Twenty-three years ago in the midst of a soft market trough, I stood in an assemblage of underwriters, actuaries, and claim employees listening to a CEO state that he could have paid the underwriting sector to stay home and play golf for the entire year and made more money than having them write the kind of business they had placed on the company's books. The messages at that time was clear: Manage the front door. Understand what the exposure. Does it meet the organization's underwriting standards? Is it priced appropriately? In other words, underwrite the risk before binding coverage. When this is performed in a consistent and disciplined manner over time, value is created.

Today, billions of dollars have been invested in a now widely recognized unknown and significantly misunderstood investment product called mortgage-backed securities. Once the upfront fees were collected from the original mortgage transaction involving a lot of unqualified borrowers, no one really cared about the downstream implications of whether or not the borrower could actually pay back the loan. Think of it in terms of self-adverse selection. The difference over time being not that someone wasn't managing the front door, but that they intentionally left it open. The devastation to date has been immediate, like the aftermath of Sherman's march through Georgia. Financial markets in near ruin, banks failing, exponential mortgage defaults and foreclosures, and yet we have no soundings indicating how deep the problem goes.

Initial indicators of what property and casualty insurers face in the near term have begun to emerge -- and they aren't encouraging. In the midst of sheer survival, buyers are more concerned with keeping their jobs, feeding their families, and for those fortunate to still have one, paying the mortgage. With fewer dollars to go around, insurance becomes a second, third, or fourth-tier consideration for many consumers. The result, as we are already seeing in the rise of uninsured motorists, is a precipitous drop in premium dollars that, taken in combination with portfolio erosion and increasing loss and expense pressure, forge the perfect value destruction storm.