William R. Berkley

Partnership and greater efficiency will help lead the way to continued profitability for the property/casualty insurance industry despite a new level of uncertainty globally, according to William R. Berkley, executive chairman of the W.R. Berkley Corp.

Economic and social trends are far less predictable than in the past, providing a challenge to ameliorating risk, the insurance executive told members of the American Association of Managing General Agents (AAMGA) at the group’s recent annual meeting in Scottsdale, Ariz.

Berkley said the P/C industry’s distribution costs are too high. He said carriers need to focus on lowering costs to deliver products to customers. To avoid going the way of travel agents — at their peak their numbers reached 40,000 while less than 10 percent still operate today — insurers and agents need to work together.

Carriers and agents tend to do too many things, too many times, according to Berkley. “We need to look at all the ways we waste money,” he said.

Some of the waste is related to regulatory costs and some to duplicative processes. In order to gain efficiency, insurers and agents will need to share the responsibility, he said.

He said there will be continuing pressure on income in property/casualty lines due to lowering interest rates. This will affect pricing with insurers either adjusting the cost of the product or settling for lower returns.

Global View

Globally, several countries are exhibiting dysfunctional economic behavior, Berkley said. Social needs prohibit Europe from being economically dependent, while Russia is dealing with a decline in natural resources. Even China, which enjoyed eight years of rapid growth, will see an inevitable slowdown in its economy, he said. More worrisome is the potential detrimental effect of artificial intelligence on India’s economy, where an estimated 15 million people work in call centers.

“It [AI] will make self-driving cars look like child’s play,” Berkley said.

Restoring the “American dream” should be the goal here in the U.S., he said, maintaining that while unemployment is less than five percent, people still feel helpless and hopeless. That’s, in part, due to a lack of diversity. Though minorities represent about 20 percent of the population, he said, they represent only about six percent of new mortgages through Fannie Mae and Freddie Mac. “We can’t expect much from the younger generation unless we give them something to strive for,” he said.

Reduce Costs, Inefficiencies

Due to current tax laws, there is more capital offshore than onshore, Berkley said, acknowledging that this is a big pet peeve of his.

He emphasized the importance of having a strong domestic presence, using the Sept. 11 attack as an example. Insurers at the time were anticipating denying coverage due to the war risk exclusion. When Chubb announced it would pay claims associated with the attack, several foreign insurers followed suit.

Berkley also noted that the impact of self-driving cars on auto insurance, which represents up to 40 percent of all insurance business, will result in a substantial decline in premium. As a result, he said, carriers will need to focus on new product offerings.

*This story appeared previously in our sister publication Insurance Journal.