Industry leaders say “more to come” from insurance investigations

Insurance industry leaders expect the investigation into market practices will only expand in 2005, according to results of a survey conducted by the U.S. Insurance Information Institute (III).The III asked attendees at last week’s P/C Industry Joint Industry Forum in New York to comment on a variety of trends, with a startling 92% saying they expect the investigations triggered by New York Attorney General Eliot Spitzer into areas including broker compensation and non-traditional insurance products, to widen in scope in the coming year. However, 67% were confident most companies would be able to settle charges against them in 2005.There were mixed views on the industry’s ability to sustain its financial performance in 2005, with 57% saying this year will be more profitable than last, where the industry produced an estimated combined ratio of 97%.And a slim majority say rumors of market softening are greatly exaggerated, with 53% saying no significant price softening will occur this year in the commercial market, and 63% for the personal lines market.Insurers are also confident of a rise in interest rates in 2005, and III chief economist Robert Hartwig agrees. “The historically low interest rate phenomenon is over,” he says. “Market forces and the Federal Reserve are jointly forcing rates upward. If rate increases occur gradually, then this will ultimately increase insurer earnings on their investment portfolios.” 80% of insurers expect an upswing in equity markets in 2005.Other trends insurers see for 2005 include more consolidation, passage of tort reform by Congress, but no extension of the Terrorism Risk Insurance Act.