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Industry CEOs Tackle Katrina, Soft Market, TRIA |  Rudy Giuliani Addresses Disaster Response Efforts, Federal Role in Insurance  |  Outlook on Katrina’s Impact Worsens |  It’s Getting Hot in Here: Global Warming & Insurance |  Katrina Inspires Financial Planning Introspection |
  Big "I" Agent Briefs Congressional Committee on Katrina | Big "I" National News

P & C   T R E N D S
Industry CEOs Tackle Katrina,
Soft Market, TRIA
CEO Panel discusses industry issues at the
Big “I” Convention in the Big Apple

The impact of Hurricane Katrina was top of mind for chief executive officers of some of the industry’s top insurance carriers during the Big "I" Convention last week. While the immediate priority is to assist all the affected individuals, thoughts also are turning to how the industry will handle this unprecedented natural disaster.

The CEO Panel, held Sunday at the Big "I" Convention’s Opening General Session, assembled top insurance carrier CEOs to probe for their views on Hurricane Katrina, the insurance market, TRIA extension and other industry-related issues. Big "I" CEO Bob Rusbuldt moderated the hour-long panel discussion.

Discussing Hurricane Katrina’s impact, MetLife President William J. Mullaney said that the industry’s focus is on helping customers and ensuring claims centers are available 24 hours a day, seven days a week.

Charles M. Kavitsky, president and CEO of Fireman’s Fund, said that New Orleans’ unprecedented situation necessitates companies think outside the box on how to help clients.

"For all of us, we’re dealing with elements that are absolutely unique," he said. "We’re trying to come up with creative ways to create a communications process. We need to rid ourselves of bureaucracy."

Although companies are being pressed to quantify how much they lost, Kavitsky said it’s too early to attempt to put a number on it. "You can’t be accurate with that statement right now," he said. "In order to be helpful, we have to get the facts, then respond."

Mike McGavick, president, CEO and chairman of Safeco Insurance said that although Safeco does not write a large amount of business in the affected areas, "When an event is that large, everyone is affected by it."

Frederick H. Eppinger, president and CEO of Allmerica Financial Corp., said that while the industry has weathered other disasters such as Hurricane Andrew and 2004’s series of hurricanes in Florida, Katrina presents unique problems. "The difference here is the magnitude of the uninsured," he said.

Will Katrina affect the market’s softening? Kavitsky pointed out that 2004’s hurricanes did not affect the market as many feared they would, but Katrina could be in a different ballpark.

"(2004’s storms) affected the region, not the country," he said. "I think things are going to look better, not worse. But we are sorting through a 100-year situation" in Katrina.

Despite all the chaos Katrina left in its wake, it also provided an opportunity for the insurance industry to shine. "Events like Katrina show we need strong insurance companies to provide protection," said Axel P. Lehmann, CEO of Zurich North America Commercial.

"It’s an extraordinary time," Eppinger said. "What we do is put peoples’ lives together."

Turning to the marketplace, the CEOs weighed in on recent industry financial performance. The industry’s net gain rose 30% in the past year, but The Westfield Group Chairman and CEO Robert J. Joyce was hesitant to say whether the trend would continue.

"As an industry, we could get caught up in this and lose sight of the long term," he said. "Until we have been blessed with surplus, it will be interesting to see what happens this time."

Eppinger said he remains optimistic about the direction of the market for four reasons: "One, discipline in the industry. Two, Sarbanes Oxley put a discipline on the industry. Three, data; we know our profitability by agent, by line like never before. Four, while the industry has been successful, we have a lot of boogie men out there. The storms made us focus on financial strength."

Turning to the hot-button topic of TRIA, Kavitsky said that if another terrorist attack were to occur absent a federal backstop, "there’s no way the insurance industry could handle it. We’ve responded by being more conservative. This is a challenge for us. We can’t stop; we have to keep pounding on this issue."

Lehmann also stressed the need for the government to get involved. "Globally, no country is leaving the terrorist threat totally up to private industry."

