This classification covers establishments primarily engaged in underwriting fire, marine, and casualty insurance. These establishments are operated by enterprises that may be owned by stockholders, policyholders, or other carriers.
524126 (Direct Property and Casualty Insurance Carriers)
525190 (Other Insurance and Employee Benefit Funds)
524130 (Reinsurance Carriers)
A total of 3,215 fire, marine, and casualty insurance companies operated in the United States in 2000, compared to an estimated 3,800 companies in the mid-1990s. These companies accounted for 32.1 percent of the insurance industry's $956.8 billion in premiums that year.
Throughout the 1990s, the industry was plagued by a decrease in the growth of demand for insurance coverage, as well as a series of catastrophic events, both of which undermined profits. Net income of $36.5 billion declined to $29.9 billion in 1998, $22.5 billion in 1999, and $20.7 billion in 2000. However, this gradual decline paled in comparison to the fallout experienced by the property/casualty industry in 2001. Already struggling with severely reduced investment income, due to the economic downturn in the United States, the fire, marine, and casualty insurance industry was hit with extraordinarily high expenses from the September 11 terrorist attacks. As a result, the industry posted a loss—its first ever—of $6.9 billion in 2001, and its net worth that year declined 8.7 percent to $289.6 billion.
The fire, marine, and casualty insurance industry, commonly known as the property/casualty industry, is part of the larger primary insurance industry, which also encompasses both life and health insurance. In addition to these three types of primary insurance, the reinsurance industry serves life, health, and property/casualty companies. Some companies participate in more than one primary industry segment.
Companies within the property/casualty industry provide financial protection for businesses, individuals, and other entities against property loss or losses by third parties for which the insured is liable. The two major segments of the industry are business and personal insurance, each of which accounts for almost 50 percent of the total dollar amount of property/casualty insurance premiums written.
Within all segments of the property/casualty industry, several types of insurance are available. Although most property/casualty insurance traditionally has been written to cover homes, automobiles, and other property, other types of coverage include workers' compensation, product liability, and medical malpractice. Of all the available lines, automobile insurance is the largest segment of the industry, accounting for over 45 percent of property/casualty insurance premiums written in 1992. Automobile insurance accounted for the largest increase in premiums, up $5.6 billion. Several other market segments account for the remainder of premiums in existence.
Workers' compensation insurance is the second largest segment of the individual market. A study released in early 1996 stated that insurers paid out $16 billion in asbestos losses alone between 1993 and 1995. Premiums for workers' compensation dropped 5 percent to $29.7 billion and accounted for just 13 percent of the property/casualty premiums written in 1992. Furthermore, fire and marine insurance combined represented less than 7 percent of all premiums written for individuals during that same year.
The entire insurance industry, including life, health, and property/casualty, is comprised of four functional groups: insurers, who carry the risk of their clients; field organizations, which provide client services such as settling claims and writing insurance; intercompany associations or bureaus that, among other things, establish standards of practice, influence legislation, and determine rates; and associations of agents and brokers that promote the interests of the field organizations.
Financial Structure. Insurance companies generate profits by selling, or underwriting, policies to customers and then investing these revenues in income producing assets. Therefore, insurers may derive revenues, or losses, both from collecting premiums on insurance and from investment income. Insurers are in the precarious position of selling products and services before they are sure how much these products and services will cost to provide.
One factor distinguishing the property/casualty industry from other primary insurance industries is the nature of its investment activities. Future liabilities tend to be short term, compared to the life or health insurance industries, and are much less predictable. In addition, most property/casualty policy claims are settled quickly. Therefore, insurers must invest predominantly in assets that they can quickly convert to cash. For instance, bond holdings alone typically constitute over 70 percent of property/casualty industry assets, and stocks account for about 20 percent. These figures contrast the life insurance industry, which usually invests about 20 percent of its assets in relatively liquid mortgage loans and real estate.
