View from the top

A group of top insurance industry executives shared their views on everything from catastrophe modelling to optional federal regulation of insurance during a Leadership Panel Luncheon Tuesday at the annual conference of the Risk & Insurance Management Society here in New Orleans.

Asked whether there is “real science” to catastrophe models and insurers’ underwriting following Hurricane Katrina, Evan Greenberg, president and chief executive officer of Hamilton, Bermuda-based ACE Ltd., said, “There is a science and there is a framework.” That fact shouldn’t give insurance buyers excessive comfort, however, he cautioned.

“It’s a crude science and it’s an evolving science,” Mr. Greenberg said. “And those models probably are as good as the next cat season.”

While noting that there is an “evolution” in risk modeling and insurers’ use of such tools in their underwriting, Shivan S. Subramaniam, chairman and CEO of Johnston, R.I.-based FM Global, told the audience that what the models provide is a tool for helping insurers manage their aggregations of risk.

“The thing to remember is that models don’t predict disaster,” he said. “What they do do is predict what aggregations should be given a certain set of circumstances.”

On the subject of supplemental commissions and other forms of incentive-based compensation of brokers by insurers, panelists views were mixed.

Brian M. Storms, chairman and CEO of New York-based broker Marsh & McLennan Cos., said the subject is an industry issue, not just a broker issue. He noted that like others, Marsh is making a “significant investment” in the industry, through its investment in technology to facilitate transacting business between insurer and insurance buyer, for example. “That cost has to be shared,” he said.

Gregory C. Case, president and CEO of Chicago-based Aon Corp.,  said until his company understands what the definition of “supplemental” is, it can’t make a decision on whether to accept the method of broker payment offered by some insurers. But he stressed the need to make buyers aware of the value brokers provide, and the importance of talking about “value to price.”

J. Patrick Gallagher Jr., chairman, president and CEO of Itasca, Ill.-based Arthur J. Gallagher & Co., emphasized the benefit of “transparency” in the broker-client relationship, though Mr. Greenberg argued that “Transparency does not eliminate conflict.”

John Amore, CEO general insurance for Zurich Financial Services, said he thinks there is a need for flexibility and more than one type of compensation system “if you’re going to deal across different customer segments and different size brokers and agents.”

Regarding the debate over an optional federal charter for insurance in the United States, Martin J. Sullivan, president and CEO of New York-based American International Group Inc., noted that when his company goes to other markets around the world it meets with a single regulator, unlike in the U.S. where it currently faces different regulators in each state.

“We need one regulator in the United States,” Mr. Sullivan said, adding after a brief pause, “But I do love all my regulators.”

The executives discussed various other subjects as well during their 90-minute or so chat. I’ll be writing about the session more fully in an upcoming issue of Industry Focus.

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