Economy and Technology will Alter Underwriting
Insurance Networking News, February 1, 2009
2009 MARKET PRESSURES
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Mark Gorman
Market consolidation will continue, with the Safeco/Liberty Mutual deal just one example of a potential series of transactions in 2009. Due to credit pressures from the financial markets, some organizations will look for mergers, others for acquisitions in order to gain access to more capital or achieve more critical mass. This market consolidation may result in a shrinking of available markets, putting additional pressure on production processes.
The regulatory environment also is expected to change, with only the scope and scale of the change being debated. With insurer CEOs calling for the establishment of an Office of Insurance Information, congressional members looking more closely at the concept of an optional federal charter, and the NAIC approving a controversial reinsurance framework to reduce or eliminate capital requirements on non-U.S. insurers, the lines are being drawn for significant debate. The ultimate outcome is expected to impact product development processes, and expand distribution opportunities, both of which will challenge some underwriting departments.
The financial markets' performance will reverberate within the insurance community in other ways. Credit pressures on the agencies and their clients will further complicate planning problems. Indeed, difficulties in obtaining credit are predicted to result in a decrease in the number of surviving small companies, and additional downsizing by large organizations. Economic uncertainty may also delay the retirement of baby boomers.
Demographics issues will also play a role, as a retirement-induced talent squeeze will put pressure on agency distribution channels by exacerbating their succession planning problems. Likewise, many insurers, faced with the loss of experienced underwriting personnel, will be challenged to recruit, hire, train and deploy new underwriting staff in the coming year.
Firms have hired young people who bring energy, enthusiasm, intelligence and creativity to the job. However, they don't appear to have the same work orientation as many of the people who have worked in the insurance industry for the past 30 years. Young employees don't expect to retire from the organization they work for now - they look for portable 401k accounts rather than the pension accounts so important to many older employees. Younger employees expect to make a contribution relatively quickly rather than expecting to first "learn the business." The current job market makes the historic stability of the insurance market attractive, and the opportunity to attract high-quality talent has rarely been greater.
THE OPPORTUNITY
While the pressures in the market appear dire, the business improvements implemented in the past few years by some insurers position them well to weather the market downturn better than not only other insurers, but other financial services market segments as well. Attention to improvements in pricing precision and underwriting performance management, increased "ease of doing business" for the agency distribution channels, improvements in operational efficiency and staff augmentation efforts provide opportunity to those insurers who had the insight to address these issues prior to the current environment. This foresight, combined with the expected market hardening and firming of rates, should allow these insurers to emerge well positioned for profitable growth once the market shrinking begins to reverse.
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