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CHICAGOWith Hurricane Katrina losses fading into memory and no major disasters so far in 2006, the insurance market--now swimming in capital--is bound to soften, according to industry experts.
"We're at the peak right now," said Adam Klauber, director of equity research for Cochran Caronia Waller in Chicago, to more than 300 risk management executives and industry analysts who attended the 16th Annual Insurance Executive Forum hosted by Illinois State University's Katie School of Insurance and Financial Services in Chicago last week.
"What goes up must come down," said Mr. Klauber, who was on panel of industry experts that discussed a wide range of topics including the state of the insurance market, the future of TRIA and the aftermath of the Spitzer investigations into insurance industry practices.
Regarding the future of the market, maintaining a high level of profitability will require disciplined underwriters who offer coverage based on exposures, and not resort to cutting rates to win market share, according to Wendy Baker, president of Lloyd's America Inc. in New York.
Ms. Baker attributed this sort of discipline as the tool that helped the industry see profits in 2005, despite the losses from Hurricane Katrina. "We have someone who puts their foot on the brake," she said. "We have people here saying you have to hold back."
In addition the changing insurance market, likely changes in how terrorism risks are covered is also a concern for insurers and policyholders, according to the panelists.
With the Terrorism Risk Insurance Extension Act set to expire in 2007, the insurance industry will need to agree on the best way to handle the risk associated with terrorist attacks.
Ms. Baker said some companies are lobbying the government hard to continue to act as a backstop in the event of a major terrorist attack, others are hunting for other options and a few are eager to dismiss the act altogether.
"The problem in the industry is we are all over the map on what we want," she said. Meanwhile, there have been no recent moves in Congress to provide hope for proponents who want to see the federal law extended beyond 2007.
But for policyholders, that may not even matter, Ms. Baker said.
"In the end, the government will pay the bills," she said. "If we're all out of business or dead, the government gets the bill."
As for the industry's handling of the series of investigations by New York State Attorney General Eliot Spitzer, the new standards have resulted in the industry's own examination of practices, according to panelists.
"It forced us to evaluate how we were doing business," said Brian Kawamoto, executive vp and managing director of Lockton Cos. in Kansas City, Mo. "Today, we are clean and we have communicated that to our clients. (But) it hasn't required a fundamental change in how we do business."
To one panelist, this ripple of change brought on by the Spitzer probe isn't enough.
"I'm still very disappointed that the industry hasn't taken a holistic view on how they do business," argued Susan Meltzer, assistant vp of risk management for Aviva Canada Inc. in Toronto.
"There hasn't been a breakthrough in the industry...Things are going to come out," she said. "There are a lot of business practices that--if put under the microscope--wouldn't pass the smell test."