Goodbyes, New Directions and Thank Yous

It’s goodbye time. After 20 years at the helm of IIAT, and 62 years on this planet, it’s time for me to head in a new direction.

But first, I hope you’ll permit me a few musings.

I leave this job with the same awe of independent agents that I had when I found myself the boss at IIAT in 1982. There are three reasons for that awe: First, I grew up in a home with an independent agent father and I always felt that what he accomplished was beyond my reach; second, I am by nature significantly risk-averse, so the uncertainties faced daily by independent agents are as scary to me as a rollercoaster ride; and third, I am also a control freak, so the fact that independent agents’ lives depend on the whims of insurance company CEOs and politicians is beyond my tolerance for change.

The fact that independent agents thrive on this uncertainty and change is, of course, the secret of their success. Insurance companies merge and unmerge, their management teams come and go with the latest fad designed to boost stock prices, laws change regularly, and new tort liability fads pop up and then are replaced by others—yet independent agents adapt to these challenges with the agility of a hummingbird.

The most recent challenge has been insurers’ attempt to use the Internet to replace agents. Millions—money that could have been used to rebuild weakened insurance company underwriting and claims staffs or to help independent agents cope with increasing difficulty in recruiting and training staff and/or automating their agencies—have been wasted on chasing a rainbow while ignoring the unromantic but basic human need for dealing with a person to evaluate and purchase insurance.

Then there was the Travelers-Citicorp merger, which was heralded in the Wall Street Journal in dozens of articles announcing a major paradigm shift. The magic word was: synergy. How could Sandy Weill be so brilliant as to pair banking and insurance!

The truth was, of course, it had been tried before, numerous times, had produced very limited success, mainly in small towns, and wasn’t going to work for Sandy. Travelers soon sent all of their agents Citicorp credit card marketing materials, which promptly went into the trash—these were the same agents that Travelers, and Aetna before that merger, had failed to convince of the need to sell life insurance. When Sandy announced plans to spin off Travelers earlier this year, the Wall Street Journal gave it passing mention without reference to the monumental paradigm shift they had proclaimed a mere four years earlier.

The disconnect between corporate managers and the realities of the marketplace has a parallel in government. As is the case in all large enterprises, the people at the top of both of these institutions are restrained by forces not always in sync with economic forces—Wall Street analysts in the case of CEOs, and politics, in the case of government regulators.

So it is that our state insurance regulatory system has manfully strived to maintain a one-size-fits-all approach to auto and homeowners insurance in a state whose aggressive tort liability climate and extreme exposure to weather catastrophes beg for a flexible, market-driven regulatory approach.

My favorite example of regulatory mischief was the anti-discrimination rule adopted by the State Board of Insurance during Gov. Ann Richards’ tenure. In order to prove a negative—that they didn’t discriminate—agents would have to prove that their customers reflected proportionately the ethnic makeup of the Texas population at large. “Sorry, sir, we can’t write your auto insurance—we’re maxed out on white customers—if you’re married to a Hispanic or a Black, we have two policies each in those categories and we would be glad to help you out.” If that sounds preposterous, believe me when I tell you IIAT had to go to court to get that one thrown out.

The current homeowners crisis, of course, is beyond folly and has become a tragedy, the cause of which is a rigid regulatory system that prevented insurers from avoiding the train wreck they saw coming, and warned insurance regulators about in December 2000. So what do our candidates for governor propose to address this regulatory-caused disaster? More regulation.

Well, I’m out of space and out of time, so I will sign off with a heartfelt thank-you for letting me be a part of your lives, and livelihoods, for the last two decades. I leave with confidence that independent agents will remain a source of stability in our turbulent insurance marketplace and misguided regulatory structure, because you work for yourselves, and you have to be true to yourselves and the insurers and customers you represent. You won’t be toasted on page one of the Wall Street Journal like Sandy Weill or lionized by the Texas legislature, but you will prevail because your customers need your help and they don’t want to search the Internet to bypass you.
Adios, amigos.

Ernest Stromberger is the executive director of the Independent Insurance Agents of Texas.

Topics Texas Legislation Agencies