HENDERSON, Nev.–Insurance executives at a conference here said that their sector faces uncharted waters next year dealing with declining rates, an economic downturn, tight credit markets and efforts to increase regulation of their industry.

George A Steadman III, chairman of the Council of Insurance Agents & Brokers, addressing attendees at the CIAB's annual Insurance Leadership Forum (ILF) held here said one thing to come out of the current financial crisis will be more attention to the regulation of insurance.

Mr. Steadman, president and chief operating officer of the insurance brokerage firm Rutherfoord in Roanoke, Va., said the increased focus on regulation will come as legislators and regulators seek ways to ensure the financial services industry does not fall into a subprime market crisis again.

The insurance industry, he noted, was on the verge of getting surplus lines reform legislation through the Senate, but the subprime market crisis pushed that issue to the back burner momentarily.

However, Mr. Steadman warned no matter who wins the upcoming presidential election, attention will once again come to insurance regulation. It will be up to members to be vigilant and support the CIAB's efforts to look out for their self interest.

John J. Degnan, vice chairman and chief operating officer of Warren, N.J.-based Chubb, noted that the financial services industry has witnessed a series of unprecedented events that have rocked it to its core, wreaking financial havoc on much of the nation. Among these events was the nationalization of American International Group. The government took a 79.9 percent stake in AIG as collateral for an $85 billion loan.

Mr. Degnan said the fallout from these shake-ups in the economy are too early to be assessed for the long term, but he appeared to be admonishing insurers who appear to be taking advantage of AIG's situation, saying they “should not gloat over the victims.”

“When one of our largest and most prestigious insurance companies needs to be bailed out by the government, we all suffer a loss of confidence by our customers,” observed Mr. Degnan. “In their mind, they wonder who will be next.”

He said the industry needs to assure customers that insurers are strong and stable and will be there to pay claims when called on to do so.

“If there is one lesson to be learned here for carriers, it is that our desire to earn a superior return for our shareholders must never overpower our responsibility to preserve our financial stability so the wherewithal to fulfill our financial responsibility to our policyholders will never be jeopardized,” he said.

In an interview with National Underwriter, Markham R. McKnight, president of BancorpSouth Insurance Services Inc. and the incoming chairman of the CIAB, said what is particularly alarming about the current crisis is the fast pace of change that is taking place.

“My answer in two-and-a-half hours from now could be different from two weeks ago,” he remarked, adding that financial crisis has “absorbed all the oxygen” that could have been used to push through needed industry reforms such as gaining greater market efficiency.

However, for the coming year, one issue that will grab the attention of the industry will be preventing onerous regulation from becoming a reality. More regulation is coming, he said, and as the country works through this financial crisis one concern is that some will want insurers to use their loss reserves to cover losses from bad assets and erode the carriers' ability to pay claims.

“We need good regulations,” said Mr. McKnight. “We want to interact in such a way that we protect the consumer and surplus. But we do not want to be so overly regulated that it throws the cost burden back on us.”

More important, he said, will be reinforcing client confidence in the industry by reassuring them of the soundness of the industry and understanding what is happening before it become news.

“We do not know where the tail is going to whip on this thing,” Mr. McKnight pointed out.

He said another concern for brokers is talk among some regulators that value-added services should be considered rebates.

Rebates on premiums are illegal, said Mr. McKnight, but some are confusing the nature of services with rebating premiums. He said the agenda may be being pushed by those who cannot provide services to customers and are looking for a way to level the playing field over pure price competition.

Special Reports /

Insurance Execs Foresee More Focus On Regulation

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