, with set amounts determined by the medical effects to the victim.” Now, a victim can die before a case is ready to go to trial because the cases get so bogged down in court, according to Pressman.