Dallas — Lou Dobbs would like you to call him a realist. The anchor and managing editor of CNN’s Lou Dobbs Tonight presented a sobering view of our nation’s future at the first annual Insurance Accounting & Systems Association’s (IASA) Executive Edge conference, held this week in Dallas. The conference brought insurance executives together for a two-day educational and networking opportunity.
If attendees held their breath listening to Dobbs describe the economy’s dark side, they let out a sigh of relief upon hearing Bob Hartwig, president of the Insurance Information Institute, deliver a dose of reassurance that, when compared to other industries, insurance is faring better than most.
Dobbs made his “wake up and smell the roses” statements largely against a political backdrop, describing a world of high-ranking political “elites” that he believes function not to preserve the American value system of liberty and equality created under the Constitution, but instead, focus on preserving their own elitism.
“I consider this a real, clear and present danger,” Dobbs said. “There is a disconnect between the reality we must contend with, and the public policy created to manage it.”
Dobbs blamed the national media for failing to recognize and report on the reality of what is happening [in this country]. “For some reason unknown to me, the greater press does not seek truth, justice and the American way,” he said.
Dobbs reminded the audience that in the United States, currently there are 11 million people out of work—with the prospects of this rising to 12 million by the end of the year. “This is where the true pain begins, because it’s an acknowledgement that we have bankrupted this nation,” he said.
While Dobbs maintained that the bailout of AIG was caused because the company “eliminated risk from the discussion,” Hartwig offered clarification: AIG’s problems stemmed from a London-based subsidiary not involved with the sale or management of insurance products.
“How many insurance companies have shut their doors because of this crisis? Zero,” Hartwig said. “At this point, 22 banks have shuttered.”
Indeed, said Hartwig, the policies and processes in place at banks versus insurers are telling evidence in the midst of the economic crisis that insurers are holding their own. Hartwig pointed to insurers’ superior underwriting discipline and risk management models as examples. “Banks sought volume, and largely ignored risk,” he said.
Further, insurers don’t rely on borrowed money to underwrite risk. “Debit is not typically a big part of an insurer’s financial structure,” Hartwig added.
Insurers’ conservative, high-quality investment portfolios, and the ability to maintain a strong relationship between underwriting and risk-bearing activities are yet additional reasons insurers are faring better than banks.
“Banks typically invest in real estate, then securitize those investments, severing the link between risk management and risk bearing,” Hartwig said. “This has led to disastrous results.”
The negative impact of the economy didn’t stop Hartwig and Dobbs from offering audience members some positive action steps going forward.
“If you consider that nine of the 12 most expensive disasters occurred within the last four years,” said Hartwig, “it’s a testament to continue to conduct business the way we have, with disciplined underwriting practices.”
Dobbs offered broader, yet sanguine, advice. “We are stewards to a promise made 200 years ago—freedom d equality ” he said. “The amazing, extraordinary thing about this country is that we remain in power to control our destiny. We must first awaken to the reality of our nation’s problems, and extend ourselves and our industry to embrace engagement, and shape it to the opportunities and challenges before us.”
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