NEW YORK— Ongoing quarreling over the budget in Washington is causing anxiety in the insurance industry—much more concern, it would seem, than the industry's ability to handle random weather events.
The current stalemate is causing an “incredible pent-up demand,” says Liam E. McGee, CEO of The Hartford, at the 17th annual Property/Casualty Joint Industry Forum at the Waldorf-Astoria in New York on Jan. 15.
“It is so frustrating to me, hearing from customers,” McGee adds. A survey Hartford did of small and mid-sized businesses shows that pessimism toward Washington has doubled in six months, he adds.
McGee says he has been told by business owners that they won't hire until they are more certain about the direction of the economy.
A whopping 94 percent of executives surveyed at the conference by the Insurance Information Institute say the budget fight in Washington will affect the U.S. economy.
But what that will mean exactly is not known. State Farm CEO Edward B. Rust Jr. questioned whether customers would develop a “hunker-down” mentality, and whether such a psyche would cause a reversion in the uptick in car and home sales seen in 2012, for instance.
The possibility of these trends remains to be seen but, because of the “fragility of recovery” in the economy, the “wrong action can cause withdrawal” among consumers, Rust says.
For now, the uncertainty might affect exposure, or a consumer's willingness to pay for needed rate increases in the homeowners' insurance market, says McGee.
And rates will continue to rise. Time and again, panelists at the forum reminded listeners of the fact that the industry's profits in the homeowners' line do not cover the cost of capital.
John J. Bishop, CEO of The Motorists Insurance Group, calls the homeowners' insurance market “very distressed,” with just one year of underwriting profit turned in over the last decade.
“I've seen more rate activity in the last 5 years than in any other period,” he says.
In the meantime, Nikolaus von Bomhard, CEO of Munich Re, says, “I doubt we'll see a market-changing event any time soon.” The industry can handle large, random weather events.
“Mankind: that's what gets us in trouble,” he says.
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