These are certainly challenging times for the property andcasualty insurance industry, given the stagnant economy, a softcommercial lines market and calls in Congress to impose newregulations as part of broader financial services reform.

National Underwriter satdown with John T. Hill II, chair of the National Association ofMutual Insurance Companies, to discuss these and other key issuesconfronting the business. We met in his New York office, where heserves as president and chief operating officer of Magna CartaCompanies.

NU: How do you view the state of the p&cinsurance market these days? How can insurers keep growing andthrive in such a struggling economy?

John Hill: It's an extremely challenging andhighly competitive market. With payrolls declining because of theeconomy, it's especially difficult for insurers that write a lot ofworkers' comp.

It's tough to grow. There are virtually no new start-ups interms of potential customers, so the 'pie' of business is notgrowing. The only way to grow is to take business away from others.Maintaining a company's renewal book of business in a prudent wayand providing excellent service to agents and policyholders iscrucial in this environment.

NU: What are the key issues you have to dealwith as chair of NAMIC this year, and what do you hope toaccomplish?

John Hill: A major initiative is to make sureWashington understands that p&c companies were not responsiblefor the [financial system's] collapse. It is important that we notget swept up into the reforms targeting other parts of thefinancial services industry.

We came out from the downturn without needing any bailout funds,so you can see that it is not necessary for us to be regulated bythe federal government. Therefore, we have to closely work withlegislators in Washington to ensure that there will be no negativeimpacts from financial reform on the industry and the policyholderswe serve.

On the state side, we have to work to improve state regulationat this level.

As we are a membership-driven organization, we have to increaseinvolvement of our members. We have to encourage our members tomeet locally with their representatives in Congress, and inWashington through our Congressional Contact Program. Thisengagement at the grassroots level can have a tremendous impact,giving Congress a better understanding of our business.

NU: What are some of the unique challengesfacing mutual insurance companies today, and what are some of theunique advantages of being a mutual?

John Hill: I'd say the biggest challenge isalso the biggest advantage. By their structure, mutual insurancecompanies don't have ready access to capital. This can be adisadvantage, but in a stormy environment, a conservative capitalstructure positions you nicely.

Mutual insurance companies are owned by their policyholders, sothis enables them to think long term and not have to respond toquarterly shareholder pressures. This means that companies indifficult markets aren't facing the same premium growth pressuresin an environment where it may not be appropriate to havesubstantial growth.

The company's interest is aligned with the policyholder'sinterest of maintaining a strong balance sheet to ensure thecompany will be there to meet the needs of the policyholder in thelong run.

NU: One of the criticisms of the industry isthat it rarely speaks with one voice. At times, multiple producerand insurance company groups have opposing agendas. How can theindustry make its case more effectively in this diverseenvironment?

John Hill: There are various issues we allagree on–for instance, the use of credit scoring, the need for tortreform, flood insurance reform and improving the state regulatorysystem. In addition, most companies agree that we don't see theneed for a systemic risk regulatory body to cover the p&cindustry.

Of course, there are also disagreements. Having more than 4,000p&c companies in the U.S., we can't agree on everything. Somecompanies favor a federal regulator.

We at NAMIC say the state system works, but it has to beimproved. Federal regulation is difficult to implement as statesare unique in terms of underwriting risks and environments.Solvency regulation by the states has worked out, as evidenced bythe fact that no federal bailout money was necessary for p&cinsurers in the recent financial collapse.

Another aspect that speaks for state regulation is consumerprotection. People locally are better equipped to provide thebenefits needed than could be done by federal regulation.

NU: The insurance industry is often on thedefensive–both with lawmakers and the mainstream media. How caninsurers change that? What can the industry do to improve itsreputation and credibility with the general public as well as withlegislators and regulators?

John Hill: Two things are frustrating to me.First, our industry is unfavorably talked about in the media.That's unfortunate. We can handle 1,000 claims perfectly, but ifone fails, it is the only one that is talked about.

We have to address more actively the positive things we do andaccomplish. Most people don't understand our business–what weactually do and how important the insurance industry is. We are alinchpin.

Also communicating the industry's involvement in charityorganizations and community work is necessary and has beenneglected. The St. Baldrick's Foundation, for example, is anorganization started by three members of the insurance industry tofight childhood cancer by funding research. NAMIC CEO CharlesChamness is very active with the organization, but few people knowabout our role in this important work.

Secondly, there is the whole idea of getting a larger number ofyounger people involved in our business and showing them ourindustry is an attractive one. Currently, they are more likely topursue a career in banking or investment banking instead of in theinsurance industry because of the misperception of those industriesas being more dynamic.

NU: What can insurers do to recruit the bestand the brightest–not only out of college, but from other financialservice sectors? How can the industry diversify its ranks to betterreflect the society at large, both in terms of race andgender–particularly in its leadership?

John Hill: As already mentioned, we have toattract more young people to our industry. We have to actively getthe word out. Making students aware of careers in our businessshould start at the high school level, to introduce them to ourbusiness and the possibilities in our industry before they startgoing to college.

Being successful in that, we will also have a broader pool ofnew people coming into our industry. This will consequently lead tomore diversity, in both gender and race, in our industry andeventually have an impact on a more diversified leadership in theyears to come. I am convinced this change will come, but theindustry has to do its part as well.