Hard Market Carries Big Risks

To The Editor:

For those of us who have been around the property-casualty industry for a long time–and that includes most of us, since the young people are staying away in droves–the memory of a cover of Time magazine in 1984 is still vivid. "Sorry, America, Your Insurance is Cancelled" read the headline, and the articles inside documented horror story after horror story about communities and businesses that either couldn't get any coverage or could not afford the coverage they were offered.

Memory fades a little regarding what happened next, but we need to force ourselves to remember. We need to remember how the budding alternative market that had taken root in California in the late 1970s came into full bloom in 1985 and 1986 and 1987. We need to remember that in the following years as much as 20 percent of the available commercial insurance market moved to captives and paid-loss retros and large-deductibles and other forms of self-insurance.

The industry leaders of the day were very sure that when the hard market had earned back for them the profits lost in the price war of the early 1980s, and when they were good and ready to offer coverage at affordable prices again, all the self-insureds would return to the fold. They were wrong!