State of Transportation Insurance- February 2010

The Song Remains the Same...

The transportation insurance business is still very soft. It continues to be a buyer's marketplace due to some of the following factors:

1) Capacity- If you have been following the stock market, insurance companies have released stellar results. While a great deal of the stock price increases are a direct result of investment income turnaround, many gains have been made through better product management ( aka better loss ratios) than previously. Since there have been virtually no catastrophes on US shores, capacity is pervasive. With more insurance companies writing the business with excess capacity, lower pricing is pervasive. I would argue that not allowing AIG to fail has hurt a great many in the insurance business.

2) Distribution- In today's insurance economy, all markets can be accessed, therefore, any type of exclusive control by agents and MGA's is gone. This has created a marketing paranoia in the marketplace. Specifically, you could have a happy and satisfied insured, agent, MGA, and insurance company- and due to market forces either the insured, agent or MGA shop individually, or even worse all together, the business. Distribution is forcing downward pressure on pricing continually. And there is no end in sight. There is a lack of reassurance in the marketplace due to the fact that there is "that company" that could beat us.

3) Renewals- The industry by and large is a renewal industry. That is, there are very few carriers smartly writing continuous until canceled policies. That way the pricing does not change. Regrettably even those that offer these pay plans are not incentivizing more business to be on these pay plans. So you are left with policy expiration dates and renewals. With each renewal, the accounts are paying less. This is a business that simply does not get it and the product needs to be improved.

4) Less Exposure- In this blog, I have released numbers about the reduction of trucks on the road. Those trucks are not showing up on policies. There is less exposure. Most insurance carriers are not measuring the pricing change relative to the exposure base. If you had to ask an insurance carrier what the exposure attrition on their book of business is on an annual basis, I am not sure they could or would ever tell you. So when you are budgeting for premiums which each agent, MGA and company is doing so, there is a continued shortfall.

5) Technology- On a seperate subject that should have mataphorical significance, I applied to 3 colleges when I was of age ( I was lucky to get in one- Vanderbilt). Parathetically my daughter due to something called the Common App, applied to 12 colleges. There has been no measurement taken in the marketplace relative to how today we market business than when we did in yesteryear- and there are huge differences. I can tell you the upshot is not pretty. Agents used to market to one or two places. Now they market to 10. The diseconomy of being in the quote business rather than the writing business has hit us all. Technology was viewed as a savior of the business. It has only made the business more frenetic.

6) Commoditization- What is the difference between Great West, Northland, Maxum, Canal, Zurich, Sentry, Cherokee, Star, Lancer, Carolina Casualty, Continental Western, RLI, CNA, Ace, Hallmark, and others? Most buyers and sellers of insurance could not tell you- and that is the problem. If there is no differentiation ( and there is a difference) then all you are left with is price. The companies need to prove themselves as innovators and I only know of two companies that have done so.

Does this mean we all need to just go out there and shoot ourselves? No. But it suggests that if the only measurement tool is going to be reduced pricing, we should all plan on losing more than we gain. So it is up to all of us to reinvest in your relationship with your insured, your agent, your MGA, your insurance company, and prove your value. We have to assess oursleves constantly with humility that, even as subject matter experts hopefully extoling value, we are beatable daily. So a new paradigm is in order.

Failure to do same will result in the status quo. That is, if you are going to do business on the same basis, expect the same results. Let's all figure out a way to stop it. In my over 25 years at GTU, I would like to not chock it off to perseverance and insanity...