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Renovations invigorate Alaska's insurance industry.

PLAGUED BY INSTABILITY and insolvency, the nation's commercial insurance industry is struggling to restructure and move on. Many national insurance firms have avoided Alaska, which they perceived as a higher risk market, and when loss of business during the economy's downturn further fanned the flames, several agencies pulled out of the state. Others were forced to downsize, consolidate or specialize to combat price wars and falling revenues that characterized the soft market. Still undergoing a metamorphosis, Alaska's insurance firms today compete in a slowly reviving economy.

Richard Lowell, president of the insurance agency/brokerage Ribelin Lowell and Co., a business concentrating on property/casualty accounts, notes, "This is a countrywide phenomenon that's going on. It's a concentration of companies and agencies. The number of agencies in the United States is going down substantially." Robert Ribelin, vice president of the company, estimates there is about 25 percent shrinkage nationally, and says 25 fewer insurance agencies are doing business in Alaska than were prior to the decline.

Evident from rampant business name changes, some Alaskan agencies opted to join forces. "Agencies don't merge and get together unless one is in trouble. There's got to be an advantage for both parties," says Lowell.

Some, like the national firm Rollins Burdick and Hunter, opted to quit Alaska. It sold its business to Ribelin Lowell in 1988, but returned to the state last year when it bought Bayly Martin and Fay.

Many agencies are avoiding certain lines of insurance and concentrating on specialties. Lowell explains some firms had difficulty controlling losses and servicing diversified accounts, which resulted in decreased revenues.

Ribelin Lowell recently sold its employee benefits accounts to Blackwood Frazier, which this year became David Frazier and Associates, and purchased that company's property/casualty accounts. Explains Lowell, "There's very few people available who are qualified to service and market employee benefits." He predicts the '90s will see a major shortage in trained personnel, particularly those qualified in the employee benefits line.

David Frazier, president of David Frazier and Associates, says significant changes in tax laws in recent years have compounded the skill-shortage problem by raising the technical skill level required to handle specialized lines of insurance; employee benefits, for example.

Per Bjorn-Roli, Alaska general manager for New York Life, says he has not observed an employee shortage in the life and health insurance lines. "Because of the soft economic market, we've attracted high-quality people from other industries-banking and real estate, for example. These are capable people whose product didn't sell any longer;" he says. The company handles life, health and disability insurance, as well as pension plans, and has 80 full-time, trained, in-house agents.

Ribelin feels that specialization and consolidation also have been encouraged by company demands. "The insurance companies want more volume out of fewer brokers, and the small, independent agents were caught in the squeeze. They are finding themselves not able to compete because of the lack of markets," he explains.

Fireman's Fund Insurance Cos., for example, reduced agents in the state from 50 to 22, and according to Lowell, is writing more volume than before the shrinkage. "What they did was concentrate their agency plan, and that's pretty universal throughout the whole insurance industry," notes Lowell.

Mike Miller, owner of the agency/ brokerage Northern Marine Insurance in Juneau, says insurance companies are narrowing down the number of agencies they do business with, based on agency volume. He says companies also are cutting back on staff by "directing themselves at the 20 percent who are writing 80 percent of the business" and are increasing office automation.

He notes his area of business, marine insurance, fluctuates because of the cyclical nature of the fishing industry. Miller keeps an automated office and trim staff of seven, but during the decline reduced employees to four.

The Road Ahead. For decades, the nation's insurance industry has ridden a roller-coaster from soft to hard markets. Says Ed Ratliff, account executive with Rollins Burdick and Hunter in Anchorage, "We are probably the only industry that cannot stand our own prosperity. As soon as things start getting good, we get out there with a battle axe."

According to Lowell, insurance companies in property/casualty lines are announcing premium rate increases of 8 to 10 percent this year. By contrast, rates for life insurance appear comparatively stable. New York Life's Bjorn-Roli says, "I don't see life insurance rates going up unless the AIDS epidemic over the next 10 to 20 years will affect the price structure. It's a definite danger looming in the distance."

According to Bjorn-Roli, Alaska generally has proven to be a good risk in terms of life insurance. "The death rate per 1,000 is lower-even considering high aviation (use), the harsher environment, and that there are more accidental deaths in the state. But the population is young and healthy," he adds.

The New York Life general manager believes life insurance may be the only segment of the industry with no supply and demand problem. He says there always seems to be a market for the product. In fact, in Alaska, New York Life experienced new business growth of 26 percent in 1987 and 39 percent in 1988. Although 1989 was a flat year, Bjorn-Roli expects the company's business to grow again in 1990.

Health insurance rates continue to surge, largely a result of disproportionate inflation in the health care industry. Says Eric Rohlman, vice president of group marketing for Blue Cross of Washington and Alaska, rates are even higher in rural areas of Alaska, because services tend to cost more where there are fewer providers.

Supplying insurance coverage to rural Alaska is more costly to agencies than working in urban markets. Explains Bjorn-Roli, It's an expensive area for an agent to develop. In areas of 500 people or less, there usually is not a full-time agent, so they have to travel to those areas."

The employee benefits segment of the industry was hit hardest when Alaska's payrolls plunged with the economy. Many Alaskan businesses can no longer afford the high cost of employee insurance. Says Rohlman of Blue Cross, "They choose to either have no program at all or to supply employees a certain sum of money to purchase insurance on their own. There are roughly 37 million (health) uninsureds across the nation. Half probably work for small businesses that don't supply these services."

