The vibrant business environment has made Chicago an ideal home for CNA for more than 100 years. Today, we are the 7th largest U.S. commercial insurer. With nearly one million business and professional policyholders nationwide, CNA’s future is shaped by the same trends facing our insureds. Call them challenges or opportunities, but four trends are especially notable.
Medical Inflation. Medical inflation has been running at 2 to 2.5 times the rate of general inflation, and we do not see it slowing down any time soon. The drag on the economy is clearly evident in Illinois, where in 2004 Medicaid surpassed elementary and secondary education as the largest category of state spending.
Medical inflation is a major driver of workers’ compensation insurance costs, which heavily influence any state’s business climate. Until recently, Illinois was one of the few states without utilization review guidelines or fee schedules in workers’ compensation. It was the only state that allowed balance billing, in which providers bill injured workers directly for costs not covered by insurance. This practice gives rise to costly litigation, which is ultimately paid by Illinois businesses. We applaud the Chicagoland Chamber for leadership that resulted in reforms that address these problems and will help control the impact of medical inflation on business.
Tort Liability. The tort liability system puts an estimated $280 billion burden on the American economy, with legal and administrative costs eating up 54% of every dollar. The inefficiency of this system is a drag on business, and a driver of higher cots in virtually all lines of insurance.
In Illinois, we are encouraged by the recent election of a pro-business Illinois Supreme Court Justice in the 5th District. However, a key problem remains — venue laws that have made Madison, St. Clair and Cook Counties forums of choice for out-of-state plaintiffs. Again, we applaud the Chicagoland Chamber for its support of reforms to these venue laws, including being a founding member of the Coalition for Common Sense Courts.
Terrorism Risk. There is no bigger risk to the U.S. economy than another terrorist attack on a major U.S. city. In 2002, Congress acknowledged this fact by enacting the Terrorism Risk Insurance Act (TRIA), which put in place a three-year financial back stock that has helped foster a growing private market for terrorism insurance.
By the time this article is published, we are optimistic that an extension of TRIA will be in place. The failure to extend TRIA would have significant negative consequences for the economy, nationally and in Chicago. We continue to support a long-term approach to terrorism risk that transfers increasing responsibility for covering the risk to the private insurance industry, while maintaining federal involvement for losses at the highest levels.
Diversity & Diverse Markets. The face of business continues to change, in Chicago and nationally. At CNA, we believe this trend is a major opportunity. Two years ago, we launched a Diverse Markets strategy to participate in and foster the growth of women and minority-owned businesses.
Chicago has the good fortune of being on the leading edge of diversity in business. We at CNA look forward to the energy and opportunity arising from this trend, as we continue to be very bullish on the future of this great City.
James R. Lewis President & Chief Executive Officer
CNA Property & Casualty Operations