The rates charged by insurance industry in the 1990s debased the value of the products sold, he said, stressing that the industry has to get used to the fact that what it sells is valuable.

He emphasized that the world is getting more risky and the profiles of risk are going to get greater, which increases the need for insurance. As a result, this industry needs to step up to the plate and take responsibility to get its fiscal house in order, he indicated.

During the 1990s, the industry gave away its product “because everybody was competing for market share, and in competing for market share, [the industry] forgot what business it was in,” he said.

He said the industry thought it was in the investment business, relying on investments rather than underwriting to make a profit.

All insurance companies have a fiscal responsibility to get their balance sheets in order and run businesses where they actually spend less than they make on an operating basis, he said.

This will give clients the opportunity to understand that there is a price that must be paid for insurance, he said.

“They dont mind that. What they mind is the fluctuations that go on with regard to insurance,” Mr. Plumeri said.

The industry needs to take a very good look at the way business is conducted and shoring up balance sheets, he said.

Rather than endlessly talking about when the soft market is coming, Mr. Plumeri said the first thing to worry about is having a solid, responsible industry, so clients will continue to have the ability to do business with the insurance industry providing balance sheet protection. “I think thats more important than whether the markets are going to get soft or not.”

The business practices seen in the 1990s led to the problematic market of today, he said, citing chronic under-pricing and under-reserving, along with a bad equities market and higher insurance losses, of which the World Trade Center was only one.

“This industry has to be able to secure the past while we protect our future,” he said, emphasizing that, as a result, a lot of changes need to be made.

Addressing the problem of failures in process efficiencies, Mr. Plumeri said he has never been in a business where “you shake hands and then determine later what you shook hands about,” he said, referring to the late issuance of policies rife within the industry.

“They didnt do in the banking business. They didnt do it in the securities business. I think its something that the industry has got to work on because, as I said, its the DNA of capitalism.”

He said when he was in the banking business he wouldnt think of giving anybody a loan without telling that person what it was going to cost them and what the conditions and terms of that loan would be.

“We do that in our business all the time. I dont understand why it takes months, sometimes it takes years to be able to satisfy the terms and the conditions of a contract, when in every other business, it takes a day and no longer than a week.”

He said when he took over his job at Willis in 2000, he was told that it sometimes takes six months, sometimes three months, to issue a policy and thats the way it has always been. “I was absolutely appalled with what went on.”

He said when he first took on the job at Willis, he told his people that he was going to ask a lot of stupid questions because he was a stranger to the industry. He said he told them the only unacceptable answer was that “we always did it that way,” because by “telling me that, youre basically saying, nobody challenged what went on.”

When he first got to London, he didnt understand why people (the brokers) were carrying stacks of folders under their arms. “I asked everybody, Where are they going? They said, Theyre going over to Lloyds. I said, What are they doing? They said, Theyre going to make a transaction, a placement, in the market. I said, Dont they use these things?” At that point in his speech, he pointed to the computer terminal next to the podium.

“I said, What happens if they lose the paper? What happens if there is a windstorm? What happens if somebody dies? What happens if they drop them in a puddle?”

For a business thats been around for 300 years, its amazing that the way business is conducted is still basically the same as it was 300 years ago, Mr. Plumeri contended. “I think the lack of technology that exists in the insurance industry is woefully behind all other industries.”

Mr. Plumeri said its important to begin to challenge some of the things the industry has done before. “We have to challenge our technology, challenge the processes that we go through,” he added.

“As I said to my colleagues at Willis when I got there, you dont live by tradition, you build on it,” he said.

(For related articles in a special report on the topic of late policy issuance, see NUs May 5 and May 12 editions.)

Reproduced from National Underwriter Edition, May 19, 2003. Copyright 2003 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.