Road to recovery: Insurance industry rebounds after tough times

After surviving some devastating blows, the insurance industry is headed toward recovery. Those in the industry say that the market is softening and agencies are once again writing commercial policies for new clients and for companies that they wouldn't have touched earlier.

The insurance industry by nature is cyclical, said Debbie Gross of Capital Insurance and Associates of Cape Girardeau. About every 10 or 15 years the market hardens and insurance companies avoid taking risks. Beginning with the terrorist attacks in New York on Sept. 11, 2001, the insurance industry took the first of a series of even harder hits, and is just now beginning to show signs of recovery.

Larry Case, president of the Missouri Association of Independent Agents in Jefferson City, said that the industry "ended up paying $30 billion for a disaster it could not have predicted.

"That event took a lot of surplus away from the industry, and was followed up with four hurricanes in a single season in Florida," he said. "The insurance industry has been under a lot of strain over the last few years."

Knowing that another terrorist attack would be even more devastating, the insurance industry appealed to Congress who in 2002 passed the Terrorism Risk Insurance Act.

"That provided a backstop," Case said. "Once disaster reached a certain level, the federal government will contribute. It has never been triggered, but it reduced the strain."

Adding to the recovery were new fees that were attached to premiums. The payouts for 9/11 claims, hurricanes and other disasters were backed up by a re-insurance surplus -- insurance on insurance companies to protect against their losses. Insurance companies have had to replenish the surplus, so the costs for re-insurance and the federally-protected terrorism insurance were augmented by the added fees.

"Terrorism insurance is written into every policy now," said Tim Kelley of Capital Insurance and Associates.

Businesses can opt out of the terrorism insurance, except in the case of workers comp, Kelley said. Regulations dictate that agencies must offer the terrorism insurance and the customers must sign off if they choose not to have it. Kelly said that most of the agents at Capital Insurance don't recommend keeping it.

"It's for bigger cities," Kelley said. "The cost is minimal; we're not talking about much money. Still, if a client feels safer with it, we will sell it."

Kelley added that insurance agencies that sell excess and surplus lines of insurance to high-risk companies have always charged a fee for that service. Since 9/11, those fees have increased. The extra money goes to the companies to rebuild the surplus, he said.

Some changes in the industry have been more subtle. Gross said that agencies have been doing more work for their company clients than they used to do and have been absorbing the cost of the extra work and the equipment it takes to do it.

That combined with a stronger stock market and higher interests rates has helped turn around the insurance business.

"If we don't have a second attack, an earthquake, or some other major catastrophe," Case said, "I do believe competition will start bringing rates down within the next year. It won't be huge, but it will be some sight rate reduction and stabilization, most certainly."

With the softening of the market, insurance agencies feel more confident about taking business risks because they have safety nets.

"There are checks and balances," Kelley said. There are people who oversee the agencies; the ISO (International Organization for Standardization) does inspections of buildings and sets ratings for buildings, and the NCCI (National Council on Compensation Insurance) does inspections and writes premiums.

"As long as people are getting loans, banks will say get insurance," Kelley said.

While the industry is recovering as a whole, there have been some changes at the agency level. Case said that it's difficult to determine how many agents there are because not all independent agents are members of the organization he heads. He speculates that the number of agents has probably remained steady since 9/11, but the number of agencies has dropped. The decline is not necessarily because they went out of business, Case said, but more likely because smaller agencies have merged to build more clout.

"Some of the national insurance companies require volume requirements of so much business before they will have an agency represent them," Case said. "It's easier to meet volume requirements within agencies the more producers you have."

Gross said Capital Insurance and Associates has been fortunate in that respect, and because the agency is located in a growing market.

"I see Cape Girardeau being good-sized, hopefully in 10 to 15 years," she said. "We're starting to see development now; stores that we used to go to St. Louis to shop at are now coming here. I think a brighter future is ahead for Cape Girardeau."

Business health insurance costs are a few years behind in its own moderation since 9/11, said Laura Moffett, president of the Southeast Missouri Association of Independent Agents and an agent with Morse, Harwell, Jiles of Poplar Bluff, Mo. Lobbying efforts have paid off, she said, in getting tort reform and workers comp bills that benefit employers through the state legislature.

"We have seen health care inflated rates outpace general inflation three to five times," Moffett said. "We have started seeing more moderate increases over the past year."

Moffett said she expects to see some change with tort reform, but doesn't expect it to last long.

"People are still going to sue other people over car accidents," she said. "It just is not going to be quite as easy. It's not going to be a long-term solution."

Moffett said she sees positive changes that have come with health care providers partnering with insurance companies and promoting wellness among the companies they insure. Making healthy lifestyle changes helps reduce long-term expenses, she said. On the other hand, people are living longer and benefiting from innovative technology and more prescription drugs.

"Those things come with a price," she said.