2007 Industry Report: Insurance

Rate payers might benefit from healthy competition
By Chris Roush

premium notices

TREND: Health insurers are returning to the North Carolina market by offering specialty plans.

OUTLOOK: More insurers could mean lower rates as they compete for business.

During the past decade, with medical costs often rising double-digit percentages annually, some health insurers left the state rather than try to compete with Blue Cross and Blue Shield of North Carolina. In 1995, the Chapel Hill-based company claimed about 25% of the market for accident and health insurance. In 2005, it had 39%.

Medical inflation didn't disappear last year, but it slowed while health-insurance premiums rose 7.7%. Those trends were enough to bring some companies back. Hartford, Conn.-based Aetna returned to the small-business market in October after a five-year absence. WellPath Select, part of Bethesda, Md.-based Coventry Health Care, and Golden Rule, part of Minneapolis-based United HealthCare, began selling individual policies. Golden Rule left the state 10 years ago. "It's going to mean more choices," says Phil Gruber, president of Raleigh-based RPG Benefits Solutions, an insurance broker and consultant.

WellPath and Golden Rule have their work cut out for them. Blue Cross sells about 95% of the individual health-care policies in the state, many to the self-employed. "North Carolina has been in cycles before where there were a number of companies in the individual market, and they have not been successful because it's a difficult business," CEO Bob Greczyn says. Such policies produce low margins for insurers because of difficulty in spreading risk.

In November, the insurer said premiums for small businesses, about half of Blue Cross' customers, would increase by an average of 6.2% in the first quarter of this year. That's less than it sought from state regulators. But even at the old premium levels, Blue Cross has been financially fit. In the first nine months of 2006, revenue increased to $3.2 billion, up 13.5% from the period in 2005, though profits dipped less than 1% to $132.9 million. That might not be enough to satisfy lawmakers and patient advocates who have criticized the nonprofit for making too much money.

Property-and-casualty insurers tried but failed to push through increases in 2006. In February, Insurance Commissioner Jim Long ordered a retroactive 2.5% decrease for 2005 automobile-insurance premiums, and in April he ordered premiums cut 2.9% for 2006.

The industry got help from an unpredictable source: the weather. Last year produced no storms as damaging as hurricanes Katrina and Rita, which ravaged the Gulf Coast in 2005. In the first nine months of 2006, Chapel Hill-based James River Group netted $24.6 million. It lost $190,000 in the period a year earlier. The company's stock rose more than 63% from the beginning of the year to late December. CEO Adam Abram says he expects healthy profits for property-and-casualty insurers this year, absent major storms. Even if the storms come, his company is better prepared. James River changed its underwriting guidelines after Rita and Katrina.

One Tar Heel insurer saw its growth slow, however, because of a cooling of the real-estate market. Chapel Hill-based Investors Title, which insures titles of residential and commercial property, saw first-quarter profits soar 82%, but that was as good as it got. Second-quarter profits were up just 11.7% and third-quarter profits were down 15.2%. Premiums fell in the second quarter, though improved revenue from a new business - investment management and trust services - helped soften the fall.

Winston-Salem-based mortgage insurer Triad Guaranty posted higher earnings later in the year because of lower expenses. Its 2007 earnings are expected to grow 12%, while those of Investors Title should drop 11%, analysts say.

Greensboro-based Jefferson-Pilot continued to produce good results even after it was bought by Philadelphia-based Lincoln Financial in April. In the second quarter, its first under Lincoln, Jefferson-Pilot netted $145 million, up nearly 6% from the second quarter in 2005. J-P employment in Greensboro, about 1,120 when the acquisition closed, increased slightly to 1,148.