NU Online News Service, April 6, 3:34 p.m. EDT
Personal lines insurers need to pay more attention than ever to many variables between states to determine where they can grow their business and make a profit, a research firm advises.
Conning Research & Consulting in a report on Anticipating State Variations in Personal Lines Performance said over a five-year period insurers can encounter a 40 percent difference among states in business growth and profit growth rates.
The study said while state-level factors are always an important part of performance planning in the property and casualty industry, they are increasingly critical in the near-term economic climate.
It noted a past research finding that examined insurers using a "right states" strategy for selecting states and lines to do business in.. That could involve either "cherry picking" states with longer run superior profitability levels or "buying on the bad news" assuming the industry will overcorrect in poorly performing states.
There was evidence, Conning said, that "a cherry picking strategy has merit, with favorable loss ratio performance exhibited by those states that history indicates were superior performers."
Personal lines insurance was hard hit in some states, while others did not feel the pinch during the recession Conning noted and found that different states are set up to emerge differently when opportunities arise.
Insurers, Conning suggested, can get "a heads-up on how things may change" when business barriers in different market environments begin to ease "if they understand the unique characteristics of the states that create the conditions for outperformance and underperformance…"
Among the positive drivers they identify are population growth, economic growth, state revenue collection, a low uninsured population, a diminishing residual market, personal income growth and increased insured values.
The study noted there can be variability over time with Florida, for example, growing rapidly in the first part of the decade and slowing in 2007-2009.
Conning's analysis recommends insurers monitor state environments, develop an analytical framework, evaluate market entry and expansion opportunities, and develop a post-recession strategy for a period when the industry "may be facing greater volatility."
It also calls for developing a regulatory convergence view and strategy.
"The recession has had profoundly different effects on different states, and it is very likely that the recovery will as well," said a statement from Alan Dobbins, analyst at Conning Research & Consulting.
Mr. Dobbins remarked, "Some of the hardest-charging states prior to the recession were hit very hard and will take a longer time to climb out, while others may well spike in the coming recovery."
Conning said its study has implications for regulators as well as insurers. "The scope of this study is confined to homeowners and private passenger automobile insurance, but the concepts presented and the framework for analysis are broadly applicable to all lines of property and casualty insurance," according to the firm.
Stephan Christiansen, Conning director of research, remarked, "Conditions can change quickly in a state, yielding big changes for market participants and big opportunities for those considering market entry.
"If we understand the unique characteristics of the states that create the conditions for outperformance and underperformance, then we can gain an understanding of how performance may change when either economic or local conditions are in flux," he said.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.