A View From The Press Box

By now you may think I am simply paranoid, but I believe all the hype about the coming softening market is mostly intra-industry communication (from the likes of the Insurance Information InstituteI) to make sure all companaies are on the same page regarding holding the line on pricing (aka price-fixing).

You don't see the National Auto Dealers Association coming out with these types of stories, do you? Could you imagine the public outcry if the following were published by them?

"Car dealers in the coming year need to realize that if they are going to maintain their profit levels they must maintain discipline in their pricing models. Otherwise they are going to suffer the same sagging profits of past soft market cycles."

In other words, "hold your prices boys, we are all in this together. Let's not cut each others throats here."

In a side note, did you notice that today's press release from the Insurance Information Institute [about the top insurance-related, Oscar-nominated movies) left out one very notable insurance movie? How could they forget Francis Ford Coppola's "The Rainmaker" (1997)?

SAM RESPONDS:
Actually, both "The Rainmaker" and Michael Moore's documentary about health insurance reform, "Sicko," were on the Institute's original film list, and that release ran on our NU Online Daily News Web site on Monday.

The Institute must have taken some heat from insurer members about the negative light both flicks cast on the industry, as they were removed from the group's Web version of the story, and from a modified press release that was issued.

When the topic of a "softening market" arises, I look at overall differences and not necessarily just at price.

One example would be the influx of companies now writing lines of business they swore just two years ago they would never write.

I find it interesting the number of companies now padding their books with workers' comp premium to soften the loss of general liability, property and auto premiums.

These, of course, are the same companies that laughed in your face two years ago if you even muttered the phrase workers' comp.

First, I would like to comment on the story in general and then respond to "Insured Consumer."

As to the general question, who is right? I would guess that the answer is somewhere in the middle.

I do agree that most agents give the most attention to the commercial side of the business, and when commenting on the softness of rates and in that area of the business, double-digit decreases have been very common.

But, if you look at the industry as a whole, the lesser reductions in the personal lines side do water down the commercial line price reductions.

My comment to "Insured Consumer" is that in my 25 years in the Industry, there has never been a time when even all other major players, let alone the majority of the market, were in lock-step pricing-wise. There is far to much competition for premium dollars to allow that to happen. Just as it should be.

The Towers Perrin observations about direct writers being less impacted by downturns in the market is flat wrong.

Case in point, a good-sized structural steel fabricator with Liberty Mutual three-to-four years was told last year, and now again this year, that whatever renewal pricing the insured may get from brokers, they will beat---not match, but beat.

This is fantastic for the insured, of course, especially since this risk has a potentially serious liability exposure, and they have a terrible workers' comp mod and loss history.

So, there is the real story about a real risk from a real commercial broker.

Direct writers like Liberty are doing the same as the broker markets--cutting pricing to retain business, except in this case they are trying to retain a difficult risk at give-away pricing.

How do I know> Because Liberty took it away from me four years ago, undercutting me by $40K on the WC, and one year later undercutting me by another $40K on the package.

What Michael says about lines of business applies to classes as well.

For example, the ebb and flow of the cycle is commensurate with many companies' interest, or lack thereof, in the habitational sector.

Each hard cycle seems more extreme than the last--or maybe it's just that I am getting older.

Since it is one way of measuring a field office's success, people have had to come up with ways to appear to be "maintaining pricing discipline" and still cut commercial premium 20 percent.

The opposing goals of new business growth and pricing discipline create this situation.

Tom Davis has an excellent point. However, it is nothing new. Many carriers have done this for years, not only direct writers but many with agency plants as well, writing business that was surely going to be "losers" to retain premium.

In the case of agency business, I know we wrote "accommodation" business often at a significant loss simply to keep the remainder of an agency's book in house. I've overheard conversations telling the underwriters that if they wanted the renewal book, they had to accept the good with the bad. That's been business over the years and I don't thnk it will ever change.

Who's to blame, especially in a soft market? The agent who needs to "place"--or should we say "get rid" of--that pooly performing piece of business, or the company for not emphatically saying no? The blame is there to share, but until the big loss happens and the finger-pointing starts, nothing really happens and the practice continues.

Like the practice of writing huge blocks of marginal risks that have historically been unprofitable at best simply for the up-front premium, and hoping to control the losses through loss control and smart claims handling. Wheee! We've all seen that fail how many times? Yet it still happens more than anyone would admit.

Yes, some things never change regardless of the density of the market or those playing in it.