Competitive Structure. Although industry growth stagnated in 1989 and throughout the early 1990s, the number of U.S. property/casualty insurers jumped 34 percent between 1979 and 1988. Of the nearly 20,000 companies that comprised the industry by 1994, 85 had 1,000 or more employees, and 275 had between 250 and 500 employees. Employment deceased in the early 1990s as insurers moved to streamline operations and dropped to 545,400 in 1993. Employment was up again in 1994 to 610,368. Advertising and customer service are also important elements of competition within the industry, since the industry is characterized by relatively homogeneous products that are difficult to differentiate from company to company.
The concept of insurance developed in response to society's desire to spread the consequences of a loss that would normally fall upon a single individual over the members of a large group exposed to the same hazard. Through a system of equitable contributions, members of a large group can reduce the risk of disastrous personal loss. The result is an atmosphere of certainty, rather than uncertainty, regarding accidental or disastrous occurrences.
One widely cited definition of insurance emanated from a court case in Great Britain in 1806: "Insurance is a contract by which the one party, in consideration of a price paid to him adequate to the risk, becomes security to the other that he shall not suffer loss, damage, or prejudice by the happening of the perils specified to certain things which may be exposed to them."
Insurance companies concern themselves only with pure risk, which involves only the negative possibility of loss. Conversely, insurers must avoid insuring business risk, or speculative risk, which involves the chance of both loss or gain. In addition, the clients insured by companies must stand to lose by the happening of the event contemplated. Otherwise, the arrangement would amount to little more than a wager and would be unenforceable or illegal.
Other conditions that must be met in order for a group to be insured against an event are: the insurer must be able to quantify the risk of the event occurring; persons exposed to the risk must feel a sense of responsibility for the loss; the insurer must be capable of shouldering the burden of loss; and the events involved must be purely subject to chance.
Property/casualty insurance is limited to loss or destruction of property by fire, windstorm, hazards of the sea, earthquake, water leakage, explosion, riot and civil commotion, vandalism, theft, forgery, and vehicle collision. In addition, loss of property can result from liabilities related to compensation of injured workers, property damage caused to others, and negligence concerning the use of personal property.
Evolution. Organized systems of fire, casualty, or marine insurance have existed since at least the fifteenth century when a marine insurance industry emerged to serve Italian traders. The industry did not develop into a form resembling what exists today until the seventeenth century in England, following The Great Fire of London in 1666. This event prompted the development of a sophisticated fire insurance industry, which helped to lay the groundwork for the gradual development of a broader property/casualty industry. Rapid industrialization in the western world during the nineteenth and twentieth centuries sped the industry's development, as a decrease in individual independence magnified the benefits of insurance.
In the United States, it was not until early in the twentieth century that the hazards of wind, water, damage, and explosion were added to the established lines of fire insurance. Other forms of insurance followed, such as personal accident, which covers costs related to illness and accident; liability; and workers' compensation insurance. A turning point occurred in the U.S. property/casualty industry in 1948, when states began allowing insurance companies to write policies on several lines of insurance, rather than limiting companies to just one segment of the market. This practice, called multiple-line underwriting, had long been in practice in the rest of the world. Significant trends shaping the industry as it entered the 1990s included an increased emphasis on computers and automation in virtually all aspects of the market and the continued globalization of the industry. The trend continued into the late 1990s.
Regulation and Legislation. One aspect of the U.S. property/casualty industry that separates it from insurance industries in most other countries, aside from its sheer size, is its detailed system of government regulation. Until the 1940s, regulation was the exclusive province of state and local governments. However, in 1944 the Supreme Court, in United States v South-Eastern Underwriters Association, ruled that insurance is commerce—commerce that is conducted between state lines. By redefining its scope, the Court made the entire insurance industry subject to the powers of Congress under the Commerce Clause of the Constitution. Congress then gave states until 1948 to revise their regulatory structures to meet certain standards laid down by the act. State revisions enacted during that time were sufficient to preclude excessive federal intervention. However, events in the early 1990s again threatened the authority of states to regulate the industry, and increased federal regulatory action seemed likely.
