To hear about the insurance industry’s evolution in the past 40 years, this month Finance Monthly reached to Joseph Petrelli. Mr. Petrelli began his insurance career in 1969 as a work study student at The College of Insurance, working for the predecessor organization to ISO. Since that date, he has been providing both actuarial and financial analysis expertise to the Property and Casualty (P&C) insurance industry. He has been actively engaged in the Title insurance industry since 1985. He has experience with loss and loss adjustment expense reserve evaluation, product development, and pricing for all P&C and Title insurance products as well as expertise with loss cost filings and Financial Stability Ratings® (FSRs).
Prior to founding Demotech, Inc. in 1985, he was employed by a large national P&C insurer, a regional property and casualty insurer, as well as Insurance Services Office.
Mr. Petrelli is the author of What We’ve Got Here Is a Failure to Communicate – How Traditional Financial Reporting Contributes to Misunderstanding of Title Insurance Loss Activity and has been published in many of the leading industry trade journals.
He is a Member in good standing of the Casualty Actuarial Society, American Academy of Actuaries, Society of Actuaries, and the Conference of Consulting Actuaries. Mr. Petrelli has a Bachelor of Actuarial Science from The College of Insurance (St. John’s University) and an MBA from The Ohio State University.
You have more than 40 years of progressively responsible property and casualty actuarial and financial analysis experience – how has the industry evolved over time?
The insurance industry’s evolution over the past four decades has been driven by the two concepts underlying Demotech’s name; demographics and technology. Demographics has impacted the life, health, property, casualty and title insurance sectors. Many life insurers now have clients that have lived to be 100 years old! Whether the issue is the graying of the insurance industry, the transition of leadership positions from Baby Boomers to Millennials, changes in the generational perspectives with regard to homeownership, telecommuting, personal, face-to-face service versus online efficiency and the implied cost savings of same, or 80 and 90-year old men and women having the physiological capability to live independently with a quality of life that is unprecedented: demographics is the driving force behind the evolution of the industry.
Similarly, technology has been instrumental in enhancing physical safety and ecological efficiencies; whether through automated safety apps that protect one’s home and contact you via smart phone when the doorbell rings or thermostat controls on a smart phone app. Concurrently technology offers challenges associated with cyber security and cyber bullying that emerged over the past several years.
Can you tell us a bit about the Financial Stability Ratings® that Demotech offers?
Financial Stability Ratings® (FSRs) summarize our unique perspective on an insurer’s ability to honor meritorious claims or otherwise defend the policyholder. “Stability” is the key variable that financial strength ratings often fail to measure. Stability implies that an insurer is focusing on core capabilities and sticking to its knitting. The best way to stay out of trouble is to do what you know how to do.
Other rating services seem to believe that possessing an abundance of capital concurrently provides the experience and expertise to assimilate into lines of insurance or geographical areas that are unfamiliar to the insurer. Stability and a focused and executable business plan are the keys to survival.
How do you tailor your services to the needs of each individual client?
We do not rely on black boxes, secret formulae or subjective criteria to assign our FSRs. We believe that ratings should be transparent and fair. In fact, we have created the phrase, Transfairency to describe our process. Tranfairency refers to a review and analysis of insurer financial stability that is fair and transparent. We believe that a process is fair when review and analysis focuses on balance sheet fundamentals presented over time, the quality and quantity of reinsurance, the carrier’s business model and the breadth and depth of its enterprise risk management program.
In terms of market competition, where does Demotech stand globally and what are its goals moving forward?
In the area of insurer ratings, as opposed to the rating of insurer investments and debt obligations, the reality is that a monopoly exists in insurer ratings. Despite the existence of a monopoly and the restraint of trade or boycott of duly licensed insurers that it creates, we have more than 400 clients operating in the US, District of Columbia and Commonwealth of Puerto Rico. We chip away at the monopoly each and every day for the purpose of leveling the playing field for financially stable insurers.