Zurich CEO: Insurance Buyers Can Break The Cycle

Zurich CEO: Insurance Buyers Can Break The Cycle

By Sam Friedman

NU Online News Service, April 19, 3:24 p.m. EDT, San Diego?In a competitive market, carriers can still get risk managers to buy insurance at prices high enough to cover their exposures if they make the case that in the long run it benefits buyers and sellers alike, the chief executive of a leading insurer said.[@@]

The argument that risk managers can be convinced to pay the "right" or technically correct price as a way of moderating the "notorious" cyclical nature of insurance pricing was made by James Schiro, chief executive officer of Zurich Financial Services, based in Switzerland, speaking at the Risk and Insurance Management Society's annual conference here.

In his keynote address, Mr. Schiro said he believed "that working to moderate price fluctuations in the insurance cycle is in the best interests of all of us and will have a positive impact on everyone's bottom line."

"A better-managed cycle will be a win-win proposition for everyone here," added Mr. Schiro.

At a press conference following his speech, Mr. Schiro said his prediction that risk managers would be willing to accept "technically correct" prices in this context?even if cheaper prices are available from competitors?is "not wishful thinking."

He explained that by "educating" both brokers and corporate insurance buyers about the long-term benefits of rational pricing, sophisticated buyers would shy away from price shopping and stick with carriers that offer financial security, excellent claims service and value-added risk management solutions.

"We are not going to get into a market share game," he emphasized at his press conference. "We are working for an underwriting profit. That's what it takes to be a top-tier insurer, and it's the top-tier carriers that will be around for buyers over the long haul."

Mr. Schiro said there is an "inescapable value" in becoming such a carrier for an insurer's shareholders, employees and customers.

"There are many ways for risk managers to benefit from a more moderate cycle," Mr. Schiro said during his talk in which he outlined the following advantages:

? "It primarily means that dramatic price swings...may not be necessary," he said. "This would give you an opportunity to plan ahead and better manage your cost of risk."

? A "more moderate cycle should also reduce the need for sudden and radical changes in contract terms," he added. "Rather than taking the umbrella away when it starts to rain," a sensible cycle would mean that coverage restrictions, lower limits or new exclusions would not be imposed as quickly or severely after a major loss to the industry.

? He said that a "moderated cycle should reduce the need to radically expand and contract capacity for specific lines of business," allowing insurers to provide "meaningful capacity" on an ongoing basis, rather than forcing buyers to endure the feast-or-famine nature of the market over the past two decades.

? A market in which insurers price according to risk, rather than market share considerations, would result in a healthier group of insurers from which risk managers can confidently buy coverage, he predicted. "You, as risk managers, rely on insurers capable of fulfilling their promises, and the financial strength of our industry is the foundation on which the fulfillment of these promises is built," he said.

"In this context," Mr. Schiro concluded, "I believe that you would be willing to pay the 'right' or technically correct price for the exposures you wish to cover."

Zurich officials during the press conference emphasized the importance of financial stability when choosing a carrier.

"If someone underprices us by 25 percent or more, the buyer really has to consider the long-term costs of moving to such a carrier," said Geoff Riddell, CEO of Zurich's global corporate business. "Those who offer wildly cheaper prices and irresponsibly broader terms of coverage may not be there to pay claims down the road."

In his speech, Mr. Schiro also said that "insurers and their customers share a common interest" when it comes to lobbying for sensible tort reform.

He said that risk managers doing business in the United States are "exposed to the most aggressive litigation system in the world"?one which imposes a "shadow tax...that threatens to impair the essential function of our industry: to mitigate risk." He said insurers and risk managers should work together to create a civil justice system that "addresses the rights of those who are truly injured, while weeding out frivolous claims."