Another legislative event with a significant impact on the industry is California's Proposition 103, legislation which California residents voted to enact in 1989. The proposition required property/casualty insurers to reduce, or rollback, automobile insurance rates by 20 percent. Enforcement of the proposition was postponed until 1992. This legislation reflected growing consumer discontent with escalating insurance costs nationwide and provided a testing ground for states considering similar legislation. Many insurers responded by reducing, or stopping, business in California.
Record losses from catastrophes, a lack of good investment alternatives, and a sluggish economy were the three predominant factors that converged to make 1992 a historically dismal year for the property/casualty industry. Small improvements over 1991 in the dollar value of premiums written, combined with capital gains realized from the sale of assets, were the only factors that kept earnings positive for that year.
By the mid-1990s, federal regulators argued that the state regulatory system was inefficient and had contributed to the financial instability of the industry. By requiring more stringent regulations concerning financial health, federal regulators hoped to strengthen the fiscal soundness of the industry and force companies to operate responsibly.
In 1997, an effort to reduce unnecessary regulatory burdens on casualty insurance was making strong headway in many states. NAIC invited insurance industry representatives, including the American Insurance Association, to present proposals for reducing regulations for large purchasers of commercial insurance. In March 1997, NAIC outlined several regulatory relief proposals, and the industry anticipated more action to follow.
In the late 1990s, the minimum workers compensation rate law was repealed, commercial lines were deregulated, and there was a move to repeal the Glass-Steagall Act. In addition, in 1999 OSHA proposed regulations to protect workers suffering from musculoskeletal problems. The agency proposed ergonomic standards that had insurers and businesses up in arms. The insurance industry stated it did not oppose worker safety, but felt the OSHA proposals discouraged worker/employer relations in discussing workplace safety; proposed coercive regulations without thought to employer motivation; and added significant costs with provable benefits.
Catastrophes. Catastrophes were the single greatest affliction for the industry in the early 1990s, resulting in over $22 billion in combined losses. Of all the catastrophes during 1992, Hurricane Andrew was the most expensive. Its damage in Florida and Louisiana in August 1992 racked up record claims topping $15 billion for the industry. Less than one month after Andrew, Hurricane Iniki blasted the Hawaiian Islands, wreaking an additional $2 billion in destruction. In addition, tornadoes ripped through the South and Southwest in that same year, causing $130 million in damage, and the Chicago floods reaped another $300 million in claims. A few months after the Chicago floods, riots in Los Angeles amounted to $750 million in damage. In early 1993, a heavy snowstorm on the East Coast dealt a $1 billion blow to property/casualty insurers. These catastrophes contributed to a staggering loss in underwriting income of over $34 billion in 1992, compared to the past record high loss of $25 billion in 1985. In comparison, under-writing losses from 1989 to 1991, which were also burdened by exorbitant catastrophic claims, averaged about $20 billion.
Catastrophes, especially hurricanes in the Atlantic, mounted in the first half of 1998 making it the fifth worst year since 1950. In 1998, the industry's policyholder surplus rose only 7.5 percent, compared to a rise of 22.2 percent in 1997. The catastrophic losses totaled $10 billion for the year, compared to only $2.6 billion in 1997. The losses, combined with reduced investment yields and year-to-year capital gains, accounted for this decline. In 1999 the catastrophes did not let up; with tornadoes and other weather-related phenomenon, 1999 was predicted to be the second worst year since 1994 in terms of catastrophic losses.
Investment and the Economy. A second factor contributing to financial stress within the industry during the early 1990s was excess capital and comparatively poor investment opportunities in the sluggish economy. Property/casualty insurers began to rely increasingly on investment income to shore up their earnings in the 1980s. However, low interest rates and limited investment returns began to limit this source of revenue by the early 1990s. By liquidating $9 billion in assets to realize capital gains, insurers were able to boost their income in 1992, but at the expense of weakening the economic strength of the industry.
