Sure would have loved to listen in on insurance industry conference calls when Repeat Offenders from Americans for Insurance Reform hit the newsstands last week (you know what we mean!). So far, judging by the jumbled responses, these must have been some phone conversations! They sure have us scratching our heads – although not in a disgusting dandruffing kinda way but rather in a nicely-styled kinda way, at least so far.
AIR did this report for a few reasons. First, to show that while the country has been in a “soft” insurance market since the mid-2000’s (low rates), the industry is taking advantage of 2011 weather events to push itself into a new “hard market,” raising rates on businesses and professional groups for the first time in years. Second, AIR wants to prove that the industry does not need to do this now, as it is in an all-time safe financial position and one might even say overcapitalized. And third, AIR sought to explain how “hard” insurance markets have taken hold three other times, each time degenerating into a “liability insurance crisis” for policyholders. And whereas industry lobbyists and PR people end up blaming lawyers, judges, juries and injured victims for creating this hard market, the tort system actually has nothing whatsoever to do with it. Information is power – that’s our motto!
So what did AIR get wrong? Well, according to the insurance industry, nothing. Take a look:
1. Rates are going up: Not only was AIR not wrong on this point, days later the trade magazine National Underwriter picked this as their #2 top story of 2011! From the December 19-26, 2011 issue of National Underwriter P&C: “In January, market conditions could be summed up as mostly soft, with pockets of flattening prices. By September/October, the consensus was the overall market had finally hit bottom. And by November, the pricing picture could be described as upward bound, if barely so, for the first time in eons—or at least since 2005.”
2. It’s all the fault of the weather. Robert Hartwig of the Insurance Information Institute responded to the AIR report by saying, “Even to people unfamiliar with insurance markets, the authors and Americans for Insurance Reform (AIR), which issued the report, could not possibly come across as oblivious to the risks associated with devastating natural disasters and global economic volatility.” (This would include, according to Hartwig, disasters like 2005’s Katrina, which happened at start of the last soft market when insurers responded by cutting insurance rates! Really, do they think we’re not paying attention?)
2. Despite all this weather, the industry is well-capitalized - rates really don’t need to go up. Hartwig again: “The fact that insurers and reinsurers entered 2011 with record capital on hand to pay claims is unambiguously a good thing for all policyholders. Moreover, over the past four years, while the Great Recession and its aftermath forced hundreds of thousands of businesses to fail, including hundreds of banks—not a single traditional property/casualty insurer failed as a result of the financial crisis and not a single valid claim went unpaid. [Well, clearly that’s not true but we’ll keep going.] … The bottom line is the property/casualty insurance industry is a financially strong, highly competitive, resilient and essential industry in the United States and around the world."
And yesterday, Moody’s Investors Service topped it off with this:
[I]ncreased pricing trends reflect improved underwriting discipline in reaction to challenges such as lower reserve releases, weather-related losses, low investment yields and a sluggish economy.
However, Moody’s says that while it expects “further price strengthening,” the rate of increase will be gradual due to the industry’s level of capital.
“Historically, significant price strengthening in the [property and casualty] sector has occurred because of a weakening of the industry’s capital position,” says Moody’s. “Today, industry capital remains relatively strong. As such, we expect only measured rate improvements rather than the return of a ‘hard market,’ defined by high rates, low limits and restricted coverage.”
Wow. Did AIR really do something important here by exposing the industry and possibly holding off a crisis? Boy we sure hope so. In any event, we couldn’t agree more: the industry is plenty capitalized, there's clearly no need for spiking insurance rates, and no matter what happens, lawsuits and the tort system have absolutely nothing to do with any of this.
It’s a fascinating end to 2011 as we sign off until 2012, PopTort fans! If something big happens we may be back to tell you about it but otherwise, have a very happy holiday and don't forget to pay attention to John Lennon. Back soon.