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

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P & C   T R E N D S
Rudy Giuliani Addresses Disaster Response Efforts,
Federal Role in Insurance

Former New York Mayor Rudy Giuliani addressed independent agents and brokers from across America and several countries, including New Zealand, Italy, and Japan, at the closing general session of the Big "I" Convention. The standing-room-only crowd at the New York City Hilton welcomed the opportunity to hear Giuliani’s take on Hurricane Katrina efforts, leadership and federal government’s role in insurance.

After wishing well those affected by Hurricane Katrina, Giuliani reflected on his approach to emergency management.

Big "I" Executive Committee member David Daniel, of Baton Rouge, La. asked Giuliani what he thought of the leadership and disaster management in New Orleans and the gulf region.

"I get annoyed when I see the experts on TV saying what they would do better," Giuliani said. "It isn’t constructive. So I’m not going to play the blame game."

However, Giuliani did talk about his standards for emergency management, allowing the audience to draw its own conclusions.

"My principles of emergency management include putting governments together," he said. "Put everyone in one room, and get the benefit of all the resources. You have to have a joint command center, with everyone together, and then decide on one person who is in charge. You have to have drills and exercises, and you have to train the first responders."

Giuliani explained that training and preparation are essential to function in a crisis. While his disaster preparedness teams had not envisioned a crisis plan for the specific attack on Sept. 11, they were able to draw from other plans for various emergency situations they had practiced, to form an immediate plan of action on Sept. 11.  

Big "I" President-Elect Alex Soto asked Giuliani if there is an appropriate role for the federal government in insuring natural disasters and terrorist attacks. Echoing the sentiments of many in the insurance community, Giuliani responded: "Yes, there is a role for federal government. Making sure in catastrophes people get the help they need is part of being one country, one nation.

"Something can’t happen in one part of American without affecting the rest of the country. The federal government has a key role to play in insurance and training the first responders.

"We’re going to sink or swim together. We’re all in it together. If New Orleans gets hurt, we all get hurt."

Giuliani also discussed the qualities that make a strong leader.

"In business, you have to rally people by setting goals for them," Giuliani said. "You have to know what you believe, what’s important, and know where you’re going to take people. Make up your mind based on what is right and what is wrong.

"To be a leader you have to be an optimist. Look at the situation. Think about it. And solve the problem as quickly as possible."

Relevant to the insurance community, Giuliani stressed the need for relentless preparation.

"You’ve got to be prepared for the worst thing that can happen to you. Relentless preparation is very important.

"Ultimately, the thing that comes across is if you care about people," Giuliani said.

"Rudy Giuliani demonstrated how in touch he is with main street America, the insurance industry, as well as the business community. His speech appealed directly to our members and all Americans who are touched by either man made or natural disasters," said Big "I" CEO Robert A. Rusbuldt. "We need a Rudy Giuliani in every city. He is an effective leader because he has great vision, compassion, intellect and communications skills. His leadership skills have certainly been put to the ultimate test."

Emily Crane (emily.crane@iiaba.net) is Big "I" media relations manager.

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H U R R I C A N E   K A T R I N A
Outlook on Katrina’s Impact Worsens

As New Orleans remains 60% underwater, the insurance industry continues to struggle with the enormity of Hurricane Katrina’s impact. In the past week, estimates, surveys and other developments have upped the severity of Katrina’s damage.

Catastrophe modeler AIR Worldwide Corp. sent teams of engineers to Louisiana, Mississippi and Alabama to assess the storm’s damage.

"Survey results thus far confirm our initial expectations of Hurricane Katrina," says Dr. Jayanta Guin, vice president for research and modeling. "Hurricane Katrina was the largest storm of this intensity ever to make landfall in the United States, a fact borne out by the breadth and nature of the damage. The observed damage is consistent with the windfield generated by the AIR model as the storm was making landfall, and is consistent with what we would expect from a storm of this size and intensity."

Risk Management Solutions reassessed its initial estimate of damage last Friday, placing it between $40 billion to $60 billion. That number includes an estimated $15 billion to $25 billion for flood damage inflicted by New Orleans’ broken levees. RMS further estimates that total economic losses will top $125 billion.

Determining whether wind or flood caused damage in certain areas will be a major chore. "Distinguishing the portion of damage attributed to wind or flood will be difficult in many areas that were impacted by winds in excess of 100 mph," states an RMS release. "The final insured loss from Hurricane Katrina will depend on how flood claims are apportioned among the NFIP, private insurers and individuals."

