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Softer market is on its way but could be farther away than expected, experts say

Insurance industry still stuck between rock and hard place

On Sept. 11, 2001, when terrorists attacked the World Trade Center and the Pentagon, people knew things would never be the same again. They may not have anticipated, however, that the entire world would turn upside down as a result.

The insurance industry was one market hard hit by last year’s terrorist attacks. The insurance industry was following its regular cycle — coming out of a soft market and heading into a hard one when the tragedy occurred — and 9/11 compounded that. Now people are paying closer attention than ever to the industry, holding their breath that another terrorist attack does not lie ahead.

George Dale, the commissioner of insurance for the State of Mississippi, knows as much about what has happened in the insurance industry in Mississippi as anyone. He is serving his seventh term as commissioner, with election time just around the corner.

“And I asked for this job,” Dale said. “But we’ll overcome it.”

This is the third of the so-called “insurance hard cycles” Dale has seen in his 27 years as commissioner of insurance. Lately he has been faced with rate increase requests, and in some cases, carriers leaving the state altogether.

“Just this week I had one company come in and tell me they were going to non-renew 30,000 Mississippians’ homeowners and fire policies,” Dale said. Dale would not release the company’s name, but said it represented 146 agents statewide.

“Another company told their agency’s force that in nine counties they couldn’t write any new business,” Dale said. And, he added, “One of our major writers of homeowner and auto insurance is coming Sept. 6, and I know it’ll be for a rate increase big enough to choke a cow. And oh yeah, I didn’t mention to you that we are beginning to send out 15-day notices to butane dealers telling them that unless they have proof of liability insurance, we have to revoke their licenses to do business.”

Needless to say, Dale is in a dilemma.

“My job as commissioner of insurance is to provide a market for all types of insurance at the most affordable rate,” Dale said. “So how does an elected commissioner of insurance with an election coming up next year sell to the voters this issue of affordability versus availability?”

The hard insurance market is worse for small businesses than any other segment of the market. Some have seen their rates triple over the past several years.

“Most people would not have thought that one incident would create as much difference as it did, but it did, and it’s real,” said Kenneth B. Shearer, president of Boyles Moak Brickell Marchetti Inc.

Hard times struck the insurance industry after a buyers’ market that lasted 10 years. So it may not be surprising that when 9/11 rolled around the industry came crashing to the ground, forcing insurance carriers to charge higher premiums and in some cases leave certain parts of the country.

Just about every line of insurance was affected as a result of the 9/11 tragedy, but the main products affected were life, liability and property insurance. Shearer said it has had a negative affect on his business and his clients.

“Our clients are paying much higher premiums,” Shearer said. “Most of them don’t know what part is attributable to 9/11 and what part is the market in general because of the hardening up of it that was already taking place.”

Charles Porter, president of Barksdale Bonding and Insurance Inc., said many factors are to blame for the hard market.

“The reinsurance market is tighter, and underwriting results have led to this,” Porter said. “The lack of tort reform, not only in Mississippi but around the nation, has also caused the market to harden.”

And last but not least, Porter added, the number of insurance products now mandated for group policies by the government has not helped either. In fact, it further restricts a restrictive market.

“It’s tough because when the economy is already in a recession that’s not helping business,” Porter said.

Kevin Davis, account executive/partner at Fox-Everett Inc., said Mississippi’s main problem is the lack of tort reform, as opposed to the effects of 9/11. He acknowledged that the past hard insurance cycles were not as hard as the one the industry is now facing, but pointed out that in the 1980s, there wasn’t a tort problem that is present today.

“It was more the industry that got itself into a mess at that time and not something that put it there,” Davis said. “Now it’s more the court systems putting it into that situation.”

And that has led to insurance carriers moving out of the state for the first time in Davis’ 11-year career.

“We’re facing the unavailability of insurance versus just price increases,” Davis said. “That’s a big difference.”

According to Porter, clients with favorable loss ratios have really become preferred clients, and those with bad loss ratios have become less attractive even in the restrictive marketplace.

Some companies have taken matters into their own hands in order to lessen the burden of rising insurance premiums, which for some have risen more than 100%. Many companies are asking for increased deductibles, and some are not filling out their entire coverage needs.

Shearer makes a point to get alternative offers on insurance from different companies for his clients, then goes from there. But, he said, mainly his clients accept the higher premiums as being necessary.

“It will eventually adjust itself to what the market has to have, and there’s no industry or business in the world where there’s more competition than insurance,” Shearer said. “They had a good deal for some time — the buyers’ deal. Now they have the reverse of that. Competition will take care of it more than any other artificial means will.”

That may be so, but if another terrorist attack is on the horizon, it may destroy any hopes for the return of a soft market, or at least the return of one anytime soon.

“That would be like four Hurricane Camilles hitting the U.S. in one year, except that it would affect everything — business, industry and ultimately the economy,” Shearer said.

Contact MBJ staff writer Elizabeth Kirkland at ekirkland@msbusiness.com or (601) 364-1042.

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