During my second week at the helm of Insurance Networking News, I overheard a software and services vendor speaking at the ACORD-LOMA conference in Orlando. She was gushing about how excited she was at the prospect of hurricane season."We love hurricanes," she said. "It's good business for us."
I had forgotten about that unseemly remark until reading a Reuters' news report released just as this issue went to press. It read: "Hurricane Katrina may help insurance companies raise the premiums they charge clients, and could bring new companies into the disaster area to exploit opportunities for more profit, industry analysts say."
Exploit opportunities?
The report went on to state that opportunities would be greatest for commercial insurers that would provide coverage for area businesses and also for unregulated reinsurers. Companies that cover personal lines, such as state-regulated automobile insurance, would find it harder to raise rates, even in the most affected areas.
"They'll have to get it through the regulators, and that's where the gamesmanship will begin," Jeff Berg of Moody's Investors Services, was quoted.
Gamesmanship?
Finally, the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif.-based watchdog group, warns insurance carriers not to turn their backs on Katrina victims simply to "protect their profits."
Perhaps there is a long history of insurance companies reaping profits from disasters; or perhaps the media assumptions continue to feed into the public's view that insurance is more than just a necessary evil. But it doesn't have to be that way.
Our industry is about measuring risk, underwriting to a rating structure that is competitive and considered fair, and maintaining and growing reserves to cover losses and ensure a reasonable profit. In large part, we are already there: financial stocks rose shortly after the announcement that the insurance sector showed strength and the ability to absorb record-level Katrina-related losses.
I may be going out on a limb here, but it seems to me that insurers should be able to find a way to grow their businesses without gouging a customer segment already in dire straits. Maybe we can improve earnings forecasts without having to depend on catastrophes. Aside from making smart investments, maybe we can grow our margins by improving processes to work smarter and more efficiently, and by making the best use of leading-edge technologies and existing systems that enable us to predict risk more accurately, process claims more quickly, identify fraud more effectively and respond to customers with better service.
The leaders in our industry understand and live by that premise.
Zurich is one such leader. The carrier's enterprise underwriting strategy (see "The Zurich Way of Pricing Risk," page 20) zeros in on a "technical price" for every risk the company assumes. Zurich management believes it's possible to determine a "right" price to charge for risk over a continuous period of time-regardless of the market cycles. By leveraging technology, Zurich is creating a rate structure designed to better withstand catastrophes, economic cycles and regulatory changes. Hopefully, as more insurers follow that lead, the industry won't be pressured to "exploit a catastrophe's opportunity" to garner a profit.