A third problem for insurers in the early 1990s was the sluggish economy. The dollar amount of premiums written increased just 3 percent in 1992—well below the 6 percent growth rate which some analysts had predicted, but slightly greater than the growth in 1991. Stagnant growth in premium rates, partly because of regulatory rate suppression, compounded financial difficulties for insurers.
Insolvency. Besides catastrophes, a sluggish economy, and low interest rates, the property/casualty industry continued to suffer from a relatively high rate of company insolvency. Between 1984 and 1992, over 370 companies failed, compared to a total of only 141 in the 15 years prior to 1984. Most of these insolvencies involved smaller companies. But despite the 1992 catastrophes, there were only nine insolvencies during the first half of 1993.
Although the root cause of many failures was mismanagement or fraud, a more aggressive regulatory environment resulted in a greater number of company failures than would have otherwise occurred. In addition, Hurricane Andrew alone was a major cause of at least nine of the failures. Some industry observers believe that the number of insolvent companies peaked in 1990 and may have been decreasing since that time. Nevertheless, insolvency has been a major contributing factor to the increase in federal and state industry regulation.
Democratic Michigan Representative John Dingell addressed the regulators' interests when he introduced a controversial bill in April 1992. The Dingell Bill was designed to enforce uniform capital requirements for insurers. Industry reactions were mixed, and many industry leaders opposed the bill. In response to federal regulatory attempts such as the Dingell Bill, the National Association of Insurance Commissioners (NAIC) tried to strengthen state requirements and avoid increased federal entanglement in the industry. Pressures to increase federal regulation mounted in 1992 when there were congressional efforts to reform the McCarran-Ferguson Act, which exempted insurers from Federal antitrust laws. Reform of this act would mean the loss of an important defense for insurers against federal involvement in the regulatory process.
Increased Competition. The second significant long-term challenge for industry participants in 1997 was increased competition. This challenge meant a reduction in the workforce and consolidation, by merger and acquisition, for many property/casualty companies. In 1997, the Providian Corporation announced that its shareholders approved the merger of the company's insurance operations with AEGON USA, a subsidiary of Netherlands based AEGON, NV, one of the largest listed insurance organizations worldwide.
Insurance giant Aetna sold its Casualty and Surety Company to the Travelers Group for $4.1 billion in 1997, creating the largest writer of personal automobile insurance through the independent agency system. Sagging industry profits, foreign expansion into the United States, and market segmentation were a few of the factors driving this trend.
Limiting their participation in the industry to specific market segments in which they had developed expertise is one way companies sought to increase their chances of maintaining profitability in the 1990s. Companies wanting to compete effectively also were learning to become more efficient through automation and customer focus. Many companies, especially smaller ones, were seeking to merge with other companies to strengthen their capital position. In addition, many companies were looking into ways to streamline operations and reduce the size of their workforce. Expansion into foreign markets offered another opportunity for property/casualty insurers to shore up profit margins. "Companies must downsize, consolidate divisions, reduce their employee base, and enhance their capital spending …to compete globally," according to Robert M. Demichele, president of the Reinsurance Corporation of New York, in Best's Review, Property/Casualty Edition. In June 1997, the American Insurance Association (AIA) urged Congress to support tax legislation that would help to make the U.S. property/casualty insurance industry more competitive in the global marketplace.
Mergers continued in 1999 as insurance companies looked to diversify and expand their offerings. In mid-1999 Allstate announced it would buy the personal lines from CAN, a transaction worth $1.2 billion. In addition, The Hartford bought Omni to augment its product line and expand its non-standard auto operations.
The fire, marine, and casualty insurance industry experienced its worst year in history in 2001, thanks to the sharp economic downturn and the September 11 terrorist attacks. For the first time ever, the industry posted a net loss, which totaled $6.97 billion. Although net income had been declining steadily since the late 1990s, from $36.53 billion in 1997 to $20.75 billion in 2000, due at least in part to waning demand, the industry had never before experienced such a sharp downturn in a single year. The economic recession that had been plaguing U.S. insurers in the early 2000s had undercut investment income for property/casualty insurers. In 2001, investment income dropped 8.9 percent to $37.1 billion. Costs related to the terrorist attacks caused the industry to experience an operating loss of $25 billion, compared to a gain of $9.9 billion in 2000.
