Who Might The ‘Terrible Trio’ Be?
Richard Kerr, CEO of MarketScout, is a shameless tease! In commenting on his firm’s latest Market Barometer survey, he asserted “there are still three large, admitted, publicly-traded insurers clamoring for premium, seemingly at any rate and continuing to prolong the soft market.” But he refuses to name the three stooges! Can you guess who they might be?
You’ve got to figure that one of the three is AIG (or AIU, or whatever it is they decide to call themselves), although the company is vehemently denying they are quoting deep discounts or selling more coverage for the same price to compensate for the damage to their reputation done by their corporate parent’s reckless trading of credit default swaps and subsequent federal bailout.
But who else could Mr. Kerr be talking about, and why won’t he just come out and name the three keeping prices soft despite the fact that “every sensible economic indicator tells us rates should be increasing…”?
“In our new financial world, the CEOs of the terrible trio are ultimately going to have some explaining to do,” he warned, while steadfastly refusing NU’s requests to identify the carriers.
He added that “historically, the end of the soft market is punctuated with last-gasp deep rate reductions by a few desperate insurers, signaling either the end of the soft market or the end of an irresponsible insurer. Either way, once these irresponsible underwriters are reined in, we should be on the way to rate increases. Until that occurs, the soft market will continue.”
“We project the turn will come by year-end because all but the terrible trio are making appropriate underwriting decisions,” according to Mr. Kerr. “Even the E&S market is refusing to chase rates down, sitting on the sideline as the terrible trio slash each other to bits. Our guess is prudent insurers are waiting to pick up the fallout when the terrible trio have their day of reckoning.”
Which three stooges do you think Mr. Kerr is talking about? And please, Mr. Kerr, come clean with the identity of your “terrible trio.” The suspense is killing us!!!
Entries (RSS)
Thank you for asking this question. That was my first question when I read your article referring Richard Kerr’s article about the Terrible Trio. Yes, by all means, tell who it is. Maybe the three are just symbol of what’s going on. I believe there are more than just 3 out there slitting their own throats to get business.
Un-bee-lievable! “Clamoring for premium, seemingly at any rate and continuing to prolong the soft market”.
What? Oh no! How can they?
Is Kerr publicly complaining that market competition is working? Is he saying that “if only this ‘Terrible Trio’ would ‘play ball’ then we could all raise our rates?”
And you, Sam, agree with him? You call the trio the “Three Stooges.” Stooges because they are competing for consumer dollars the way the market is supposed to work, rather than marching in lockstep to the profitable ISO cadence?
Ev-Ree-One is in a soft market right now! Competition is fierce. Why should insurance be any different? This sounds like Lowes complaining about Home Depot, who keeps lowering their prices. “How’s a decent home supply place supposed to make a buck in this climate? Doesn’t Home Depot realize that if they would start raising their prices we could all make more money. They must be stooges over there.”
Am I the only one who can step back far enough to see it this way?
If AIG is Larry, then I am guessing that Moe and Curly are GEICO and Progressive. Wait, make Progressive Shemp.
SAM RESPONDS:
My reference to The Three Stooges was tongue in cheek, but I see your point. I have no problem with carriers lowering prices in fair competition as long as they are doing so knowing they have the reserves to remain solvent and pay claims. Insurance is unique, with its guaranty fund backup system, in that if a carrier prices recklessly and then goes belly-up, its competitors, who lost business to the irresponsible insurer, ends up bailing them out.
Since a large chunk of our readership are risk managers and other commercial insurance buyers, we always play it straight here at NU. A “bad” market for insurers (with prices falling) is always a “good” market for buyers, right? Let the free market prevail!
However, that should also work both ways. Unfortunately, politically motivated regulators and legislators don’t hesitate to cap or slow rate hikes even if pricing is actuarially sound, if it means upsetting voters. Look at the result in Florida, for example.
AIG, Travelers, Allied
Harleysville and Great American are in the mix, but maybe they are not large enough to fit the “terrible trio” mold.
A better question, Sam, might be: “Would the insurance executives be able to signal their desired market turn information so openly if not for the antitrust exemption they enjoy from the McCarran Ferguson Act?”
Every cycle–usually a year or two before the end of the soft market–we see the CEOs making the rounds at meetings their so-called “competitors” attend, telling their rivals that it is time to jack up reserves and hike the prices and pointing fingers at those who resist.
It is not unlike a bird’s ritualistic dance of invitation to potential mates in the spring–in this case a periodic invitation from some of the key birds in the industry for their compatriots to join them in welcoming the next non-competitive (i.e., highly profitable) phase of the cycle.
Sam Friedman is right, let the free market prevail. It’s about risk selection, not rates.
Underwriters whining about “low rates” is lazy, sour grapes.
Flip that coin to find the whining buyers who complain that their premiums “went up and we didn’t have a claim,” but smile all the way to the bathroom as their broker hammers their rates down to the basement’s foundation during a soft market.
Sometimes I think some insurers believe there is a world where a ball tossed into the air will float like a cloud, and another planet where buyers think that same ball can only fall, never bounces and can never be thrown back up AND it will always remain in play – and never the twain shall meet.
Insured Consumer missed the boat.
The key phrase here would be “publicly traded”…GEICO is privately owned, thus not a Stooge.
If I agree with AIG, then #2 is State Farm. I would like to think that #3 is Progressive, but I could be wrong, limiting my thoughts to auto only… in which case Allied would be #3.
Some of these comments are interesting in light of the recent troubles in the auto industry, where short-sighted exectutives attempted to gain market share by increasing the production of units that were selling at a loss.
This tortured logic has lead to government ownership/control and bankruptcy of two of the three major players—and screwed investors. Perhaps this is the sort of happy ending Mr. Hunter would wish for the insurance industry.
As Sam points out, we sell a promise in this business. It is also true that the pricing, particularly of commercial accounts, is driven by the dumbest competitors. All insurance executives profess to understand the folly of gaining or maintaining market share at deficient rates–the only thing worse than no business is a book of badly underpriced business. Except for maybe Warren Buffett, these executives are about to find that out in spades.
AIG, Travelers and Liberty
Does it really matter who the “Big Three” are? If, in fact, there are companies who are price-cutting to score market share in this competitive market, we should all see the result of that lunacy soon enough.
History tends to repeat itself, and in this market, relatively soon; albeit not soon enough for all, but the regulators are, hopefully, watching more closely than in the past.
Then again, with federal regulation seemingly right over the horizon, maybe some of the big players are simply trying to get in their last licks, before being trapped in the roach motel that they themselves helped create?
We all know this business is never “win-win,” and any movement that pits company against company, whether in a real or imagined battle, with the consumer on the sidelines watching and hoping we’ll kill ourselves off, can’t be a good thing for our image!
I would think Hartford might be one of the 3. They are in the worst shape financially for any of the big players, and might be trying for market share in advance of the apparently inevitable sale/merger. I think Progressive is too smart. If they are dropping rates it’s due to better insight/analytics.
Over the long term the only cure for this price cycle is for carriers to distinguish themselves with products and service, to get the buying transaction away from a commodity one.