While it is not an easy time now, the insurance industry will be better off in the long run as a result of the scrutiny it is facing from Eliot Spitzer and other officials, according to three top corporate executives.
“The industry will be stronger … and our customers will be better off,” Dennis Glass, president and chief executive officer of Jefferson-Pilot Corp. at the Standard & Poor’s 2005 Annual Insurance Conference in New York.
Stephen Lilienthal, chairman and chief executive officer CNA Financial Corp. and Brian O’Hara, XL Capital Ltd. chief executive officer, who joined Glass on an S&P panel, generally agreed that the insurance business in North America will become stronger as a result of the recent investigations of some of its practices, though it may take some time for the dust to settle.
In response to the hard-lined perspective that the New York attorney general is out to bring down the insurance industry and that he is anti-business, O’Hara recalled Spitzer’s own defense. “I find the great majority of people in the insurance industry to be hardworking, upstanding professionals, pillars of their community. The insurance industry is an integral and valuable part of the overall economy which is what motivated me to make sure that the industry operated correctly and that there be a level playing field.” Spitzer added there were simply a few bad apples, or a crate.
O’Hara said, “At the end of the day this will create a more transparent industry and I welcome that.”
Lilienthal agreed, “I think out of this comes a better industry with better companies.” He said this kind of evaluation of regulation was overdue so “catch-up” will be difficult. “In the short term, I think you are going to get a very cumbersome and intensified process with a lot of internal focus, but in the long run, we come out of it better.”
The Sarbanes Oxley bill as presently written poses a real challenge for the industry, the panelists continued. “It’s all about disclosure and the level of quality of your control,” noted O’Hara. In terms cost and benefits, O’Hara said the majority of CEOs feel that SOX goes too far. “The scope was ridiculous. What was considered a significant control was absurd,” he commented. However, he did concede that since repeal is unlikely, modification should be pursued.
Lilienthal saw SOX as somewhat inevitable. “I think the Sarbanes Oxley bill was something we needed to go through,” although he admitted not enjoying either the process or the cost.
Risk management and TRIA
O’Hara identified risk management as a key element that relates to cycle management and the movement within the markets in terms of rates, coverage and competition.
Glass said the idea of a centralized risk management is “second in line to making it the responsibility of the business unit heads to manage risk.”
The Terrorism Risk Insurance Act, which has not yet been renewed by Congress, was also on the minds of the executives.
“TRIA is up in the air,” said Lilienthal. “I’ve given up political forecasting.” He stressed the importance of getting it passed.
“No matter what we do we are going to have this window of exposure that is getting more and more discerning … we are going to have to risk manage very actively,” said Ohara.