According to Moody’s Investor Services, the majority of claims will be commercial in nature and will impact the p-c industry.

Speaking at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, Moody’s analyst Jeff Berg said that "There is a high degree of uncertainty" about Katrina losses that stem from flooding.

"We believe (the uncertainty over the cause of the floods) will lead to disputes between insurers and insureds. This will be compounded for reinsurers," he says in Business Insurance.

The industry is starting to feel Katrina’s wrath. Fitch Ratings announced Tuesday it may lower five insurers’ ratings due to large potential losses related to the hurricane.

The insurers are Allstate Corp., Horace Mann Educators Corp., Montpelier Re Holdings Ltd., PXRE Group Ltd. and State Farm Mutual Automobile Insurance Co. According to a Reuters report, "the warning was based on (Fitch’s) view that considerable uncertainty remains about ultimate losses and that the affected companies’ exposures may represent a material percentage of their equity base."

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

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   V I E W :   P & C   T R E N D S
It’s Getting Hot in Here: Global Warming & Insurance

Maybe the Mother Jones and granola-set were right about global warming---or maybe not. I will spare you the scientific method debate, null hypotheses, Type II errors, the impact of El Nino and whether the balloons were shaded debate and just say the impact of something on our industry is pretty clear (see the below chart). If nothing else happens in the next three months, the past two years have been the two biggest catastrophe-loss-years ever--- earthquakes and terrorism played no part. The weather was the culprit. It might just be a natural cycle, it might just be volcanoes and not SUVs, it might be getting worse or it might be we are just more exposed to weather losses.

* Source ISO for 1989 to 2004. Loss figures for 2005 are still developing and based on the Sept. 9, 2005 estimate of Risk Management Solutions Inc. that insured losses will be between $40 billion and $60 billion with more than $125 billion in total economic losses.

What is not debatable is these dollar losses are unprecedented. Total losses in 2005 of $60 billion in one event represent a more than 10% increase in losses for an entire year. If proportionate losses were evenly spread over every independent agency in the United States, $1 million would be added to each of our loss ratio calculations. As insurance professionals with debates of global warming swirling around, you should know two things.

First, a major portion of the dollars behind our industry believe in global warming and have for a long time. Munich Re, Swiss Re and other European insurers are on record with positions warning against the risks of increased global warming. Munich Re identified flood and global warming as a risk in a 1973 paper. The Association of British Insurers recently published a paper supporting the notion of impending climate change in 2004 ("A Changing Climate for Insurance"). Even Warren Buffet has stated that small atmospheric changes can wreak "momentous changes in weather patterns."

Skeptics may say, "of course, the insurance industry position that makes economic sense!" The argument goes "doom and gloom is good for insurance sales." Rarely noted but always true, those pooh-poohing the global warming trends and accusing the insurance industry of some sort of schadenfreude capitalism are not out there offering to insure $500,000 homes for $2,000 ("Go ahead, jump, water looks pretty deep from here"). While they hate to admit it, insurers do have a higher philosophical plane: their capital.

The second important point is there is not much debate that temperatures are not actually getting hotter. The vast majority of scientists agree on this and water, surface satellites and now weather balloons all seem to point toward temperature increases, particularly in the northern hemisphere. There is still informed debate, but the discussion centers on whether humans actually make things hotter and whether it will naturally abate all on its own with more clouds, rain, an ice-age, whatever.

Watch for academics to increasingly enlist the insurance industry to support their efforts to push for Kyoto Protocols and similar initiatives. Academics, by the way, literally hit the nail on the head as far a predicting the events that will be known for decades as they tragedy of Hurricane Katrina. With scientists and academics taking sides with the largest single dollar industry in the world, insurance, one might predict the debate on global warming is just getting started in the United States.

For the near term, whatever your personal view, you should advise your clients to protect themselves from weather-related losses. Assess the need for and regularly recommend wind and related standard perils as well as less common flood and crop insurance. Also assess exposures to these perils from indirect losses like business interruption, extra expense and even contingent business interruption.

