WHITE SULPHUR SPRINGS, W.Va.–The current insurance industry price decline will not disrupt the sector the way catastrophes have in the past, predicts Charles M. Kavitsky, Fireman's Fund chief executive officer.
Insurers have grown smarter over the years and enough safeguards have developed to keep most companies financially healthy when catastrophe losses finally hit their books, the head of the Novato, Calif.-based carrier said in an interview yesterday.
He was joined by Robert H. Courtemanche, president of personal insurance for Fireman's Fund.
Their comments were made during the Council of Insurance Agents & Brokers' 94th annual Insurance Leadership Forum held here this week.
Mr. Kavitsky, who also serves as the president of Allianz of America, the parent company of Fireman's Fund, said the industry is very different than it was a number of years ago.
"There are certain things that say [to them] they can't be undisciplined as they were in the past," said Mr. Kavitsky. "There are safeguards in place."
He noted that disciplined underwriting and modeling remain core to those safeguards. Those practices are a key to Fireman's Fund underwriting, he said, adding that disciplined underwriting is part of the reason why Standard & Poor's recently upgraded the company's rating.
In Mr. Kavitsky's view, that does not mean some insurers may not lose discipline in underwriting and seek market share through underpricing the market, but overall, he said he believes the industry has more control over itself than in the past.
Mr. Courtemanche noted that this discipline, along with sustained profitable underwriting results could mean a prolonged soft market, but cautioned that this assessment could change with a serious catastrophe.
Mr. Kavitsky credited Fireman's Fund's rating upgrade with a combination of disciplined underwriting, customer loyalty and successful integration with Allianz. That integration includes cost savings in administrative services, aided by technology, producing greater operating efficiency.
The S&P upgrade, he said, "is very, very positive and a great statement to the future" of Fireman's Fund.
Both he and Mr. Courtemanche said some of that success can be credited to the loyalty of its customers who see the value of their relationship going beyond insurance coverage.
That loyalty, Mr. Kavitsky explained, comes from the company finding a balance between the business voice and the customer voice. The business voice only recognizes the impact of decisions on the company's bottom line, he explained, while the customer voice sees value in terms that impacts him or her. While many companies have "a hard time getting this balance," Fireman's Fund has sought to understand the "emotional connection" people have to business decisions.
"We want to make sure we have that balance," he said, adding it remains a continual challenge.
In pursuit of finding that balance, Mr. Courtemanche explained, Fireman's Fund has developed a green program for homeowners customers.
The green program will be offered as a policy endorsement on personal lines that allows the customer to replace original building construction with green products, environmentally sound materials and energy saving products.
Mr. Kavitsky said the company began this program a year ago for commercial lines customers with great success. Initial rollout is planned for California and Texas pending approval, he added.
In response to a question about current criticism being voiced by some over insurance industry profits, both executives said the business needs to educate people about the need for profitability.
The public fails to understand that industry profits serve the long-term purpose of being able to pay for future catastrophes, said Mr. Courtemanche.
"We have to do a lot to educate people to understand [that profits] prepare us for when bad things happen," said Mr. Kavitsky.
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