Avoiding Risk, Lowering Costs

There’s also room to grow. “The insurance companies have strong balance sheets, and they get competitors’ business by undercutting rates,” says Alan Thomas, president and CEO of Willis of Minnesota, an insurance and risk management firm based in London with offices in Minneapolis.

“The industry has more capital now, and one of several strategies is to redeploy that by being more aggressive,” agrees Kevin Smith, senior vice president and Minneapolis branch manager for Chubb Group, a business insurance company. Some companies are also issuing shareholder dividends, buying back outstanding shares, and making capital improvements, he says, noting that Chubb has lowered prices, paid shareholder dividends, and begun a share repurchase program.

As carriers compete for business, they are finding fewer potential customers, a consequence of an increase in mergers and acquisitions. When businesses consolidate, the market loses insurance customers, and the customers who remain are more likely to self-insure or buy less insurance. “The larger the corporation, the more they tend to self-insure or take very large deductibles,” says Cliff Lake, executive vice president of Brown and Brown Insurance, an independent insurance agency based in Daytona Beach, Florida, with offices in Minneapolis.

Better Weather & Better Data

Insurers are competing for business throughout the United States, but many are particularly eager to write more business in the Midwest. “Companies definitely want more penetration here,” says VeNita Schnebele, the area president for Arthur J. Gallagher Risk Management Services, Inc., an insurance brokerage with offices in Ed-en Prairie.

The Midwest’s relatively non-catastrophic weather patterns and stable economy make it a desirable place to write insurance. Though Minnesota and other midwestern states have tornadoes and hail, they don’t see hurricanes, earthquakes, wild fires, and flooding as often or as severely as many parts of the U.S. coastline do. Tornadoes and hail typically cause limited damage to a relatively few number of companies. Hurricanes, fires, earthquakes, and flooding, by contrast, can repeatedly devastate a much wider area—and cost an insurer much more in the process.

Insurers are also attracted to the Midwest’s relatively low property losses, and to its comparatively low rates of lawsuits and large financial judgments. “We see more conservative jury awards here, as well as people who are less likely to sue in the first place,” Lake says.