Paul Buse (paul.buse@iiaba.net) is a licensed agent and president of Big "I" Advantage, IIABA’s for-profit subsidiary. 

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L & H   T R E ND S
Katrina Inspires Financial Planning Introspection

In the aftermath of disasters such as Katrina, the problems people experience inspire thoughtful introspection in all of us. Our sophisticated society relies heavily on technology---from Blackberries to ATM cards to cell phones. One of the most salient points that we learn is that whenever there is a disaster, whether natural or manmade, there usually are not adequate plans to handle basic communications needs.

For example, many people use ATM cards and travel without much cash on hand because they can access more money with their ATM cards. While this is generally OK, what would happen to you if the power was out, or you couldn’t access an ATM? What would you do for taxi fare, food, lodging, etc. if you were affected by a disaster? A city-wide power outage would not only inconvenience you, it could place you in a precarious position. In the wake of Katrina, some people now carry a significant amount of emergency cash.

Similarly, people usually do not give much thought to driving around town with the gas gauge close to empty. Recent events have persuaded many to keep at least half a tank of gas in the car in case they have to drive away from an emergency for an extended period of time.

After four hurricanes struck Florida last year, many independent agents could not place or receive calls via cell phones, and customers could not contact them. As a result, a number of agents across the country purchased satellite phones as a backup.

Many families are now taking the time to discuss a predetermined "escape plan" in the event they get separated during an emergency. Involving others as a support system to aid in travel, particularly for minor aged children, is a good idea.

What does this have to do with independent agents who help their customers with their financial planning? In a word: Preparation. Having adequate resources to deal with a disaster can be a matter of life and death. The same concept applies to having adequate financial liquidity to meet unanticipated hardships. Many peoples’ financial situations necessitate living paycheck to paycheck. However, there are numerous people with significant incomes and assets that are very leveraged---large mortgage, credit card debt, etc.---who could not meet their expenses if they lose their jobs or become seriously ill.

Financial planners recommend a contingency fund of three to six months of savings to allow a person to meet their immediate expenditures. To make sure that assets could be liquidated without incurring a significant penalty, i.e. a long term CD, look at the maturities of a bond portfolio. Staggering the duration of bond portfolios to avoid interest rate reinvestment risk and periodic maturities is known as "laddering." Having 10% of a long-term bond portfolio mature each year means that the closest maturity date of the bonds can be redeemed without any significant market valuations.

It’s important to remember that many agency principals receive contingency income when their loss ratios are good and those payments are a good source of income to pay off debt and put funds into a contingency fund. Also, many agents have generously helped affected agents and people in the south deal with the impact of Hurricane Katrina. If your savings allow for it, now is an excellent time to help out. Remember, disasters do not discriminate. 

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.

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O N   T H E   H I L L
Big “I” Agent Briefs
Congressional Committee on Katrina
Louisiana’s J. David Daniel among industry leaders invited to meeting

J. David Daniel, a Louisiana independent insurance agent and a national Big "I" Executive Committee member, was among the industry experts invited to brief a Congressional committee yesterday on the immediate impact of Hurricane Katrina.

Daniel, a Baton Rouge agent with Daniel & Eustis LLC, was among five industry witnesses slated to address the House Financial Services Committee briefing.

The informal session included no written testimony. Daniel delivered the message that independent insurance agents and brokers in the Gulf Coast region are responding to consumers despite facing their own hardships.

"I informed the committee that agents and brokers in Louisiana, Mississippi and Alabama have gone above and beyond the call of duty, despite their own personal losses, to serve the policyholders who need help," Daniel said. "A number of independent agents have lost their own offices and homes, but have been literally working around the clock to set up makeshift claims processing centers on their porches,  in tents and trailers, or getting out on the ground to serve the public. More than 100 insurance agencies in New Orleans have been affected, including my own, and it has just been amazing watching these agents, who are facing their own adversity, help their customers put their lives back together."

Daniel also noted that independent agents and brokers support a national solution for natural disaster risks, much as they support federal involvement in terrorism insurance.  Specifically, Daniel expressed the Big "I" support for H.R. 846, the Homeowners’ Insurance Availability Act, introduced by Rep. Ginny Brown-Waite (R-Fla.).

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations.

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