Watching The Canary For Unhealthy Signs That TheInsurance Gold Rush Is Over

As insurance companies, agents and brokers continue to reap thegold deep in the hard market mine, it may be time to start watchingthe canary.

In this case, the canary will be breathing the noxious air ofill-conceived programs, outrageous claims of the value of “marketshare and a fantasy-based reserving methodology that suddenlyrationalizes the irrational.

Trade journal rhetoric consists of potential company ratingdowngrades, doubt of the industry reserve adequacy and of coursethe questions of when the market is going to turn.

Does this strike only me as an odd trio?

The quickening dialogue prognosticating “when the market willturn is especially quizzical in light of the overall benefits thisbrief period of rate/return adequacy has bestowed on agencies andcompanies alike.

Buyers must question our collective inability to bring any senseof equilibrium to the insurance market. Further, and moreimportantly, those whose capital we seek are putting their hands ontheir wallets. Regrettably, the glory of this hard marketforeshadows the impending gore of another round of inadequaterates, expanding coverage and companies that are dead onarrival.

Markets (defined broadly) are efficient machines. I make noattempt to believe that simple words can thwart or affect what liesahead.

Rather than looking for the U-turn on the hard market highway,why don't we consider just turning left or right instead?

If you can nod your head that a more “consistent” insurancemarket is good for agents/brokers, insurance companies, investorsand consumers an admittedly diverse constituency to have consensusthen I propose broader discussion on how our industry might safelyfind the next vein of gold.

1) Capital providers must demand adequate returns.

As an industry our results are anemic at best. Requiring somelevel of adequate return would create a major underpinning to amore stable market.

2) Primary insurers and reinsurers must, without exception,maintain their focus on accident-year underwritingprofitability.

3) As an adjunct to item 2 above, implement and demandconservative reserving. “Adequate reserves” has become slang forunderreserving. History has shown that “50/50″ loss picks usuallyaren't.

4) Transferring risk to a quality balance sheet is worth payingfor.

Agents and brokers must make “quality” matter to the client.Brokers ask for quality and value in the risk transfer process, andin turn it is incumbent upon them to sell that value tocustomers.

It has been a great run. Our industry is healthier than it hasbeen in years, although the ghost of asbestos and other reservingspooks are everywhere.

Many cars were purchased, furs gifted, houses built and bonusespaid as the result of our “newfound wisdom of running ourbusiness.

I just wonder how wise we will look in 2006.

Barrett Hubbard, CPCU, is vice president of marketing for MarkelInsurance Company in Glen Allen, Va.

Reproduced from National Underwriter Edition, June 11, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.