Buoyed by a rebounding economy, the property and casualty insurance industry is projecting significant growth for the remainder of 2012, which bodes particularly well for Wisconsin.
Wisconsin is home to several of the nation's largest P&C insurance providers, who comprise an important sector of the state's economy. Acuity, American Family Insurance, Sentry Insurance and West Bend Mutual Insurance each are headquartered in the state.
Sheboygan-based Acuity is projecting record growth for 2012, and it attributes that growth to a robust rebound in the overall economy.
As consumers recover from the economic downturn, they are buying new homes, cars and other goods. Those purchases have increased demand at manufacturing, construction and transportation companies.
That spillover effect is good news for P&C insurers, which provide workers' compensation coverage for the construction workers who build the new homes, additional coverage for the extra trucks on the road and car and home insurance for consumers.
"The first two and a half months of this year, we are up 15.5 percent (in sales) already," said Acuity president and chief executive officer Ben Salzmann.
Acuity has the eighth-largest market share in Wisconsin, in terms of direct premiums written, according to the National Association of Insurance Commissioners (NAIC) 2010 Market Share Report.
The company has 830 employees, 630 of whom work at its Sheboygan headquarters.
Acuity writes all of its insurance through about 1,000 independent agencies in a 20-state footprint.
"Acuity over the last seven years has doubled the number of states we're in," Salzmann said. "Even if we hadn't added agents and hadn't added states, we would rebound $200 million just because of the economy coming back (over the next two years)."
The commercial side of Acuity's business is growing at a faster rate than personal insurance, as businesses are recovering from the recession while home sales are rising more slowly, Salzmann said.
Trucking is the fastest-growing insurance category at Acuity, as consumers buy more goods in stores and, in turn, more trucks are needed to transport those products. Manufacturers and retail stores are hiring more employees to make and sell the goods, so they need more workers' compensation insurance.
"You have this general impact in the sales sector that immediately they need more insurance," Salzmann said.
Ahead of the pack
An analysis of the property and casualty insurance industry's financial performance in the United States from January to September 2011 by the Insurance Information Institute showed that while an unusually high number of weather catastrophes meant major underwriting losses for the industry, there still was 3.1 percent growth in the first nine months of 2011.
"In one of the more positive developments for the industry since the end of the financial crisis, premium growth now appears to be on a sustained — and potentially accelerating — upward trajectory, rising for six consecutive quarters," the report said.
The high number of damaging storms last year caused losses at many insurance companies, but helped spur growth at Acuity, Salzmann said. The insurance industry paid out about $110 for every $100 it took in during 2011, mainly as a result of natural disasters. As a result, some insurance companies have chosen not to renew with some customers, and Acuity has been able to gain market share, he said.
Acuity also wrote an additional $63 million in premiums last year, an 8 percent increase, which was its strongest growth in six years.
Growth at Acuity slowed to 5 percent during the Great Recession, but remained positive.
"We had to work hard to not write bad risks," Salzmann said. "We had to work really hard to keep doing the business we know — we had to not be impatient."
The company announced last month that it plans to hire 50 new employees in Sheboygan and throughout its footprint.
"A vast majority of the hiring would be in Wisconsin," Salzmann said. "We could easily be bringing another 50 in at the end of the year. That's based on how the economy improves."
A statewide impact
Approximately 1,000 P&C companies do business in Wisconsin, and 180 of them are headquartered in the state. The concentration of insurance companies in Wisconsin is rivaled by only four other states. The insurance industry makes up about 6 percent of the gross state product.
"Our companies write about $8 billion worth of premium for Wisconsin consumers. At the same time, they write about $28 billion to 30 billion nationally," said Andy Franken, president of the Wisconsin Insurance Alliance. "All that business that's written out of Wisconsin helps provide jobs and grow the businesses here in the state."
The P&C industry is responsible for more than 60,000 direct and indirect jobs in the state, totaling $5 billion in compensation. Wisconsin property and casualty insurance wages are 67 percent above the average wages in the state, Franken said.
"I would say Wisconsin is a great place for property and casualty business because we have had historically a positive regulatory environment," Franken said. "We have had the competition of hundreds of companies here."
Wisconsin was the first state to enact a workers' compensation law in 1911, so many insurance companies were started in the state to serve that market, he said. The state also plays host to several niche insurers, such as Jewelers Mutual Insurance and Church Mutual Insurance Company.
"Wisconsin, through its progressive and cooperative history, grew mutual insurance companies owned by policy holders," Franken said.
