Predicting the future isn't easy

For example, that's why long-distance commuters have different prices for their auto insurance more miles per year, increasing the chances of them getting into an accident. The insurance industry relies on the "law of large numbers" and has actuaries and statisticians conduct analyses on past performance to help predict the future. That is a wide range that can be predicted only through calculations based upon the experience of like people engaged in like activities over a period of time. We have to consider all of these factors. They have a potential for reducing injury, but the vehicle repair cost is substantially more. In fact, the safety features put into vehicles by manufacturers in the last couple of years are increasing the cost of repairing vehicles. Then we get into calculating the impact of design features, such as safety enhancements.

If, on the other hand, everyone is trading in their old vehicles for new, more costly ones, we must take that into account. If they don't buy new vehicles, the average value of the vehicles on the road is affected, and we build that into our price. Whether people are going to buy a lot of new vehicles is dependent upon what employment rates are. We have to understand how and why these things happen. For example, historically, the price of gasoline impacts the ultimate number of automobile accidents because the more people have to pay for gasoline the fewer miles they drive. We don't know what the economy will be doing in the future, but we can make projections based on what we know has happened in the past. In the United States market compared to other parts of the world, we have many more variables to take into account.

You have to understand the impact of today's variables on tomorrow's world. We draw on as many resources as possible. It's hard. The fact is, some years the insurance industry makes money, and some years it loses money, primarily because it is such a volatile and unpredictable environment. We price for the probability of losses, size of losses and the legal environment for something that may not happen for years. Government regulation makes the United States marketplace a little more challenging.

To capitalize on such opportunities, we have to anticipate what the economy is going to do. If there are going to be a lot of new homes, we may have to invest dollars in preparing for growth spurts in certain geographic areas and allocate capital so we can grow that business. We must understand other economic factors, such as the growth in new housing starts that influence the cost of things.