Superstorm Sandy represents a "wake up call" to the P&C insurance industry, and the industry should be thinking in terms of what might have happened as much as what did happen. That's according to V.J. Dowling, the co-founder of P&C insurance research firm and stockbroker Dowling & Partners.
Dowling delivered his remarks as part of the first of two panels at yesterday's Property/Casualty Joint Industry Forum, presented by the Insurance Information Institute and held at New York's Waldorf-Astoria hotel.
"The past few decades, losses relative to premium have increased, and we haven't had the 'big one' yet," Dowling warned. "What is the new normal in terms of cat losses?"
Dowling's panel featured him and other industry observers evaluating the industry from the outside looking in. Most panelists agreed that insurers had done a good job responding to Sandy's challenge, but warned that the time has come for companies to re-evaluate their exposures in certain areas.
"It is difficult, but we need to do it," said Texas insurance commissioner Eleanor Kitzman. "The most difficult thing for consumers to understand is that if they've never had a claim, why is their insurance so expensive? Lots of people want to argue that insurance companies are wrong and models are wrong."
Matthew Mosher, senior VP and chief rating officer for A.M. Best, noted that some companies "probably had outsize losses compared to what they would like, and they might make some changes pending on what their portfolio looks like." But while there wasn't a systemic risk to P&C insurers as whole, the industry is "not setting the world on fire in terms of profitability."
[Find out how insurers took on Sandy's challenge head on in our latest digital issue.]
CEOs from several P&C companies later took up the subject, reacting to some of what the earlier panel said. The Hartford CEO Liam McGee agreed with the sentiment that insurance companies need to do more to educate their policyholders on what perils exactly are covered -- both for personal and commercial lines.
"Many people had no comprehension of what was covered," he said. "Both as underwriters and agents in the community, we have to do a better job of educating our customers that flood is not a covered peril. We also need to do a better job of educating entrepreneurs what causes business interruption coverage and what doesn't.
Michael McGavick of XL Group said that along with education, there is an opportunity for insurers to reach untapped potential in the marketplace with new, innovative products.
"The products are getting stale. Theres a reason BP didn't have insurance, and they lost the value of use looking over their shoulders," McGavick says. "We are carefully excluding and picking our way to the future. There's more economic activity, more complexity of risk, and companies are saying they don't find us useful."
Insurers need to take a fresh look at what is risky and price accordingly, he added.
"I think the exposures in these densely populated areas need to be rethought," he said. "You have so much interconnected activity, both personal and commercial, and it's only going to get more dense."