As the U.S. financial environment continues to transform dramatically, will insurers be able to maintain underwriting discipline? Or will they chase the almighty investment return dollar?

At this morning’s general session breakfast during the Big “I” Legislative Conference, Bob Rusbuldt, Big “I” president & CEO (above far left), moderated a panel discussion with top carrier CEOs to discuss this issue and other challenges facing today’s independent agents.

The panel included Dave Kaufman, president & CEO of The Motorists Insurance Group (above far right); David Long, chairman & CEO of Liberty Mutual Insurance Group (above middle left); Tom Motamed, chairman & CEO of CNA (above middle right); and Christopher Swift, chairman & CEO of the Hartford (above middle).

Rusbuldt: We’re all expecting a change in monetary policy in the near future. What does that mean for the national economy, consumer behavior and your companies?

Motamed: I think everybody’s going to maintain [underwriting] discipline, and that’s a great thing for the industry and great for consumers. I don’t see any dramatic change with a slight spike in interest rates. The reality is it’s not going to take us to cash flow underwriting like many years ago.

Kaufman: We’re anticipating an increase in short-term rates, but I think it takes a much more robust economy to affect long-term yields. The rating agencies are really putting a focus on the quality of earnings and consistent underwriting results. That will work to our advantage to keep a more stable underwriting environment than we would have experienced in the past.

Swift: I tend to agree that there is the opportunity to have shallower cycles going forward. Data, analytics and the amount of information we all share together is going to smooth out some of our historical cycles. But you still need to keep in mind how you underwrite and ultimately how you serve customers and pay your claims timely.

Long: We don’t see any kind of major escalation or spike in interest rates, even with the impending Fed changes. I don’t think any of us have any choice but to maintain underwriting discipline. Even if interest rates pick up a little bit, it’s not going to make that much of a difference in the short term. The harder part we have to deal with is what to do with the capital. The other side of our business is investments, and with interest rates so low and so much capital in the industry, what to do with that is almost the question of the day.

What is the future with technology and marketplace disrupters like the Googles, the overstock.coms, the Wal-Marts? Commercial lines activity online?

Swift: We still believe personally that consumers by and large will always need advice, and I think that’s where this group continues to play a valuable role going forward, whether it be on the consumer side or the small business side. People will continue to use the Internet to do research and get smarter and access knowledge, but insurance is still fairly complex compared to other consumer products. The trusted advisor can play a role. I think the trick in any model is how you allow a seamless experience for consumers to go from Internet to voice to face and ultimately to transact in an efficient way where they really understand what they bought and feel good about the whole experience.

Long: The thing that’s rapidly changing is people’s expectations of service. It’s no longer a 9-5 service model. You no longer get compared to other insurance companies—you get compared to amazon.com. The Google model is something we’re paying close attention to. It’s much closer to an aggregator model, but it’s still unproven in terms of: Are you making the right choices? Are you going to get the service you expect when something bad happens? That’s where the expertise comes in.

Kaufman: We’re convinced that at time of claim where really you’re delivering that promise, no one can compete with a local independent agent, an independent agent carrier where the consumer has an advocate. The disruptors will figure out how to use some of their technology to improve the touch points to our customers, but I think the independent agent’s going to continue to dominate commercial lines and the full personal lines portfolio.

Motamed: Educating consumers is really the best thing we can hope for from somebody that understands the product, the service, the value that an independent agent brings to the transaction. We love the independent agent model because there’s advice, there’s counsel, and that usually brings the best clients to us. You think about cyber—I don’t think if you go online you’re really going to understand what cyber is.

I think we have to be mindful that consumers determine value. They’ll determine that the independent agent channel has value, or they’ll determine that Google has value. It’s all about professionalism and providing value to the customers and listening to customers as to what their needs are. We’ve got to listen because every opportunity not only to make that sale but to make multiple sales.

What do you see happening with consolidation both on the carrier side and the agency side?

Kaufman: I just attended a CEO roundtable sponsored by NAMIC with about 200 CEOs of regional mutual carriers. They did an interactive poll and what surprised me was two-thirds of those CEOs expected to merge, acquire or affiliate in some way over the next five years.

Motamed: I think it continues. On the carrier side, we’re all looking to put our capital to use. If you see something that makes sense, you make an acquisition. That typically happens in low-growth, no-growth, slow-growth periods—when people are raising prices and business is booming you don’t distract yourself by doing acquisitions. Everybody wants to grow. If there’s a drug in this business, it’s growth.

Swift: You almost have to step back and say why is capital being deployed in this space? I think the simple answer is you create a lot of value in your agencies with recurring revenue, customer continuity, predictability and free cash flow, and capital is attracted to that. You have the opportunity to create value because you do touch customers, there is a recurring revenue stream and there’s a lot of free cash flow that people are willing to invest in for the future.

Long: The capital amount you need to commit is relatively small compared to other industries. I think both on the agency side and the insurer side I see continuation of M&A.

Jacquelyn Connelly is IA senior editor.

Photo by Hannah Bennett