WASHINGTON, D.C., March 8, 2010 — A lackluster economy, shrinking commercial premiums, inefficient regulation and the health care debate in Congress were among the many industry challenges discussed during Friday’s CEO Panel at the Independent Insurance Agents & Brokers of America’s (the Big “I”) Legislative Conference & Convention.
The panel consisted of Michael Hughes, Safeco president; Michael LaRocco, Fireman’s Fund president and CEO; Tom Motamed, CNA chairman and CEO; and Liam McGee, The Hartford chairman and CEO. Bob Rusbuldt, Big “I” president & CEO, moderated the discussion.
The panelists were asked for their predictions on the ailing economy and how it will fare in the coming months. McGee said he expects slow recovery “with volatility along the way,” and added that consumer spending will determine whether recovery is robust or more gradual. CNA’s Motamed anticipated that unemployment numbers would hover around 7 or 8% at the end of 2011. LaRocco said he believes job growth is crucial to economic recovery.
“People have to be back at work for the economy to sustain itself,” said LaRocco. “As agents are out trying to find their next piece of business, the national economy as it affects all of us is about people getting back to work.”
With regard to the property-casualty pricing cycle, Motamed said company profits and combined ratios are healthy overall but “growth is not there.” He expects insurers to gradually push rates upward as the combined ratio approaches 110, what he dubbed the “threshold of pain.”
While panelists agreed that personal lines is benefiting from greater pricing discipline and gradual rate adjustments, LaRocco said the erratic commercial lines marketplace requires evaluation.
“There will always be some movement in cycles, but what you’re seeing in personal lines is the gradual elimination of the cycle because companies know how to match rate to risk and are able to quickly respond, raise rates and maintain profit margins,” LaRocco said. “In commercial lines, we can do much better than we are today. We have to begin to show some discipline as an industry.”
McGee agreed and added that a continued volatile commercial lines pricing cycle could eventually hurt the industry and stall growth.
“It’s not good for underwriters, distributors or customers to have this wide range in pricing volatility,” he said. “We will see some stability with some improvement in the economy. We will see a more rational pricing environment in the long term, but I don’t think we’ll see growth rates for quite some time like we’ve been accustomed to.”
One of the many highlights from the event was discussion on federal regulation of the insurance industry. All panelists said that, above all, they seek a system that will most efficiently regulate the industry. Motamed, whose company has taken a stance against federal regulation of any kind, said the state system is more effective in protecting consumers.
“The state system has worked because the business is local,” he said. “People in (local) jurisdictions know more about what’s going on than people in Washington who have never been to those places.”
Hughes separated the insurance industry from other financial services sectors currently under regulatory scrutiny. “What’s very clear to us is that we do not believe we’re a systemic risk or that we should be part of that,” he said.
Panelists also weighed in on the current health care legislation pending in Congress, expressing their desire that independent agents be involved in crafting effective reform.
“There has to be a (health care) solution that involves independent agents and brokers, looks at tort reform and has more technology involved,” said Hughes. “We have to incrementally make solutions.”
Above p-c industry pricing cycles, regulation and the economy, Motamed said what keeps him up at night is the challenge of recruiting new talent to the industry. All panelists agreed that the industry suffers from a poor public image that is putting a damper on the ability to attract young workers. LaRocco advocated for a long-term public relations campaign to build awareness about the industry’s positive attributes, while Hughes called for increased recruiting at universities. McGee said younger customers’ desire for ease of doing business and online interactions could work out well for the independent agency system.
“Ironically, the agent could become more valuable,” said McGee. “Consumers will be shopping online more, yet they still want a trusted advisor. Agents shouldn’t see (the online marketplace) as a threat, but an opportunity.”
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, health, employee benefit plans and retirement products. Web address: www.independentagent.com.