Insurance brokers in New York are preparing for a busy renewal season on property and casualty policies, as carriers weigh whether to hike premiums to cover investment losses this fall and as embattled American International Group Inc. defends its accounts from rivals looking to poach business.
January is typically a busy month for commercial property-and-casualty policy renewals ”“ and is shaping up as the most significant since 2002, after the terrorism attacks contributed to a “hard” market of rising rates that took several years to revert to a softening market of declining rates.
After agreeing in September to loan New York City-based AIG $85 billion to provide a bulwark against its exposure to the real-estate credit markets and other instruments, federal regulators agreed this month to increase that amount to $150 billion after the company reported it continued to struggle.
At last count, AIG had 8,500 employees in New York of 116,000 worldwide.
In mid-November, the New York State Department of Insurance indicated is launching a review of “stress tests” carriers use to evaluate their financial stability in bad economies, including how they assess the impact of changes in credit quality, interest rate shocks and collateral calls.
Shortly after the initial bailout, New York insurance Commissioner Eric Dinallo indicated some consumers were being approached with offers to replace their AIG policies on grounds AIG might not be able to pay claims. The National Association of Insurance Commissioners made Dinallo chairman of a committee to ensure that AIG policyholders nationally are protected.
In the highly competitive commercial property-and-casualty market, however, the catchphrase is “anything goes.” In a survey this fall conducted by New York City-based Advisen Ltd., more than seven in 10 brokers indicated they planned to get competing quotes for commercial accounts they held with AIG, though the vast majority expressed confidence in AIG”™s financial strength.
Large commercial brokers in the lower Hudson Valley include Poughkeepsie-based Marshall & Sterling Inc. and Arthur J. Gallagher & Co. Inc., which has an office in White Plains. Early next year, giant Marsh USA Inc. plans to launch Marsh & McClennan Agency to focus on small businesses.
Advisen indicated customers can expect AIG to fight to retain business on the rate front, possibly providing a brake on escalating premiums some fear following carriers”™ increased losses from investments and payouts on claims in the past year. That had yet to occur in the third quarter, as commercial customers continued to report softening prices for various lines of insurance.
In New York, brokers were put under the microscope this year after the New York State Insurance Department conducted hearings on whether broker compensation was structured in a manner that encouraged them to steer business to less favorable insurance carriers or products.
Many brokers voluntarily disclose their carrier compensation agreements with customers to obtain a marketing advantage, according to Peter Resnick, president of the Council of Insurance Brokers of Greater New York Inc., whose membership includes brokers in the lower Hudson Valley.
“If an insurance broker doesn”™t know the coverage needs of his or her client, and fails to place it with an authorized or excess carrier at the best possible premium, they won”™t be in business for long,” Resnick testified to the department at hearings last summer. “The entire worth of an insurance agency lies in its book of business based upon long-term customer relationships; failure to provide the best combination of coverage, price and service results in loss of customers.”
