Consumer Concerns Need Attention GardenCity, N.Y.

The insurance industry is not poised for a rash of carrierinsolvencies in the current hard market, but carriers and agents doface a series of challenges, including keeping the confidence ofcustomers, industry representatives said during a recent paneldiscussion.

During the recent Independent Insurance Agents Association ofNew Yorks Leadership Conference and Annual Meeting, a regulator, aratings firm analyst, and two association executives got togetherto discuss the issue of company solvency and its relationship withboth agents and clients. But the clear message was that dealingwith consumer concernsan issue for agents and companies alikeis amore pressing one during the current hard market.

“There is not a concern that most major companies are going togo bankrupt,” said Gordon Stewart, president of the InsuranceInformation Institute.

But there is an issue of trust in the minds of consumers, hesaid. “There is more danger in how [companies] deal with consumerconcerns” than their finances,” he asserted.

During this hard market period, the insurance industry hasmanaged to keep its negative opinion numbers among consumerssurveyed at between 16 and 20 percent, while approval comes in atthe 50-to-60 percent range, he said. He compared this to the hardmarket of the 1980s when the approval ratings were running in thelow 30-percentile range.

However, he noted, unless insurers begin to understand theissues that really concern consumers, the standing of the insuranceindustry could deteriorate in the eyes of consumers.

“There are two million people who work in the insurance industryand 263 million who do not,” said Mr. Stewart. “It is easy for usto think that the ideas that occupy us would be dinner table topicsfor them. Its not” the case.

“Our problem is we need to understand what is on their minds,what concerns them on insurance, and what topics rise to dinnertable talk,” he said.

Companies are faced with underwriting challenges in order toremain profitable, he noted. But when companies drop customers,drop lines of business and raise prices, customers fail tounderstand the reasons why. That failure in understandingundermines the relationship, creating “anxiety about a product thatis suppose to provide security”

“That deteriorating relationship could have a politicaloutcome,” Mr. Stewart warned. “The industry needs to watch out anddeal with these issues and take care of the consumer.”

Taking care of the client, for independent agents, means beingkeenly aware when companies appear to be in trouble and recognizingthe need to place their clients risk somewhere else, said BobRusbuldt, chief executive officer of the Independent InsuranceAgents & Brokers of America.

“Agents usually know what is going on before regulators andraters,” Mr. Rusbuldt said. “They are on the front lines.”

He said company executives he has spoken to say they are havingconcerns with their underwriting and the forces impacting theirbusiness.

“Asbestos is a huge issue,” he said. “Some executives say thereare only three issues that concern them: Asbestos, asbestos andasbestos.”

However, when it comes to client understanding about insuranceand the risk of insolvency, he observed that the “client doesntalways know about all the safe and sound issues, but theyunderstand [how much it costs] when they write that check.”

He noted that the Alexandria, Va.-based associations newmarketing campaign, Trusted Choice, is an effort to reach out tothose consumer concerns with “a pledge,” by both member agents andcompanies, to give them what they are looking for in insurance.

“It is unique and cutting edge,” he added.

Gerard Altonji, senior financial analyst with theproperty-casualty division of Oldwick, N.J.- based insurancecompany rater A.M. Best, observed that despite the need forcontinued premium improvement within the industry, he expected tosee softening begin again after 2004. “We see some softening comingback now,” he said. “The industry has a long history of shootingitself in the foot.”

For raters, Mr. Altonji said, the biggest problem is when to“pull the trigger” and lower a rating. A lot has to do with thecompanys business plan, he said. If the company is in somefinancial trouble, but presents a plan that appears would besuccessful, then the rater is “obligated to hold off” but wouldalso be obliged to give the company a negative rating.

He did not feel that the insurance industry has any Enron casesout there, but added that “when a company goes bad it goesquick.”

Reproduced from National Underwriter Edition, May 19, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.