Environmental liability continued to pose a potential major threat to profitability in the early 2000s as claims related to asbestos were on the rise. According to the July 2002 issue of Claims, "a surge in annual claim filings and the rescinding of previous settlement agreements between plaintiff attorneys and defendants has changed the asbestos litigation environment, increasing costs to defendants." Mold claims also increased in the early 2000s. Large environmental claims typically are made many years after the cause of the claim occurs, making it difficult for insurers to predict cleanup cost liability. One study estimates that cleaning up known hazardous waste sites could cost over $750 billion over 30 years, excluding litigation costs which could double that figure. Because property/casualty insurers can potentially be stuck with the entire bill, many analysts believe firms need to consider building reserves of assets to address those future claims. Some have already done this; for example, Chubb Co. upped its reserves by $700 million in 2002 to help offset increased asbestos claims.
Of the top 10 companies writing 45 percent of the property/casualty industry's $323.4 billion in premiums in 2001, the State Farm Group of Illinois was the largest as of 2001. State Farm services 65.8 million policies, employing 69,000 people and enlisting the services of 17,000 agents. One in five cars in America is insured by State Farm, which is the largest insurer of automobiles, homes, and pleasure boats. Premiums in 2001 totaled $37.9 billion, compared to $25.7 billion in premiums in 1998. Assets that year reached $88.3 billion.
Allstate Insurance, also of Illinois, is the nation's largest publicly held property and casualty insurance company. It has over 14,000 agents and 20 million customers in the United States, Canada, and Japan. The company offered multiple lines of insurance and was started in 1931 by Sears, Roebuck & Company. The company had increased revenues for 1998—up 3.3 percent over 1997 to $21.8 billion. Premiums in 2001 totaled nearly $22 billion, and assets reached $39.2 billion.
Even in companies that were not adding jobs, more opportunities were available through attrition and shifts in the workforce than were available in most other industries. With a strong economy and many companies showing increased sales and profits in the mid-to-late 1990s, the job market is strong. Opportunities existed in five functional areas, including sales, claims, underwriting, accounting/finance, and professional staff support positions.
The greatest number of jobs in existence in the insurance industry, by far, are sales positions, and this field is also the most accessible for people trying to enter the industry. Sales positions are available at the tens of thousands of local insurance offices scattered throughout the United States and Canada.
Although a career in sales involves more risk than many salary positions, it can be one of the most rewarding jobs in the industry, combining personal freedom with an income in excess of over $100,000 per year. Success in the field typically requires an outgoing, entrepreneurial, and persistent personality. The profession can also be quite demanding, requiring 60 or more hours of time per week during the first few years of selling. Another significant drawback for property/casualty sales-people is industry cycles, which usually mean periods of low income.
A position in claims in the property/casualty industry involves assessing the dollar value of damage a policy-holder has sustained and authorizing payment by the parent company. Claims adjusters combine knowledge with experience to judge how much damage the company will cover. In comparison to sales, claims positions are highly detailed-oriented and structured. Claims adjuster is a responsible position, which can lead to promotions within the company to a claims examiner, who handles complex claims, or a claims supervisor, who manages claims adjusters and examiners.
Underwriters are faced with the task of determining which applicants for insurance the company will reject or accept and how much coverage the applicant may receive. This assignment involves gathering information on applicants, reviewing associated risks, and applying underwriting standards to reach a decision. Underwriters specialize in either personal or business lines of property/casualty insurance, although most underwriters start out in personal lines. In 1994, underwriters held 96,000 jobs, with 38 percent in fire, marine, and casualty. The median earnings of full-time wage and salaried underwriters were about $30,800.
