Trends in Insurance--1990 As we begin the next decade, we can look back on a decade of tremendous change for the insurance industry. However, as we look ahead toward the 1990s, even greater changes will significantly affect the types of insurance and the methods of providing them.
One of the primary characteristics of the 1990s will be a more sophisticated insurance buyer. As insurance companies continue to retreat from their traditional rule of bearing risk, this sophisticated buyer will demand more alternative risk-bearing products. Corporations will begin assuming higher risk retentions and will place greater emphasis on preventing losses.
The insurance broker's role in this scenario will be to meet the challenge of the sophisticated insurance buyer and to provide much of the driving force behind greater sophistication.
The new insurance players
Although the U.S. Department of Labor estimates that the number of people working in the insurance industry will grow during the next five years, these employees will probably be working for fewer, larger companies. Mergers and acquisitions of well-known national firms are becoming commonplace.
A less well-known activity is the growth in strategic alliances among smaller regional firms, enabling them to compete more successfully and to reduce operating expenses. This tactic may slow the selling off of small insurance companies that have been prevalent in recent years. However, from service and technological standpoints, smaller companies still face the prospect of falling farther behind.
The entrance of banks and other financially based organizations into the insurance business will create keen competition for traditional insurers. However, success in the commercial insurance sector during the 1990s will still depend on proper servicing of accounts and on a quick response to changing market conditions.
Direct writers of insurance will also continue to be a formidable force in certain market segments. Captive insurance companies gained significant attention during the last insurance crisis, when companies unable to purchase insurance established their own company or association to assume risks. These captive insurance companies will be tempted with the prospect of increasing capital and premiums by taking additional risks from non-group members. This increased capacity may spell trouble if the captives do not preserve sufficient funds to pay future losses.
As more insurance buyers gain risk management sophistication, the concept of a "Charles Schwab & Company" discount insurance approach may become more attractive. Without the need for historic risk trends analysis and the identification of areas requiring additional attention, sophisticated risk managers may expect to pay solely for the basic design of the insurance, not for service. Many larger insurance buyers are already staffed to take advantage of such an approach.
The trend toward
Self-insurance plays a role in virtually every insurance program, from basic deductibles in property policies to the formation of captives.
Until a few years ago, most companies looked to the insurance industry for the bulk of their risk transfer. The insurance industry did not always justify this faith, however. The cyclical nature of the industry resulted in significant premium swings, deterioration of coverage terminology, and requirements to participate more extensively in assuming loss exposure.
With each tightening of the market, more aggressive insurance buyers opted for solutions that relied less on traditional insurance companies and more on alternative financing programs. The advantages of greater self-insurance include greater flexibility, price stability, and increased cash flow. The principal drawback to self-insurance is the increase in administrative costs for the organization. …