Seeking Relief. Alaska's workers' compensation program has been a thorn to both the insurance industry and the state's businesses. An absence of limits on benefits, among other factors, created overuse of the system and heavy litigation to solve disagreements. On July 1, 1988, the system was amended. Ratliff of Rollins Burdick and Hunter hopes the legislation will reduce the contribution of litigation activity to workers' compensation losses. He expects the change to lower rates and influence more insurance companies to write in Alaska.

Incidents in Alaska-such as an insurance company being sued recently for not spotting a potential hazard when it conducted a facility survey-have encouraged companies writing workers' compensation to attempt to limit their liability. Ratliff says, "Alaska is perceived as a high litigation state. The more we work to streamline laws and push for less frivolous activity, (the more) overall policy will be impacted. Movements toward tort reform will have a positive effect on the rates and insurance climate. We need to encourage this."

Many national companies won't write insurance in Alaska. Says Ribelin, "I guess they're afraid of Alaska. They're far enough away that they don't know the market, and it's expensive to service."

Adds Ratliff, "We have to fight the igloo and dog-sled image of Alaska and carriers' perceptions of what insurance risks in Alaska are."

He explains most companies prefer to write coverage in states where there are higher populations conducive to larger numbers of premiums.

Frazier of David Frazier and Associates says Alaska's regulatory environment has caused insurance companies' concern about writing business here. He feels the Department of Commerce and Economic Development's Division of Insurance, which is responsible for regulating the industry, has been unstable during Gov. Steve Cowper's office. He points out that the current director, Dave Walsh, is not an insurance professional.

"We need people at the helm who have had professional training. They need to understand the industry in order to regulate it. It is an extremely confusing business. I have been working in my little area for about 20 years, and I can barely keep up with the technical changes," says Frazier.

Alaska's Challenges. The Division of Insurance reports Alaska has 12 Alaska-based insurance companies. Umialik Insurance Co., a property/casualty insurer formed in 1981 by Ukpeagvlk Inupiat Corp., the Barrow Native village corporation, originally concentrated on the rural market, but most of its business is now written-for Fairbanks and Anchorage. Caught in the recent economic crunch, Umialik lost many accounts with the declining numbers of home owners and small businesses. In 1988, the firm expanded to marine insurance to offset losses.

Property insurance rates in rural areas are much higher than for urban dwellings, because of lack of adequate fire protection. Tom Andritsch, president of Umialik, explains that because higher rates mean higher premiums, some large Outside companies specialize in unprotected areas and "spread the risk around the country."

He adds, "We would have to have reinsurers to back up those higher valued properties in order to write more rural business. It's a tough business to write."

Insuring marine vessels also can be high risk. Of the marine insurance written in Alaska, 49.6 percent is placed through Northern Marine Insurance, and 70 percent of that company's share is related to commercial fishing-one of the highest risk types of marine insurance. Northern Marine Insurance's Miller insures a vessel through several companies to spread the risk, a method he says is common to the specialty.

Alaska's medical profession was so desperate for professional liability coverage that in 1975 the state formed the Medical Indemnity Corp. of Alaska (MICA). In 1979, on request of the Alaska State Medical Association, doctor-owned Medical Indemnity Exchange of California (MIEC) entered the market. No others have followed. Insurance professionals say this is largely because Alaska, although the largest state by area, has the smallest number of private practicing physicians in the nation. Of the state's 614 private doctors, MICA insures slightly more than 50 percent.

Mary Pierce, executive director of MICA, says, Since 1976, we have gone from an unavailability crisis to an affordability crisis. The question now is can health care providers afford to buy malpractice insurance? Our greatest competition since the downturn of the economy has been the choice by hospitals and physicians to go uninsured."

In all areas of insurance, both the insurer and the insured are taking precautionary steps to decrease loss: Increasingly crucial to wise business planning is risk management. A broker will work with a client to identify hazards of the work situation to either reduce the premium rate or make the client more insurable.

"Availability and cost of insurance is very cyclical," says Michael Padden, account executive broker with Ribelin Lowell and Co. "They (clients) have to take more control. No matter what the cycles are, they can better anticipate their losses with risk management."

Padden says Alaska lags slightly behind other states in this area. "There are few companies that can justify, in terms of sales volume or employee counts, having a full-time risk manager," he says.

Alaska's idiosyncrasies make doing business here an added challenge for an already struggling industry, but many in the insurance field say the major restructuring is accomplished. Says Lowell, "It appears that we're through the bankruptcies and the shut-downs and the downsizing."

Shopping for a better price always has-and probably always will-haunt the insurance industry. "At this stage, an agency is going to grow pretty much at the same rate as the economy grows. I don't see any more consolidation of agencies right now. Everybody seems to have solidified their position and now will be competing with each other for accounts," adds Lowell.

The nation's insurance industry remains one of many challenges, created by competition and changes in specific categories and the overall business climate. While many commercial insurance agencies and companies still view Alaska as risky business, those that remained through the structural upheaval have entered the '90s on firmer ground.
COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
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Author:Denny, Catherine
Publication:Alaska Business Monthly
Date:May 1, 1990
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