Mutual insurers have lived long and prospered thanks in large part to their unique business model, focusing on the concerns of policyholders rather than outside investors, the incoming chair of NAMIC says.
About 13 percent of all insurance companies are 100 years old. Of those that have made it, 62 percent are mutuals.
That says something about the advantages of the mutual business model, according to Sandra Parrillo, president and chief executive officer of Providence Mutual Fire Insurance Company–one of the oldest insurers in the United States, whose roots can be traced to 1800.
“Mutual insurers are doing very well, in part because of the business model–because it is formed on the basis of looking out for each other, with no third-party investors to please,” said Ms. Parrillo, who this month will become the first female chair of the National Association of Mutual Insurance Companies.
“Premium growth may be hard to come by, but by and large, mutual insurance companies are financially strong,” Ms. Parrillo added.
Five of the top 10 mutual insurance companies, based on net premiums written, saw a decrease in net premiums written from 2008 to 2009–Nationwide Mutual Insurance, American Family, Auto Owners, Country Mutual and Nationwide Mutual Fire Insurance–according to statistics provided by Highline Data (part of Summit Business Media, which also publishes National Underwriter).
However, the other five members of the top-10 mutuals–State Farm, Factory Mutual (FM Global), Liberty Mutual Fire, Amica Mutual and Shelter Mutual–managed to increase net premiums written from 2008 to 2009.
The Providence Mutual group of companies–a regional serving New England, New York and New Jersey–can see evidence of a turnaround in personal lines coverage, said Ms. Parrillo. Leaving coastal property insurance out of the equation, she said there has been a modest increase in premiums and a lack of attrition.
“Retention is good,” she noted. “We’re just starting to see signs that we’re starting to come out of it,” referring to the hardships from economic conditions. “I think others are seeing the same thing, but it will be a long recovery. It will be awhile before we really see sustained upward movement in things like new housing starts and new vehicles.”
To evolve with the times and seek new ways to bring in policyholders and revenue, Providence added personal auto coverage to complement its homeowners insurance product. The company has seen modest gains thus far, Ms. Parrillo noted.
“Like everyone, we certainly want to grow–take advantage of opportunities, but do it intelligently and pick our spots when they make sense,” she said.
Providence also provides insurance products to small-business owners, a market that has faced its own difficulties in this recession. Commercial lines have seen premiums decrease month to month, and there is little new business to be had as carriers struggle to maintain market share, fighting for the same piece of the pie.
“Competition is fierce–there are no new ventures,” observed Ms. Parrillo, who added that because of her company’s size, it tends to follow the general trends of the market closely.
Providence Mutual Fire Insurance Company returned to the black in 2009 with net income of nearly $8 million, after recording a $4.4 million loss in 2008, according to Highline Data. The combined ratio came in at 99.3 in 2009, after posting combined ratios of 105.75 and 103.8 in 2008 and 2007.
Protection of existing business and being careful with investments is integral to survival, especially now, noted Ms. Parrillo. And although mutuals do not face outside pressure from investors, they are also limited in accessing capital–there is no way to go to the market to raise money like a stock company can do, without a major restructuring.
Threats are always lurking. “I still can’t quite yet get Earl out of my mind,” noted Ms. Parrillo, referring to the large hurricane that skimmed the U.S. East Coast early this month, with some reports predicting it would affect Providence’s key operating states.
Ms. Parrillo used the hurricane scare to make a point about catastrophe risk. “It is shameful, absolutely shameful, that Congress is about to allow the [National Flood Insurance Program] to lapse…again,” she said. (See related story on page 8.)
As the federal government tries to stimulate the economy, Ms. Parrillo said she can’t understand why Washington would make it harder for people trying to buy homes that require flood insurance in order to secure a mortgage.
“The last time [NFIP expired temporarily], the lapse had a significant impact on the housing market,” Ms. Parrillo pointed out. “There needs to be a long-term extension. Anything less is irresponsible.”
However, she was equally adamant that extension of the flood insurance program should not include the addition of wind insurance.
“There is no reason–no purpose–because the private market has [wind exposure] adequately covered,” according to Ms. Parrillo. Adding wind to the flood program also has the dangerous potential of exacerbating the NFIP’s already substantial debt.
The fact is, according to Mr. Parrillo, that nearly every hurricane-related claim gets settled fairly–even from Hurricane Katrina.
In a recent letter sent from NAMIC to the U.S. Treasury Department, the trade organization expressed its opinions about the new Federal Information Office outlined in the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.
The bill strikes an appropriate balance of allowing federal policymakers to gain information about the insurance industry without establishing a system of federal regulation, said the letter signed by Charles M. Chamness, NAMIC president and CEO. (For more from Mr. Chamness on the challenges and opportunities facing mutuals, see his “Final Say” on page 42.)
“Regulation by the states works,” Ms. Parrillo said. “It isn’t perfect, but it works, and I think we were successful as an industry in explaining why the insurance industry is different, and that is why the [financial services reform] bill has safeguards to limit the FIO’s powers.”
NAMIC said the FIO should collect data “through the system and processes already in place,” and not via separate data calls which are time-consuming and expensive.