NU Online News Service, May 4, 11:58 a.m. EDT
WASHINGTON–A group of insurance industry chief executives expressed major concerns here during a panel discussion that the Obama administration's recovery plan will spawn inflation over the next few years.
Their comments came Friday on the closing day of the Independent Insurance Agents & Brokers of America annual Legislative Conference and Convention.
Ted Kelly, chairman, president and chief executive officer, led the criticism of the current federal economic program. He said the federal government needs to "step back" and allow free markets to work.
Mr. Kelly said he fears the current economic stimulus package will eventually lead to inflation, which will eat away at underwriting earnings.
"Inflation is a far worse situation for us," Mr. Kelly remarked.
He said his fears are rooted in history, explaining that no massive government spending scheme aimed at spurring the economy has come without inflation.
"We will need a [Ronald] Reagan and [Paul] Volker to come in for a while" to take care of the inflationary spiral, he said.
Mr. Volker, a former head of the Federal Reserve known for economic policies that reined in inflation in the 1980s, is a close economic advisor to President Barack Obama.
"I'm more worried about inflation than anything else," said Bob Restrepo, chairman and CEO of State Auto, echoing Mr. Kelly's observation, but he said the primary driver for his company's earnings was the weather.
In the firm's efforts to restore profit margins, he said it may begin to look at lightening its load on property exposures county by county.
"We are preparing for a long, long recovery," said Mr. Restrepo.
Mike McGavick, CEO of XL Capital, said no one expected to see the current economic problems the country is now in and the country's economy "bounding along the bottom" is now seeing slow improvement. However, he predicted that inflation would become the new economic issue within the next two to three years.
Glenn Renwick, president and CEO of Progressive, said as the government moves forward it needs to avoid "upending good businesses" and make future regulatory reforms simple and understandable.
"A lot of complexity will not help," he said.
Mr. McGavick noted that carriers' earnings are under tremendous pressure from losses in underwriting earnings coupled with declines in investment earnings. The situation is even worse for agents who are being hit "from both ends" by the soft market and customers reducing their purchase of insurance to save money.
Customers are shopping more for insurance, said Mr. Renwick, getting more information on companies before making their purchase.
On pricing, Mr. Kelly said the Midwest is in "price denial" because of increased losses. Over the next couple of years property policyholders will begin to see large increases because that part of the country has not been profitable for the past five years.
When asked their opinion of the TARP (Trouble Asset Relief Program) by panel moderator Bob Rusbuldt, IIABA president and CEO, Mr. Kelly said the program is bad for the health of capitalism. Companies that fail, he said, should be liquidated and not saved by the government.
"Capitalism without failure is like religion without sin; it doesn't work," he said.
On the issue of government involvement in American International Group, Mr. McGavick said the company's problems underscore the need for government to stay out of governing business decisions.
He blamed then New York Attorney General Eliot Spitzer for pressuring the ouster of AIG chief executive Maurice "Hank" Greenberg in 2005 in the midst of an accounting scandal. It was a decision that should have been left in the hands of the board of directors, said Mr. McGavick.
He noted that Mr. Greenberg, who is a defendant in a civil fraud action brought by Mr. Spitzer, has never been indicted for any wrongdoing, and added that if Mr. Greenberg remained in control of the company it would not be where it is today.
On regulatory reform, the panel said they are supportive of keeping the current state regulatory system in place.
"Our voices are loud and clear–don't fix what works, and that is what we need to be concerned with right now," said Mr. McGavick.
Whatever develops, said Mr. Kelly, he predicted federal insurance regulation would cover commercial insurance, leaving personal lines to the states.
Mr. Renwick said regulators need to stop regulating rate and allow the market to make that determination. Whatever new regulations are put in place, the product needs to simplify the current system, he said.
Related to the subject of rates, the CEOs said there is plenty of capacity available for Florida property risks, but the problem has become a political one there. Mr. Kelly said the state should allow the market to determine the price for high-value homes and lend subsidies to lower wage earners.
"[Florida] is the poster child for what is wrong" when politics enters the insurance marketplace, said Mr. Restrepo.
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