Robert Hartwig – President of the Insurance Information Institute
Most property/casualty insurers are wounded by a soft market and vastly shrinking profits – but hey, at least everyone’s hurting together, right?
Well, no, actually, according to a handful of niche insurers and researchers. It might be easy for New Englanders to shrug and figure that it’s bad times all around, but a few sub-categories of the industry – mostly in the Western reaches of the U.S., beyond New England’s dark and rain-soaked environs – have had remarkably good recent years.
Dollar Defense
Companies that write and sell for the energy industry, natural resources, agriculture, food processors, exporters and a hodgepodge of others have been protected for a number of reasons: the dollar is weak, people are hungry for beef and green energy is in vogue.
A small number of insurers have done all right by this grab-bag of factors, while more “mainstream” lines, such as home and auto, are struggling.
Make no mistake, the industry as a whole is shrinking right now. Premium is declining rapidly in those major lines, which together account for almost half of the entire property/casualty industry, according to Robert Hartwig, president of the Insurance Information Institute.
Not As Bad AsÂ…
Auto sales are expected to decline 16.5 percent this year compared with 2005, and housing starts have plunged an estimated 53 percent, according to research from the Insurance Information Institute.
“Our industry’s actually shrinking by about 5 percent on an annual basis,” he told a group of Massachusetts Chartered Property Casualty Underwriters at a meeting last month.
Nonetheless, he said, the sun is shining in a few areas, albeit ones that tend to be smaller and located in the Midwestern and Western states.
Agriculture insurance, for example: “The weather has been good, the underlying value of the crops we’re insuring is rising Â… the last two years have been the best two years in the industry since about 1985,” said Benson Latham, executive vice president with Texas-based underwriter and distributor MarketScout.
Premiums for crop insurance have risen from $4 billion in 2005 to $10 billion in 2008, according to the USDA’s figures. The federal government sets premium prices, and raises those rates when commodity prices go up, as they have in the recent past, said Laurie Langstraat, a Missouri-based spokeswoman with National Crop Insurance Services.
A few major global trends affected crops, and therefore insurance, Latham said. Demand for meat has risen worldwide, thanks to changing diets in places like China, which in turn ups the value of crops used to feed livestock. Ethanol and biofuel demand has also served to increase values, he said.
The Importance Of Export
A weak dollar has lead to much hand-wringing across the country, but export credit insurers have done well by it. Companies who ship products from America’s shores often want insurance to cover them in case they don’t collect payment on the goods they shipped.
“It’s been a good year, definitely,” said Angela Johnson, owner of Export Insurance Services in Georgia, although she said it wasn’t particularly outstanding – just enough that the weak dollar pumped up exporters’ business enough to keep the orders coming.
The Import-Export Bank of America, which insures companies who export to countries with heavier political or economic risks, saw an uptick in business last year, said Walter Kasciow, a vice president. The numbers aren’t official, he emphasized, but he wouldn’t be surprised to see a 10 percent increase in premiums.
For something like energy insurance, energy innovation has spurred interest in solar and wind energy, but even oil- and gas-related companies are protected from spiraling prices.
It helps to be a smaller niche in the insurance industry, said Michael Newman, of International Energy Insurance Brokers, since less competition keeps companies from getting into competitive price-wars. Also, federal regulations tend to pin these insurers down and shield these insurers from the wild price variation that can take their toll elsewhere.
But Newman said overall energy insurance collected premiums are still down compared to a few years ago – they’re considered healthy because they’re not down as far as most other sectors of the industry. Right now, “good” is relative.
