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

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

In this case, the canary will be breathing the noxious air of ill-conceived programs, outrageous claims of the value of “market share and a fantasy-based reserving methodology that suddenly rationalizes the irrational.

Trade journal rhetoric consists of potential company rating downgrades, doubt of the industry reserve adequacy and of course the 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 will turn is especially quizzical in light of the overall benefits this brief period of rate/return adequacy has bestowed on agencies and companies alike.

Buyers must question our collective inability to bring any sense of equilibrium to the insurance market. Further, and more importantly, those whose capital we seek are putting their hands on their wallets. Regrettably, the glory of this hard market foreshadows the impending gore of another round of inadequate rates, expanding coverage and companies that are dead on arrival.

Markets (defined broadly) are efficient machines. I make no attempt to believe that simple words can thwart or affect what lies ahead.

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” insurance market is good for agents/brokers, insurance companies, investors and consumers an admittedly diverse constituency to have consensus then I propose broader discussion on how our industry might safely find the next vein of gold.

1) Capital providers must demand adequate returns.

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

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

3) As an adjunct to item 2 above, implement and demand conservative reserving. “Adequate reserves” has become slang for underreserving. History has shown that “50/50″ loss picks usually aren't.

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

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

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

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

I just wonder how wise we will look in 2006.

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

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

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

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