Insurer CEOs Bullish On Industry's Future

"I'm a big optimist," said Fredrick H. Eppinger, president and CEO of Allmerica Financial Corp. in Worcester, Mass., one of a number of industry leaders talking about the state of the market on a pair of panel discussions here during the recent Independent Insurance Agents & Brokers annual conference.

The information age has given insurers more data than they have ever had, allowing them to take on risks "with their eyes open," he said. There is some concern about threats to the balance sheet–such as asbestos exposures, he noted–but he added that experience and leadership could mean "more temperate cycles in the future."

However, Robert J. Joyce, chairman and CEO of Westfield Group in Westfield Center, Ohio, noted that while company fundamentals remain strong, catastrophes such as Katrina could put pressure on pricing in both the short- and long term.

Charles M. Kavitsky, president and CEO of Fireman's Fund in Novato, Calif., said the main issue is to keep "sanity in the marketplace," noting that "some lines are softer than they should be."

He said recent legislation, such as Sarbanes-Oxley reporting standards, have made it even more incumbent on CEOs to understand their business and its fundamentals. "If you do something wrong, you will go to jail," he said.

Axel P. Lehmann, CEO of Zurich North America Commercial in Schaumburg, Ill., said there has never been more uncertainty in the market and praised the role of agencies that are looking closely at insurers and putting pressure on them through ratings. "That is a good thing," he remarked.

The CEOs felt the issue of catastrophic risk is beyond what the private market can handle and backups need to be discussed at the national level.

Mike McGavick, CEO of Seattle-based Safeco–who is leaving his position with Safeco to stage a run in the Republican primary for the U.S. Senate seat now held by Sen. Maria Cantwell, D-Wash.–said the country needs to think about where many Americans live, noting that a growing segment is building homes and businesses in areas subject to hurricanes or earthquakes. "This is a crisis coming," he said.

"It is not just an insurance issue but a national issue that needs to be taken on," added William J. Mullaney, president of MetLife Auto & Home in Warwick, R.I.

Beyond natural catastrophes, Fireman's Fund's Mr. Kavitsky said the Terrorism Risk Insurance Act must be renewed to take care of man-made disasters. He said there is no way the insurance industry would be able to withstand the losses from a significant terrorist attack, urging the industry to push for passage of TRIA extension.

"This is a challenge for us," he said. "We can't stop working for passage. We have got to keep pounding on this issue."

From a global perspective, Mr. Lehmann of Zurich said terrorism is an issue the world has not thought deeply enough about, or is doing enough to address the overall risk exposure for the industry. "No one is leading on this issue in the industry," he said. "This is beyond what we can do as individual companies."

Meanwhile, most carriers can absorb Hurricane Katrina's losses with little impact on the current soft market cycle, the executives speaking here said.

Ray Thomas, CEO of Zurich North America Small Business, observed that despite the combined losses from the four hurricanes that hit Florida last year, the industry was still able to show an underwriting profit. For that reason, he said he feels the industry would be able to handle this latest disaster.

"This will be difficult, but it will not retard what is happening in the marketplace today," said Mr. Thomas, adding that Zurich would be heavily impacted by the storm.

He pointed out that Katrina would have a negative impact on the commercial market, but the loss would still be manageable in relation to industry capacity.

Thomas M. Van Berkel, president and CEO of The Main Street America Group in Jacksonville, Fla., said while the disaster would have a significant impact, no one really knows at this point what the total loss will be, but he expects it to have the most significant impact on the property market.

From recent visits with London insurers, discussing reinsurance treaties, he anticipates reinsurers would be impacted by Katrina as well, contributing to a push-up in property rates.

A rise in the cost of materials to rebuild after the hurricane will drive up loss costs further, observed F.W. "Bill" Purmort, president and chairman at Central Insurance Companies in Van Wert, Ohio.

Insurers need to "step up to the plate" and take care of their policyholders and independent agent partners, said Marita Zuraitis, president of The Citizens and Hanover Insurance Companies, a subsidiary of Allmerica Financial Corp. She said her company has focused on handling claims and, "if we err, we will err by overpaying in a coverage dispute."

"We will do what we think is right," she said. "It is going to take awhile to figure this all out."

The biggest challenge, said Thomas A. Grau, immediate past-president of IIABA, is the recovery from the economic impact Katrina would have along the coast. The industry, he advised, needs to be part of the solution to help in the recovery.

Westfield's Mr. Joyce said one issue that will come out of Katrina is the number of uninsured people who have been dealt a severe blow by the storm. "[Nationally], we have to do a better job of protecting people [living] along the coast," he observed.

Quotebox, with McGavick mug:

"This is a crisis coming," says Mike McGavick, CEO of Seattle-based Safeco, warning about the consequences about the growing number of homes and businesses being built in areas subject to hurricanes or earthquakes.

Callout (no mug):

Insurers warn that Katrina will expose how many people are uninsured for flood losses.