Insurance Executives Push For Profitable Underwriting
By Mark E. Ruquet
Orlando, Fla.
Insurance executives called upon their industry colleagues to come to their senses and stop the underwriting practices that have led to unnerving, roller coaster cycles, depleted balance sheets, and a poor reputation in the eyes of the public.
The critical assessment of the industry's standard operating procedures came here during the 15th annual conference of the Professional Liability Underwriting Society.
Michelle A. Duffett, president of the Minneapolis, Minn.-based PLUS, began the round of critical observations in her comments during the opening general session. Pricing cycles, she said, have a long history--one that has not been beneficial for sellers or buyers. She said the practice of taking an underwriting profit "should not be a fad," adding that "irresponsible competition" was hurting the industry. She said the bar of responsible underwriting needs to be raised.
The industry, Ms. Duffett said, should "not take short-term opportunities and be wrong in the long term," adding that insurers need to "make the unpopular decisions and stick with them." She added that if the industry remains consistent in its underwriting practices, it would have "a fairly better reputation."
"We must commit to long-term goals," she concluded.
Later, in an executive roundtable moderated by Charlie Rose, host of a TV talk show on PBS and a correspondent for "60 Minutes II" for CBS, four top insurance officials were equally critical of the industry, but said they were optimistic about its future.
Sax Riley, the outgoing chairman of Lloyd’s of London, noted that the industry has been through a number of staggering disasters since the 1960s--most recently the destruction of New York's World Trade Center by terrorists. He said the industry, with its prolonged market shifts, is not underwriting risks properly. He added that the industry needs five years of combined ratio underwriting in the 90 percent range to get back on its feet financially.
"We have got to break the cycle in this industry. We should be able to manage our business a lot better than we do," said Mr. Riley, echoing the theme in a speech by another Lloyd's official--Julian James, director of worldwide markets--at the annual conference of the National Association of Independent Insurers a few weeks ago.
"We have got to restore professionalism at the management level," said Brian Duperreault, chairman and chief executive officer of Bermuda-based insurer ACE Ltd. He said it was this lack of professionalism and poor underwriting decision-making that led to the prolonged soft market, and that if the industry does not right itself, there will be "a sea change" in senior management.
Joining in the call for more professionalism in the upper management circles of the industry were Dinos Iordanou, chief executive officer of Arch Capitol Group Inc., also based in Bermuda, and John Keogh, president of National Union, a subsidiary of New York-based AIG.
"We must have a very low self-esteem," said Mr. Iordanou of the industry, noting the poor financial results companies have accepted over the years.
Mr. Keogh added that the industry has a long way to go "to get to equity," and he wondered, once reaching profitability, whether the executives would have the discipline to resist falling back into the same soft market bad habits. He said he hoped the disciplined underwriting now being practiced would become permanent instead of contingent on outside factors, such as investment returns.
The industry has done a poor job maintaining its standing of reliability with the public, as well as combating the "deep pocket syndrome," said Mr. Riley.
In part, Mr. Iordanou said, the media is to blame because of its desire to report on confrontational issues. However, he conceded, the industry has done a poor job of getting its story out about how it has helped individuals and the overall economy recover from disasters.
He noted the enormous help the industry provided in the rebuilding of Florida after Hurricane Andrew, and how the industry agreed not to invoke its "War Exclusion" on request of President George W. Bush days after the terrorist attacks of Sept. 11, 2001.
"That story has not come out, and we have to blame ourselves for not getting the story out," he said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 18, 2002. Copyright © 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
Return to table of contents for NU Online.
|
5081 Olympic Boulevard, Erlanger, KY 41018