CHICAGO-Whether price levels in the current hard insurance market are justified appears to be a matter of perspective, according to one recent panel of insurance and risk management executives.

Speaking at the 2002 Harold H. Hines Jr. Memorial Symposium, held May 9 in Chicago, the panelists discussed the current state of the insurance market and speculated about its future.

Asked whether current pricing was justified, David Mair, associate director for risk management for the United States Olympic Committee in Colorado Springs, Colo., answered, "Hell no."

"I think there are some significant overreactions in the marketplace at the moment, and there's a great deal of what I would characterize as `take it or leave it' underwriting," said Mr. Mair, who also was the 2001-2002 president of the Risk & Insurance Management Society Inc.

On the other side of the fence, Richard G.M. Marko, senior vp of National Markets at Liberty Mutual Insurance Co. in Boston, said: "We have a very tough business; we have an awful lot of things working against us simultaneously. Do I think (the market is) hard enough? Hell no."

Mr. Marko said that from 1994 to 1999, insurance rates decreased by about 50%. Now, after two straight years of increasing rates, about half of that decrease has been made up, he said.

He cited a lengthy list of factors affecting current insurance pricing, including "rampant" medical cost inflation, new recognition of concentrations of workers compensation risk, a continuing increase in the number of covered lives and value of property in catastrophe-exposed areas, ongoing asbestos issues and numerous large losses in recent years.

Add to all of those a weak economy, and the factors combine in a sort of "perfect storm" for a hard market, Mr. Marko said. And Sept. 11 "exacerbated the situation," he noted.

"But, when you look at the different lines of business, it's not all going in the same direction," Mr. Marko said. "There are some areas that are very hard, and there are some areas that aren't hard enough yet."

J. Patrick Gallagher Jr., president and chief executive officer of brokerage Arthur J. Gallagher & Co. in Itasca, Ill., said he thinks it's important to bear in mind that the market was hardening before Sept. 11. Current market conditions are "a different kind of hardening" than what has been seen in the past, he said.

Rate increases in the current market are the result of insurer cash flow issues and "P&L pain," Mr. Gallagher said, rather than the capacity problems that drove the hard market of the mid-1980s.

Mr. Gallagher said that, based on insurers' cash flows, balance sheets and profit and loss figures, "the hard market is clearly justified."

"Some markets are killer hard," he said, noting that although the pricing might be justified, that doesn't make it any easier for the buyer.

Mr. Mair said he thinks part of the problem lies in the fact that the insurance industry is trying to correct its problems overnight.

Risk managers who sought credit in their organizations for cutting insurance costs during the soft market are in trouble now, he said. And many risk managers in large and middle-market companies are considering alternative risk transfer techniques "like they never have before."

"If the market stays hard for any length of time...I think you'll see a lot of risk managers who learned about captives in the mid-'80s who now are applying that knowledge," Mr. Mair said.

Mr. Gallagher added that interest in the alternative market is not limited to large companies.

Mr. Marko said he thinks captives, self-insurance and other ART approaches are valid, important risk management techniques.

"I think it's inappropriate to transfer risks you should retain," he said. "I think it's inappropriate for us to encourage you to transfer risks you should retain."

The consensus among the panelists was that the current hard market will last for a few years.

"Same as we're going through a hard market now, we'll be going through a softening cycle two or three years from now," said Dirk Lohmann, group chief executive officer of Converium Ltd. in Zurich, Switzerland. The insurance industry, Mr. Lohmann said, "can't stand" underwriting discipline.

Mr. Marko said he expects the market conditions to drive some additional consolidation in the insurance industry. "We certainly have still some weak players in the industry today," he said. "If they can't manage their way out of the situation, they likely will either go out of business or be acquired."

But Mr. Lohmann suggested that such activity is not unique to the current climate. The insurance and reinsurance business, he said, has gone "through a continuous process of new formations and consolidations and capital entering and leaving the market."

The annual Hines Symposium honors the late Harold H. Hines Jr., who at the time of his death in 1984 was president and CEO of Rollins Burdick Hunter Co., now part of Aon Corp. The event is co-sponsored by Business Insurance, the Chicago Chapter of the Risk & Insurance Management Society Inc. and the Insurance School of Chicago.

Kathryn J. McIntyre, former publishing director of Business Insurance, moderated the symposium.