BLUE-RIBBON CEO PANEL DISCUSSES TOP INDUSTRY ISSUES
Tort reform, pricing, catastrophe issues and attracting young talent among top concerns
ORLANDO, Oct. 10—Legislative issues, including tort reform, as well as pricing and competition issues and attracting top young talent to the independent agency system, took center stage Sunday at a high-powered CEO panel held at the opening general session of the Big “I” Convention here.
Agents and brokers welcomed five major company leaders to the forum moderated by Big “I” CEO Robert A. Rusbuldt. Panelists spent considerable time sharing views on some of the top issues being discussed on Capitol Hill. One of the major issues discussed was the necessity to extend the Terrorism Risk Insurance Act (TRIA).
“With respect to TRIA, it is of the utmost urgency that Congress pass the TRIA extension,” said Safeco CEO Mike McGavick. “The fact is that the failure to extend TRIA is already costing companies money as they have to prepare the policies you will be selling for a world that might not have TRIA beyond the end of the term in 2005. This is an urgent, urgent, right-now issue. Companies are already preparing to have some exclusions in place (in the event TRIA is not extended).”
Not surprisingly, tort reform also proved to be a lively topic, with a particular focus on the stalled reform of the asbestos litigation system.
“Absent asbestos reform, most of the big and large commercial insurance companies will be paying and financing these losses for the next 20 to 30 years,” said The Harford CEO Ramani Ayer. “Claimants who are being awarded, 90 percent of them are not impaired. This is a major challenge.”
“It is unconscionable that we are not going to get asbestos reform in this session of Congress,” said General Electric ERC CEO Ron Pressman. “The true victims who have medical criteria … (under proposed congressional legislation) they get an immediate million-dollar plus payment, versus where they are today, which is they may die before they get a settlement.”
The panel also discussed strategy for dealing with the challenge posed by direct-marketing competitors, with general consensus being that independent agents and brokers most effectively compete when they emphasize quality of service.
“Our push right now with our agents is, if we sell on price, we’re going to lose on price,” said Selective CEO Greg Murphy. “We try to get our agents to focus much more on service.”
W.R. Berkley Corp. CEO Bill Berkley said he did not think, in general, independent agents and brokers were doing an adequate job of emphasizing their advantages, and expressed the opinion that they can be competitive if they play up their ability to provide personalized service.
“Very few customers think first about price,” Berkley said. “They’re worried about protection.”
In another issue crucial both to independent agents and brokers, as well as the companies they work with, the panel discussed the need to ramp up efforts to recruit new talent. Rusbuldt called the dearth of new recruits one of the major issues affecting the industry.
“Frankly it’s been pitiful the last 10 years,” Rusbuldt said. “Nobody comes out of college and says I want to work for XYZ Independent Insurance Agency. The securities industry is blowing us away on recruitment, retention, training, and attracting talent.”
McGavick said the industry needed to do a better job explaining exactly what it does and why it is of crucial importance in our society, in order to pique the interest of talented young professionals.
“We do something very noble,” McGavick said. “We need to do a better job of making it clear to people how central and elemental what we do is to our economy … We’ve got to be more bullish on promoting the nobility of what we do. We do a lousy job of promoting that importance to the entire society.”
Among market trends the industry leaders discussed, consolidation was a top issue, with some predicting it would accelerate and others that it would decline.
“I believe consolidation will continue, but on the other hand, the long-tail liabilities that reside on the balance sheets are not as easily estimable,” Ayer said. “The likelihood of shareholders approving these mergers is getting lower. Over the next 24 months, I think we’re going to see fewer mergers.”
Berkley took a differing view, and made a pitch for those companies making acquisitions to talk to InsurBanc, his company’s joint banking venture with the Big “I.”
“Our own view is that there will be more mergers and consolidations,” Berkley said. “Banks are getting back into the business; it’s going to be more and more difficult for the small agent to survive and do OK. We hope every agent who looks at that considers talking to InsurBanc. Companies can’t do business with really small agents. The economics and technologies that are driving those relationships make it more difficult for really small agencies to survive.”
The panel also discussed whether it was likely that the industry would see a “soft market” in 2005.
“I think we’re going to continue to see some consistency,” Pressman said. “There’s no doubt we’re having a difficult time keeping up with loss-cost inflation. Loss-cost inflation is running in double digits; it’s a major issue for us in the reinsurance industry. I hope consistency in underwriting is going to lead to narrowing the gap for the loss-cost inflation we’re experiencing. We underwrote softly in the 1980s and 1990s and we’ve got to reestablish some sanity.”
“Historically, in the ’70s and ’80s, prices flattened out,” Berkley noted. “I don’t think the world is irrational. Here and there irrationality sticks its head up, but by and large, there is responsibility. The issue of medical cost inflation is going to be a huge problem. We are falling farther behind—price increases or the lack thereof will be much more costly as we forge ahead.”
The Big “I” Convention, taking place in Orlando through Oct. 12, is the showcase of the Big “I” meeting that features one of the largest exhibit halls in the insurance industry; several prominent guest speakers; a compelling company CEO panel; a wide variety of innovative continuing-education (CE) classes; numerous networking opportunities; and many other exciting events.
Founded in 1896, the Big “I” is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.