New York, Jan. 13, 2004 — Leaders of the property/casualty insurance industry expect an improvement in profitability for 2004 compared with last year, according to a survey conducted by the Insurance Information Institute (I.I.I.) at its eighth annual Property/Casualty Insurance Joint Industry Forum, held in New York City on Jan. 13. NAMIC was one of twelve co-sponsors of the event.
Executives in the p/c industry are optimistic that their industry is on the road to recovery. Eighty-two percent of survey respondents expect 2004 to be more profitable than last year, as measured by the combined ratio, a percentage of each premium dollar a p/c insurer spends on claims and expenses. The combined ratio for 2003 is estimated at 101.
Asked if insurers thought the hardening of the p/c commercial market would continue through 2004, 54 percent thought it would. However, 59 percent of insurers thought the hardening of the personal lines market would not continue through 2004.
Broken down by lines of insurance, 64 percent of respondents expect auto insurance to be more profitable in 2004, most likely as a result of improved adequacy of rates.
Sixty-two percent of respondents predict the homeowners line to be more profitable than last year and eighty-one percent expect interest rates to rise in 2004. “Interest rates are the lowest they’ve been in decades and historically low interest rates remain the primary driver behind low investment yields,” according to Robert Hartwig, senior vice president and chief economist of the Insurance Information Institute (I.I.I.)
Seventy-one percent of respondents expect consolidation among insurers and reinsurers. In addition, 60 percent of insurers do not believe the number of rating agencies upgrades outpace downgrades in 2004.
Ninety-eight percent of respondents expect another up year in equity markets in 2004.
Abuse of the tort system continues to be a major concern confronting p/c insurers. Citing a recent analysis by Tillinghast Towers-Perrin, Hartwig stated that tort costs consume more than two percent of GDP or more than $200 billion per year. “Per capital ‘tort tax’ is expected to rise to $1,003 by 2005, up from $807 in 2001.
“The tort system is extremely inefficient,” added Hartwig. “Only 22 percent of the tort dollar compensates victims for economic losses. In fact, at least 54 percent of every tort dollar never even reaches the victim.”
Businesses in every industry are seeking tort reform. Yet only 38 percent of survey respondents think Congress will pass and President Bush will sign meaningful tort reform legislation in 2004. Likewise, just 35 percent expect Congress to pass and President Bush to sign legislation in 2004 that will help contain the current asbestos crisis.
Interestingly, 94 percent of respondents think President Bush will be re-elected in 2004 and 92 percent believe Republicans will remain in control of both the House and Senate following the November 4 elections.
Insurers were less optimistic this year when it came to workers compensation. Fifty-eight percent of respondents thought there would be an improvement in the workers compensation market, yet 67 percent of respondents expect an overall improvement in commercial lines.
“The current hard market is likely to stabilize in 2004,” said Hartwig. “Rates of return in the property/casualty insurance industry, while improving, are still only in the 9 to 10 percent range; well below the 13 to 15 percent typical of Fortune 500 companies.”
With regard to the Terrorism Risk Insurance Act of 2002, 67 percent of survey respondents do not believe Congress will act to extend the program in 2004.
The Property/Casualty Insurance Joint Industry Forum was created to provide leaders from the widest spectrum of the industry with an opportunity to meet with each other in discussion of topics of general interest.
Forum participants included nearly 250 representatives from property and casualty insurance and reinsurance companies and organizations. Of these, roughly 40 percent responded to the survey.
The organizations sponsoring the Forum are: National Association of Mutual Insurance Companies, Alliance of American Insurers, American Institute for Chartered Property Casualty Underwriters, Insurance Information Institute, Insurance Services Office, Inc., National Council on Compensation Insurance, Reinsurance Association of America, ACORD, The Geneva Association, Institute for Business & Home Safety and National Insurance Crime Bureau.