The insurance industry has difficulty convincing Congress about the significance of its business and some of its own leaders about the pitfalls of overly-aggressive price competition, according to one of the world’s leading insurance executives.
Citing trouble renewing the nation’s terror insurance backstop, the failure of federal tort reform, the collapse of talks over asbestos litigation and other legislative matters, American International Group’s Maurice Greenberg told a gathering of New York insurance brokers yesterday that the industry has a problem winning over lawmakers in Washington.
“The insurance industry has an education problem with Congress,” the executive said. “There’s a banking committee but no insurance committee even though the insurance industry is one of the largest investors in the economy.”
He pointed to the recent attempts at renewal of the federal terrorism insurance backstop — he called the Terrorism Risk Insurance Act or TRIA “essential” — as one example of where the industry has come up against an unsympathetic Congress. The issue is bigger than the industry itself, he argued.
“This is not just an insurance issue; it’s a problem for the economy,” Greenberg said, adding that the construction and real estate industries should be “making noise” about TRIA.
“Clearly there is a need for TRIA but Congress will adjourn shortly and when it returns they will deal with other items. I am very uneasy whether TRIA will make the list,” he warned.
However, not all of the industry’s problems can be traced to Congress, the AIG executive suggested.
“Market share is a dumb strategy in a risk business,” Greenberg declared in criticizing insurance companies that forsake sensible pricing—while acknowledging that there are always going to be such companies.
“There’s a graveyard of insurance companies that fail to understand the difference between cutting rates and having adequate rates,” he said, adding that some unwise price competition occurs every insurance cycle and there is little anyone can do to stop it.
As a result of unwise price competition that occurs with every insurance cycle, “there’ll be new headstones in the graveyard,” he said.
“The insurance industry is what it is. I wish there were more stability but that’s not going to change,” he added.
He said the property casualty industry would feel the effects of the hurricanes that have hit Florida and other states. “The industry will not look good in the fourth quarter,” he predicted.
Greenberg’s remarks came in an address before the Insurance Brokers Association of New York at The Down Town Association near Wall Street. He suggested that brokers can help reduce the emphasis on price cutting by doing business with reputable and stable companies, stressing service with their clients and reminding clients that not all classes of business are covered by guaranty funds.
“The cheapest price turns out to be the dearest price” in many cases, he said.