Las Vegas–With the industry in the throes of another softening market, a pattern has emerged showing some insurers and reinsurers entering and exiting the public risk arena in an effort to gain new marketing outlets, underwriters here observed.
"In a softening market you see commercial insurers coming into the public entity sector and trying to take members away from [pooling mechanisms]," said Craig R. Smiddy, senior vice president, Munich-American Risk Partners in Princeton, N.J., an exhibitor at the Public Risk Management Association's annual conference here.
Mr. Smiddy explained that after the hardening of the market in 2001, more single public entities moved into pools. Current softening, however, has generated more interest in public entities from commercial insurers.
As those insurers target members of pools, he said, "membership will start leveling off in the pools and maybe decline as commercial insurers are testing the waters."
Mr. Smiddy said that even though pools are typically good at risk control, claims servicing and claims management, even "superior to what the commercial market provides," the enticement is price.
"The added dynamic this go-around is that members of pools–cities and schools–are under considerable budget pressure," he noted. "So even though they have a loyalty to a pool and know it provides value, they will have to make a decision."
Public risk managers, he added, are at a crossroads.
"Budget pressures are so much stronger than in the past that some schools and towns will have to make some hard decisions just to save the money," he said.
Mr. Smiddy said his company reinsures pools and works directly with them, as well as with large self-insured entities with a self-insured retention and through managing general agents.
Ernest L. Yarborough, national director of pools with Trident, a member of the Argonaut Group, in Orlando, Fla., said that public entities "are one of those risks that the traditional insurance market tends to shy away from" in a hardening market.
"This is all we write, so we can't shy away from it," he said. "But we know what the pricing should be; we're not an underpriced kind of carrier."
As the market softens, he said, more reinsurers "will give good pricing to public entity risks, which then allows the carriers that may otherwise not be interested in writing public entity business–because the reinsurance is too expensive–to get back into the retail marketplace."
When the market begins to soften, he said, "two things happen: more players come back in and the rates start going down. So, as a carrier that doesn't like to play the price game, we have to find other ways to entice business and keep business."
To keep its business, he said the company has set up a 90-day advance automatic renewal process for smaller, more traditional accounts. "At that point we're not getting into a price war with the new player coming into the marketplace," he said.
He noted the company also has developed new marketing strategies, including "gathering like-minded accounts, in maybe a geographic area," and approaching them about starting a pool. "We have seven pools now in five states," he added.
John M. Goodwin, president of public sector services for St. Paul Travelers in St. Paul, Minn., said his company has increased its focus on the public entity market.
He noted that in 2001 "our book was in a different spot. We made some changes–changed deductibles and retentions and took a new direction with underwriting strategy."
Now, he said, the company is focused on "taking it to the next level. What we hear from the agents and brokers when you track this industry is that we're one of the largest players in it."
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