Carriers Can Still Profit Despite Unpredictable Economy, Berkley Says

By | June 6, 2016

Partnership and greater efficiency will help lead the way to continued profitability despite a new level of uncertainty globally, according to Bill Berkley, executive chairman of the W.R. Berkley Corp. and keynote speaker at the American Association of Managing General Agents (AAMGA) annual meeting held in Scottsdale, Ariz., in late May.

He explained that the economic and social aspects of society are far less predictable than in the past, providing a challenge to ameliorating risk.

Globally, several countries are exhibiting dysfunctional economic behavior, Berkley said. Social needs prohibit Europe from being economically dependent, while Russia deals with a decline in natural resources. Even China, which enjoyed eight years of rapid growth, will see an inevitable slowdown in their economy, he said. More worrisome is the potential detrimental effect of artificial intelligence on India’s economy, where an estimated 15 million people work in call centers.

“It [AI] will make self-driving cars look like child’s play,” Berkley said.

We need to look at all the ways we waste money.

Restoring the American Dream should be the goal here in the U.S., he said, citing that while there is less than 5 percent unemployment, people still feel helpless and hopeless. That’s, in part, due to a lack of diversity. Though minorities represent about 20 percent of the population, he said, they represent only about 6 percent of new mortgages through Fannie Mae and Freddie Mac. “We can’t expect much from the younger generation unless we give them something to strive for,” he said.

Reduce Costs, Inefficiencies

Due to current tax laws, there is more capital offshore than onshore, Berkley said, noting that this is a big pet peeve of his.

He explained the importance of having a strong domestic presence, using the Sept. 11 attack as an example. Insurers at the time were anticipating denying coverage due to the war risk exclusion. When Chubb announced it would pay claims associated with the attack, several foreign insurers followed suit.

Berkley also noted that the impact of self-driving cars on auto insurance, which represents up to 40 percent of all insurance business, will result in a substantial decline in premium. As a result, carriers will need to focus on new product offerings.

Berkley said distribution costs are too high. Carriers need to focus on lowering costs to deliver products to customers. To avoid going the way of travel agents — at their peak their numbers reached 40,000; less than 10 percent still operate today — insurers and agents need to work together.

He explained that carriers and agents tend to do too many things, too many times. “We need to look at all the ways we waste money,” Berkley said.

Some of the waste is related to regulatory costs and some to duplicative processes. In order to gain efficiency, insurers and agents will need to share the responsibility.

He explained there will be continuing pressure on income in property/casualty lines due to lowering interest rates. This will affect pricing with insurers either adjusting the cost of the product or settling for lower returns.

Berkley concluded by touching on the upcoming presidential election. He emphasized the importance of voting, despite the acknowledgement that the system is broken.

Topics Carriers Agencies Profit Loss

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