With the property-casualty insurance industry in the throes of another softening market, a wider range of traditional carriers are entering 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 at Munich-American Risk Partners in Princeton, N.J., an exhibitor here at the Public Risk Management Association's annual conference.
Mr. Smiddy explained that after the market hardening in 2001, more public entities moved into self-insured pools. Softening in the traditional market, however, has generated more interest in public entities among commercial insurers, he noted.
As insurers target pool participants, he added, "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 typically are good at risk control, claims servicing and claims management–even "superior to what the commercial market provides"–the enticement is price.
"The added dynamic of 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," said Mr. Smiddy, whose company reinsures pools and works with large entities with a self-insured retention.
Ernest L. Yarborough, national director of pools with Trident, a member of the Argonaut Group in Orlando, Fla., said 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, 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 was 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 book intact, 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 noted.
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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