Insurance accountants are typically charged with auditing functions, examination of policyholders' financial records as part of the underwriting process, or enforcing underwriting guidelines prescribed for underwriters by the parent company. Finance professionals, on the other hand, are usually more involved with financial and investment analysis, marketing research, and sales forecasting. Employers of both accounting/finance and underwriting professionals usually seek applicants with analytical backgrounds in economics or business administration.
Property/casualty insurers hire large support staffs to administer important functions that support the revenue producing activities within the company. These disciplines include actuaries, lawyers, marketers, and others. Actuaries use mathematics to determine insurance rates and policies and to establish pricing and investment guidelines, which will increase profits. The actuarial field involves complex mathematical modeling and most actuaries endure years of examinations before becoming fully designated within their profession. This occupation is also ranked among the highest in worker satisfaction and pay.
Insurance law provides excellent opportunities for attorneys, especially in the litigation arena. Because every insurance policy is a binding legal contract, attorneys receive more emphasis in the industry than they do in most other industries. Although salaries are typically below those found in the top law firms, they are similar to other corporate law positions. Other opportunities exist in public relations, customer service, and loss control. Loss control is a relatively new specialization which involves finding ways to prevent injury, theft, and damage—mostly by educating policyholders.
The United States has the largest and most advanced insurance industry in the world. During 1992, over $276 billion, or 43 percent, of the $649 billion in non-life insurance premiums in the world were written in the United States. Europe followed closely with about $237 billion, and Asia made up the third largest market at $95 billion. The Latin American market lagged far behind at approximately $7 billion in premiums. The United States leads the world market for non-life insurance, with 42.3 percent of the premiums. Next is Japan with 12.3 percent, followed by Germany with 9.5 percent and the United Kingdom with 5.8 percent. The size of the U.S. market is due primarily to health and casualty insurance, and private insurers rather than the public sector, provide most of the health insurance.
During the mid-1980s, the surge in multinational companies and international trade and investment encouraged the growth of many international insurance companies. Insurers, including property/casualty insurers, from the United States, Asia, and Europe expanded internationally through avenues such as branches, subsidiaries, and joint ventures. Although global expansion in the property/casualty markets slowed after 1988 as world markets recessed, it continues to offer opportunities for insurers.
From the viewpoint of United States insurers, global expansion has two sides—U.S. expansion and investment abroad and foreign expansion and investment in the United States. U.S. insurers are becoming increasingly active in foreign expansion either through cross-border trade, in which foreign customers are covered by a company in the United States, or subsidiaries, which are located in the country where the customer is located. Sales by U.S. owned insurance companies in other countries topped $36 billion in 1991, mostly from non-life insurance operations including income from investments. The majority of these sales occurred in Europe ($11 billion).
Regulatory developments in the European Community (EC) have been directing its members to liberalize their markets for insurance and offered new opportunities for U.S. property/casualty insurers in the 1990s. These developments include countries that were opening their insurance markets to foreign investment for the first time, EC efforts to standardize accounting and reporting practices, and EC directives that made it easier for companies to transact business across country borders. Several EC countries, especially in Southern Europe, have opened this insurance sector to foreign investment.
New opportunities also existed in Latin America and Asia. Latin governments were deregulating the insurance industry and allowing foreign investment for the first time. The North American Free Trade Agreement (NAFTA) has opened up the small Mexican property/casualty market, allowing U.S. insurers to operate equally with Mexican insurers. Asian countries offered an even larger potential for U.S. expansion abroad as incomes in this region continued to grow. Taiwan and Korea continued to be particularly attractive to U.S. insurers.
