Property Insurers Faring Better Than Banks, Might Get Stimulus Boost

Property and casualty (P&C) insurers — companies like Allstate, Travelers and Chubb — have been hurt by the recession but are far from down and out, according to a recent speech by Robert Hartwig, president of the Insurance Information Institute.

In fact, business insurers may get a boost from the expected passage of the Obama stimulus program, Hartwig said. The huge package, expected to get through Congress next week, would stimulate industrial production and increase the need for business insurance.

“Obama’s plan includes a lot of road and bridge construction projects, all of which will need insurance. And anything that keeps employment at current levels will help boost workers compensation insurance,” said Insurance analyst Donald Light of Celent & Co.

Hartwig said that while P&C insurers have taken financial hits from the recession — the worst market crash since 1931 - they haven’t been in as much trouble as the banking industry, where 25 institutions failed in 2008. In fact,  there have been fewer downgrades of insurers by rating agency A.M. Best than upgrades, he said.

U.S. insurers, with the ironic exception of the largest — American International Group — have mostly steered clear of complex and now loss-prone financial instruments such as credit default swaps, which contributed to the financial crisis and forced AIG to take a federal bailout. And with a collective surplus of more than $400 billion, they have easily paid all their claims.

Hartwig’s speech comes at a time when there are increasing worries about P&C insurers’ brethren: life insurers. Last week, life insurers lost a bid to get insurance regulators to lower their capital requirements. As BNET reported, life insurers were pushing to lower the amount of cash they needed to make policyholder payments because the stock market crash had cut into their investment portfolios. State insurance commissioners almost unanimously rejected that argument.

But while investments were also off for P&C insurers during most of 2008, they generally keep their money in short-term accounts, so they have less reason to be skittish. Their greatest fear, Hartwig says, is catastrophes like 1985’s Hurricane Katrina, which cost the industry $43 billion.

One sign of P&C’s strength: advertising is at a record high and Hartwig predicted we’ll continue to see lots of those ads on television as Allstate’s “Good Hands People” duke it out with direct insurance marketers like Geico’s gecko for customers’ dollars. Lines like auto insurance – mandatory in most states — remain profitable.