Economy Top of Mind for Insurers

Although the Independent Insurance Agents & Brokers of America's recent Legislative Conference & Convention focused primarily on the impact of government regulation of insurance, another primary topic of discussion was the nexus between the industry and the troubled economy. 

During a CEO panel discussion W.R. Berkley Corp. Chairman and CEO Bill Berkley stressed that the increasing interrelation of the global economy exposes insurers to new risks. Seemingly remote occurrences, such as inflation in China can have serious ramifications for U.S. insurers. "What happens in China, what happens in the U.S., what happens in Europe, is all interrelated,” Berkley said. “We didn't have inflation because of the benefits we got from low-cost production in Asia. We're about to be stuck with inflation that's going to come from those same places."

Selective Insurance Company of America Chairman, President & CEO Greg Murphy noted that inflation would two negative impacts on the insurance industry balance sheets. "One, [inflation] has an immediate impact on our vested assets in terms of their values, although it does follow us in terms of higher interest rates down the road," Murphy said. "On the liability side, we're already seeing inflation. Medical inflation has been high. When you're in an environment where it's difficult to raise rates, inflation can be devastating to insurance companies because it effects your pricing immediately and it also affects your cost."

Westfield Insurance CEO & Westfield group leader Jim Clay noted the economy faced both short-term and long-term challenges. "In the short-term....we're dealing with a recession that is stubborn, we're trying to overcome unemployment, the housing industry is not fixed yet,” Clay said. "There's no question that in the long-term- Medicare, Medicaid, Social Security - those have to be fixed."

Insurance Information Institute President Bob Hartwig offered some hope, saying while the prospect of rapid are muted, another recession is unlikely. "The economy faces quite a few challenges, but even early last year I think I was one of the few people out there who said we were not going to end up in a second recession," Hartwig said. "At the same time, [I said] growth was going to be unsatisfyingly sluggish and employment prospects would only improve and that continues to be the case today."