In the presentations I give around the country, I usuallyprovide an update on the auto insurance industry. We're in aninteresting cycle to say the least.

The recession caused customers to drop coverage, and we'vereached an uninsured motorist rate of over 14 percent, according tothe Insurance Information Institute. LAE is creeping upward andwe're seeing loss frequency edging up, too, despite a combinationof high fuel prices and the recession. The larger problem, however,remains the customer base.

Our biggest customer base is the baby boomer generation. Thatgeneration is aging, and there is not a new incoming customer baseof teenagers or immigrants that will be able to match it. For now,the baby boomers are in their safest driving and prime coveragebuying years. But as this demographic ages, accident rates willincrease. The only wild card here is the question of whetheradvancements in accident avoidance—like blind spot warnings andbackup cameras—will mitigate the increase. But the bottom line isthat businesses need to grow their customer base, and the autoinsurance customer base has no “organic” growth potential.

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The way carriers will grow profitability is through buying upbooks of business or small companies as a whole and reducing theirinfrastructure. There is pent-up demand in the industry that waskept at bay by the lack of available acquisition funds. Right now,we're seeing increasing funding available, and the start of a “landgrab” of smaller companies will soon follow.

So, if you are asked for a myriad of financial and claimsreports with a tight turnaround time, and you suddenly see a groupof visitors camped out in a conference room for a week or so, yourcompany might be the next contestant in “MergerMania.”

What do you think? Leave your comments and opinions below.