A Point Of Clarification
To The Editor:
It may seem strange that I am writing concerning an article I was quoted in almost one year ago ("Avoid Price 'Gouging,' Consultant Warns Insurers," NU, Jan. 14, 2002). However, it has come to my attention that my remarks have generated some misunderstanding and, in a few cases recently, have been taken completely out of context.
J. Robert Hunter, director of insurance for the Consumer Federation of America, recently co-authored a document for the Center for Justice & Democracy in which he references the Jan. 14 article to justify his point that insurers are acting irresponsibly, and that recent rate increases are not related to the insurance industrys economic cycle.
When I spoke of "getting the right price," I was speaking primarily of personal lines, where, due to the commodity-like nature of these products, significant price increases can result in customer defection, which, in turn, can have a negative effect on insurer profitability.
Rather than endorsing systematic price increases across the board, I was advocating more refined pricing strategies based on an understanding of the insurers target market and an accurate gauge of all the variables involved in correct pricing.
I thought companies may have been overreacting following Sept. 11, 2001, by instituting price increases across all lines–moving to the conservative end of the pricing range based on consideration of long-term experience, the uncertain level of recent loss experience, declines in expected prospective investment returns, more limited and expensive reinsurance capacity, and the general market hardening that had already begun to take hold.
I also stated that carriers need to learn how to better "own" their customers and sell products in ways that allow them to both attract the high value-added customer and maintain long-term, profitable relationships with them.
Just for the record, although the reporter chose to focus the article on comments I made regarding pricing, I made these comments in a wide-ranging conversation with the reporter where we discussed many of the major issues facing insurance companies in these very challenging times.
Finally, the comments made in the article are, and have always been, my observations based on my knowledge of the industry. They are not in any way to be construed as an official position of Tillinghast-Towers Perrin.
Jeanne Hollister
Consulting Actuary
Tillinghast-Towers Perrin
Hartford, Conn.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 30, 2002. Copyright 2002 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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