The newest opportunity exists in the People's Republic of China, where in 1995 a national insurance law was enacted. For 30 years after the founding of the present republic, the country had only one insurer, the state-owned People's Insurance Company of China. Few Chinese had insurance, but in an era of increasing opportunity and risk, more than 100 million took out property coverage in 1995. Competition is slowly growing, and foreign insurance firms are seeing a potentially lucrative market. Since 1992, China has only permitted two foreign firms, one of them the American International Group, licenses to sell insurance, first in Shanghai and more recently in Guangzhou. While it waited for a license, the U.S. firm Chubb Insurance committed $1 million during the latter half of the 1990s to set up a school in Shanghai to train regulators and agents. China's entrance to the World Trade Organization at the turn of the century is expected to give U.S. firms further access to this growth market.
Foreign Involvement in the United States. Although opportunities existed for U.S. insurers abroad in the mid-1990s, many property/casualty insurers felt that significant barriers still existed for U.S. companies trying to compete overseas. Conversely, the American market was very open to foreign competition. An opportunity to create a more level playing field for the industry existed, however, under the Uruguay Round Group of Negotiations on Services under the General Agreement on Tariffs and Trade (GATT) during 1993. These rules could allow U.S. insurers to enter and operate in foreign markets on an equal basis with domestic insurers in the future.
Foreign insurance company investment in the U.S. market surpassed U.S. activity abroad during the 1980s. Foreign owned insurers had sales of $72.9 billion in 1991, up sharply from $62.6 billion in 1990, primarily due to foreign acquisitions. They captured more than 11 percent of the market in 1991 and sold non-life insurance policies worth more than $39 billion. These companies expanded into the U.S. property/casualty industry by acquiring American companies, buying interests in U.S. companies, or by creating new subsidiaries in the United States.
U.S. insurers have become more active overseas in recent years, with sales of $36.2 billion in 1991. The key markets for U.S. insurers are Canada, Europe, and Japan, primarily in non-life operations. Cross-border trade in insurance is a small but important part of the U.S. insurance market. U.S. based insurers received more than $5.5 billion of premiums from overseas in 1992, and premiums of $11.9 billion went to foreign-based insurers to cover risks in the United States. Most premiums sent abroad went to Europe or the offshore centers like Bermuda for reinsurance. Reinsurance premiums sent abroad represented about one-third of the reinsurance market in the United States. Foreign-owned insurers from all lines in the United States had sales of $72.9 billion in 1991.
The most significant investments included Germany's Allianz Holding Company's acquisition of Fire-man's Fund Insurance Companies in 1991 and BAT Industries (UK) acquisition of Farmers Insurance Group in 1988. These two deals amounted to over $5 billion of foreign investment. In addition to a share of the U.S. insurance market, foreign investors have benefited from access to superior technology related to automation, claims adjusting, risk management, actuarial methods, investment practices, and information technology. In 1997, AEGON NV of The Netherlands acquired the insurance section of the Providian Corporation.
Companies in the property/casualty industry have been slower than their U.S. counterparts to integrate advanced research and technology into their operations. However, two of the most important keys to success in the industry during the 1990s were increased use of market research and customer focus, along with integration of advanced automation technologies that can reduce costs and improve service.
In the late 1990s, insurers were striving to become more customer focused in response to the increasingly competitive property/casualty environment. Part of this strategy included finding out exactly what the customer needs and fulfilling that need, often with very niche-oriented insurance products. Insurers were continuing to increase their efforts in the research and development of new and more specialized insurance products that could be offered at competitive prices. The purpose of these new products was to either bring new customers into the market or to cause customers already in the industry to switch from competitors' products.
Even more important than new product development and research, however, was the implementation of automation technologies, which will improve customer service, reduce errors, improve delivery time, and reduce human intervention in the entire insurance process. Insurers that had already implemented computerized automation were enjoying increased speed of new product delivery to the market, as well as reduced personnel expenses.
Examples of new technology, which property/casualty insurers were integrating into the industry in the late 1990s, included open-systems architecture computer systems, network computing, computer-aided software-engineering tools, multi-media training tools, and information management and delivery systems that use satellites. Industry regulators were also using this new technology to identify potentially insolvent insurers. Several companies have realized significant cost reductions and improved customer service through comprehensive automation programs.
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