HENDERSON, Nev.–Trying to figure out what the future holds in the midst of the current economic crisis has many at the Council of Insurance Agents & Brokers conference asking questions about the future with no real answers in sight.
In interviews during the CIAB's 95th annual Insurance Leadership Forum conference here, a few brokers said the financial difficulties at American International Group brought on by the company's losses related to the subprime market meltdown has a lot of clients reevaluating their position with the insurer. Many are clamoring for information and an understanding of what their options are for the future.
While dealing with the fallout from AIG, there is a growing view that the market is turning to a flattening phase. Though no one was willing to predict a market hardening turn is in sight yet, the flattening could be a predictor of gradual increases over the next two years, one broker noted.
Loriann Lowery, president of North America Lloyd's, a division of the London-based insurance syndicate, said the industry is in generally good shape.
But she noted there may be some pricing issues related to directors and officers coverage as shareholder litigation mounts in the face of the loss in stock value from the subprime crisis. She was one who said that property-casualty premiums could be in for some flattening.
This hurricane season, despite the losses, has not been as bad as some feared, to date, and taking into consideration the economic turmoil, the insurance industry remains "in an extremely good position," she said.
Ms. Lowery said many brokers who discussed business at the conference with her were primarily concerned with taking messages of stability in the Lloyd's markets back to their customers–something she assured is not in dispute.
"Swings [in the markets] are based on emotion, not fact, and we need to communicate our stability [to policyholders]," she said.
With capital drying up and producing reductions in capacity, H. Wade Reece, chairman and CEO of BB&T Insurance Services Inc., said the industry will probably see pockets of softening and hardening as a flight to quality by clients begins to take place in the future.
Prior to the conference, Patrick J. Gallagher Jr., president, chairman and chief executive officer of Itasca, Ill.-based insurance broker Arthur J. Gallagher, told National Underwriter that his firm is monitoring changes at AIG and getting as much information out as the firm can to clients who are hungry to know what is happening in the insurance markets.
"We have no idea what the impact will be from AIG on the marketplace," said Mr. Gallagher. "They are an important, prominent player in the market. Whichever way it goes with AIG, we will take care of our clients. There is plenty of market out there."
He noted that while some clients asked for their accounts to be moved, the great majority are taking a wait-and-see attitude.
Chicago-based insurance broker Aon Corp.'s CEO of U.S. Retail, Eric J. Andersen, said a lot of clients are calling with questions about AIG. The broker has responded by making that information available, including offering Web-based conference discussions on the subject.
He said the primary question from clients is "is AIG alone? That is the $64,000 question clients want answered."
He added that company third-quarter results "will be confessional time."
"It is not a price issue but quality of the insurer," noted Mr. Andersen. "Price is secondary. They want to know they can get the coverage and limits they need."
He said future relationships with AIG will play out as customers react to circumstances.
While not a fan of government intervention, in this instance, coming to the rescue of AIG was probably the right thing to do because of the company's economic entanglements, said Mr. Reece.
The move, he added, gave BB&T time to review the situation with clients and allow them to make a decision about what direction to go in. He said it is still too soon to know where the firm's clients will eventually decide to place their business, but it would be in everyone's best interest for AIG to stabilize their situation.
"Everyone is nervous," said Robert J. Lieblein, managing partner with the consulting firm Hales & Company, noting how the uncertainty over AIG is leading large risk managers to look at alternatives and position themselves if they need to switch carriers.
Woody Ratterman III, senior vice president of business development for the consulting firm Marsh Berry, said that on issues of pricing many insurers cannot touch AIG, especially in markets where it writes niche business, which it has a lot of.
The turmoil at AIG could give other insurers the confidence to try and put their foot in the door on business that may in the past have been the exclusive domain of the insurer, said Mr. Ratterman.
Responding to a question about AIG CEO Edward Liddy's recent comments that AIG would maintain underwriting discipline, John M. Wepler, president of Marsh-Berry, said while the company has always remained price competitive, Mr. Liddy was apparently sending the signal that the insurer would not become irrational in its pricing.
If there is a lesson to come out of this crisis it is that more attention needs to be paid to basic risk management, which BB&T's Mr. Reece characterized as "good, old-fashioned underwriting."
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