The state's P&C insurers have been through difficult economic times, but they will come out of the downturn stronger and more prepared for the years to come, he said.
Planning for growth
Being in the insurance marketplace, Salzmann knows well that it's important to plan ahead for risk.
"If the economy is recovering right now, I'm already planning on how Acuity will continue to get growth in six years, seven years, when the economy turns down again," he said.
Salzmann attributes some of Acuity's recent success to a focus on company culture and employee engagement. He calls it innovative operational excellence.
"A really big thing is the way employees are not just treated, but engaged," he said. "It all snowballs. You've got all 830 employees trying to come up with the next great idea."
Salzmann says he has worked to retain employees and keep morale high through the economic downturn.
"One of the things we do religiously is staffing metrics," he said. "I've been running the company for 13 years. We've never done layoffs."
When Salzmann took over as CEO 13 years ago, Acuity had $220 million in sales. Now, Acuity averages $810 million in sales and is on pace to be well over $900 million in 2012.
Every Acuity employee is equivalent to more than $1 million in annual sales, one of the highest efficiency rates in the industry.
Each employee also has the latest smart phone and tablet technology, and the company is paperless, Salzmann said.
Acuity prides itself on its unique annual reports. For the 2010 report, Acuity brought in one of the world's leading pop-up book engineers to create an interactive storybook.
For 2011, the report will feature a treat along with a book embossed in gold print.
"We bought 19,500 pounds of gourmet chocolate and our annual report (for 2011) is a box of chocolates," Salzmann said.
A stable industry
Acuity and some other property and casualty insurers are doing well in the recovery because they were not heavily impacted by the recession.
P&C insurance companies keep their reserves close at hand in order to pay losses, so they are usually not as invested in the market as other companies and are often buffered from market fluctuations.
Most insurers have about two-thirds of their portfolio in bonds. As interest rates fall, the value of existing bonds has risen and the companies are able to realize capital gains on them, said Robert Hartwig, president and economist at the Insurance Information Institute.
"Insurers carry very little debt, which is something that got banks in big trouble," Hartwig said. "Many insurers have no debt on their books. Insurers operate as if every day could be a doomsday."
While hundreds of banks failed during the financial crisis, not a single major property and casualty insurer failed or left claims unpaid, Hartwig said.
"Most property and casualty carriers are a little bit more conservative in their investment strategy," said Merle Scheiber, vice chair of the property and casualty committee at the NAIC.
The state's oldest insurer, Germantown Mutual Insurance Company, lost money on operations in 2011 because of weather events, but made up for it in investment income, said Les Ibach, vice president and controller.
"We always have plenty of cash on hand, which we invest in bonds," he said.
The company, which is headquartered in Germantown and writes 91 percent of its insurance in Wisconsin, has experienced premium growth in the economic recovery.
"For a couple of years, our premiums declined, but in the last two years they've come back a fair amount," Ibach said. "For 2011, we had a 9.4 percent increase in written premium over the preceding year."
West Bend Mutual Insurance Company fared better than the overall industry in terms of storm losses last year, said Kevin Steiner, president and CEO.
"The storms did not impact the top line, our ability to grow, but certainly impacted our bottom line," Steiner said.
Premium growth at West Bend, which has 1,100 employees at three Wisconsin offices and a presence in 11 states, was flat in 2009 and 2010, but it's on the upswing in 2012.
"Last year we grew our company 8 percent, and we're up 13 percent year-to-date this year," Steiner said.
Steiner attributes the growth to positioning the company well during the recession and expanding its product offerings.
West Bend recently launched Argent, a large company workers' compensation division, and NSI, a Madison-based specialty lines division. The company has also ramped up its Silver Lining branding campaign to stay on customers' minds, he said.
"Our policy retention rates stayed very high during the tough economic times, and we attribute some of that to the fact that we have built our brand," Steiner said.
Last year, the P&C industry grew about 3.5 percent, and Hartwig expects it will grow about 4 percent in 2012. That would put three consecutive years of growth on the books.
The resuscitation of the economy overall will continue to drive growth in P&C, he said.
"We've gone from an economy that was shrinking and employees being laid off by the millions to an economy that's growing roughly 2.5 percent in 2012," Hartwig said.
Shipping, transportation and manufacturing are leading the way in hiring and increased activity. A strong agricultural market and global supply chain spell good news for companies, and in turn, insurers, he said.
Ultimately, the insurance industry thrives on a vibrant economy and high consumer confidence, Hartwig said.
"Consumer spending drives 70 percent of the economy," he said. "If consumers are spending, that means businesses are expanding."