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GERALD BEPKO Commentary: State should help insurance industry grow

January 10, 2005

GERALD BEPKO

Commentary State should help insurance industry grow

Everyone seems to agree that state governments must facilitate job growth and wealth creation. As pioneers in publicprivate partnerships, Indiana's leaders have envisioned a future for Indiana that includes many partnership economi c - d eve l o p m e n t strategies. One reflection of this vision is the Central Indiana Corporate Partnership-led focus on key sectors, such as advanced manufacturing, logistics and life sciences.

The priority associated with these key sectors, however, should not interfere with a continuing broad-gauged effort to strengthen the competitiveness of all Indiana businesses. Enlightened leadership can create competitive advantages for our business community, producing a net gain in state revenue while protecting the public interest.

An area of Indiana business ripe for this type of continuing analysis is the insurance industry. The complexity of modern life should create a steady flow of new opportunities to manage risk effectively, whether business risks in new fields, property-and-casualty risks in new ownership arenas, health-related insurance risks, or estate planning and transgenerational wealth management and tax issues. These opportunities, along with new technology-based distribution methods, could spawn a new era of potential for Indiana.

Such an era could be built on the strong foundation of excellence in Indiana's insurance industry, which contributes $3.8 billion to the gross state product. Indiana is the home of 179 insurance companies; another 1,660 companies do business here. Some of these are large employers, such as WellPoint (formerly Anthem), Conseco, One America (formerly AUL) and Farm Bureau. Some insurance-sector companies are small, such as agencies serving larger carriers. In 2003, Indiana's insurance sector employed 60,000 people in jobs that, on average, paid well above salaries for other workers.

While Indiana's insurance industry has remained healthy, it does not have a sufficient record of success. Insurance employment in Indiana has grown 6 percent since 1990, while nationwide growth was 12 percent. And Indiana has had mixed results on structural issues, losing such companies as Indianapolis Life to demutualization and merger, losing headquarters such as Lincoln National of Fort Wayne to Philadelphia, but gaining a big victory in the WellPoint-Anthem merger.

In 1998, the Insurance Industry Working Group was formed to find ways to facilitate the success of this sector of Indiana's economy. The group's work contributed to some improvements, including a phased reduction in the competitiveness-impairing insurance premium tax and a new law governing insurance mutual holding companies.

The new forward-looking administration should redouble efforts along these lines. The appointment of a new commissioner of insurance, Harold Calloway, who has a good reputation and 20 years of experience in the insurance industry, seems a good first step.

An insurance-industry growth agenda may include studying Iowa's and Nebraska's efforts to advance their insurance industries. It also might include renewed strategies for positioning Indiana-domiciled companies for independence or merger survival, attracting newly domiciled companies, speeding up the approval process for new products, and revisiting the premium tax rate to see if Indiana should lower it even further to match the rate in several largepopulation states. Currently, these states, which have the most potential business, impose a retaliatory tax on Indiana companies equal to the difference between their rates and Indiana's higher rate. According to Indiana's companies, this retaliatory tax makes them less competitive in the states with the most potential customers, including the highly relevant Illinois and Ohio.

The Daniels administration will accomplish much for our state, perhaps including insurance industry job growth at a pace that exceeds national standards. If so, it will be very good for Indiana.



Bepko is IUPUI chancellor emeritus and Indiana University trustees' professor at IUPUI. He also has served on the boards of several insurance companies. He can be reached by e-mail at gbepko@ibj.com.
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