“But I think companies are overreacting, because they see a window in which they can do it,” she said, suggesting that they should instead “be mindful of the fact that their better customers still may have choices.”

“You don't want to drive away better business by sticking people who don't deserve it with high price increases. Knowing who your better customers are, which ones create value, which ones you want to keep–and how to price them–is a major issue. A broad-brush 50 percent rate increase is not going to have the intended effect,” she said.

Ms. Hollister, whose firm regularly takes the pulse of financial services leaders through its electronic “pulse” surveys, noted that getting the right price also implies that insurers can build in the increased cost of reinsurance and pass it along to customers.

“That's kind of tough to know when you haven't been able to renew your reinsurance yet,” she said.

“Getting the right price” was actually third on a list of issues facing insurers that she went over with National Underwriter.

Topping the list was one that none of the insurance company executives interviewed by NU for last week's edition identified separately as an issue–”securing adequate reinsurance, particularly in workers' compensation.” (See NU, Jan. 7, page 11.)

Could it be that the issue is so well known that no one felt the need to list it?

“Maybe they were trying to project more into the future, and that's happening right now. So it's a given for them,” Ms. Hollister suggested.

Although insurer executives did not specifically identify reinsurance as one of their top issues, they did, in fact, mention it as a corollary or a factor creating some of the other issues they said were at the top of their minds.

The reinsurance issue for workers' comp insurers might start to fade early next year, Ms. Hollister suggested.

“We have some sense that after Jan. 1, they may have more of a market” in Bermuda, she said.

“All these new companies that have been formed that were responding to a perceived lack of property reinsurance are going to have some capacity left to write some other things, and their investors are going to expect them to use that capital. So they may shift their focus to lines like workers' comp and charge egregious prices for it,” she said.

Ms. Hollister also suggested that fewer reinsurers will exist this year, and that the ones that do will put significant restrictions on their coverage.

“Terrorism is a clear one,” she said, noting that reinsurers are also trying to exclude mold and cyberrisk.

As for there being fewer reinsurers, “it's hard to say whether they will be allowed to become insolvent or be acquired. Companies that are in strong positions can do different things with their capital, including buying others,” she said.

Ms. Hollister said the second major category of issues for insurers is risk management, referring to the need to measure and manage aggregation risk.

“Thats new in a line like workers comp,” she said, noting that the prior view was that the larger the company, the more sophisticated and responsive they would be to loss control techniques.

Insurers are now under pressure to create models that tell them how many people are insured in one place, and how many lines of business could get hit at one time, she said.

Even if insurers don't see the need for such models, A.M. Best and other rating agencies will do it for them, making some “pretty bold assumptions” to show the company they don't have the surplus to withstand that kind of event, she added.

A third issue for insurers, she said, involved knowing the customer and using technology.

Referring to results of Tillinghasts first “pulse” survey on e-business trends, “one of the major themes that came out is that new technologies are changing–and that understanding and “owning” the customer is a top-order issue for insurers.”

That doesnt mean cutting out agents–it means knowing who customers are, and being able to sell products in a way that attracts the better ones and allows companies to maintain long-term, profitable relationships with them, she said.

The Internet also offers opportunities to be more efficient through insurance intermediaries, she said, noting that both insurers and agents face significant challenges to keep costs in line and become more efficient.

“That's not a new issue, [but] it's exacerbated by the fact that we're going to be in a down economy. If your revenue is off, and your investment income is off, you need to squeeze costs too,” she said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 14, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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