We're No Stegosauruses: Hank, Ramani

By Susanne Sclafane

NU Online News Service, June 3, 11:17 a.m. EDT, NewYork?-The notion that property-casualty insurers areheading for extinction is one that two well-known companyexecutives refused to buy into yesterday.

The issue was raised by Steven Dreyer, managing director andNorth American practice leader for Standard & Poor's InsuranceRatings in New York, speaking at his company's annual insuranceconference.

Mr. Dreyer noted the expansion of alternatives to traditionalinsurance, putting captives at about 20-25 percent of the business.He also pointed to the steady (albeit slow) movement towardinsurance securitizations. "Is it possible that, ultimately, thetraditional insurance company is a dinosaur?" he asked.

He pointed out to his audience of insurance chief executivesthat insurance company expense ratios haven't improved in recentyears. "With ever-improving information...shouldn't we expect thatmore efficient forms of risk sharing will eventually put insurancecompanies out of business?"

"That isn't going to happen," Maurice Greenberg, chairman andchief executive of AIG, responded, noting AIG's low expense ratioof 19 percent.

Noting that insurers have to cope with new risks continually,Mr. Greenberg said, "Why would a self-insured group handle the tortsystem any better than we do?" When non-insurance companies "takeon those kinds of exposures, they're dancing with greater risk totheir balance sheets. They may be able to handle cars or widgets,but it doesn't mean that they can handle the tort problems anybetter" than insurers.

Ramani Ayer agreed with Mr. Greenberg that the insuranceindustry is going to be a growth industry. "If you look at varioussectors of the economy, where is the growth?" Mr. Ayer asked. Theoutlook for growth rates over the next several years in theautomotive, airline, telecom and technology industries, he said,lags behind the growth outlook for insurance.

"By and large, the self-insured groups and pooled risks havebeen the more difficult to place risks," Mr. Ayer said, predictingthat the "the pooling of risk and the self-insurance phenomenon"would not "just take off at a rate that basically overwhelms theinsurance industry."

"Most times, when risks are pooled by people who are not expertat pooling it, they don't do a good job, the accounting is notproper. The best evidence of that is the workers' compensationState Fund," he said. "We [insurers] end up paying for ittwice--when we lose the business and, in some states, when we haveto pick up the marbles after the players have left the scene."