SIC 6411
INSURANCE AGENTS, BROKERS, AND SERVICE



This industry includes agents primarily representing one or more insurance carriers, or brokers not representing any particular carriers who are primarily engaged as independent contractors in the sale or placement of insurance contracts with carriers, but not employees of the insurance carriers they represent. This industry also includes independent organizations concerned with insurance services. Establishments engaged in searching real estate titles are classified in SIC 6541: Title Abstract Offices .

NAICS Code(s)

524210 (Insurance Agencies and Brokerages)

524291 (Claims Adjusters)

524292 (Third Party Administrators for Insurance and Pension Funds)

524298 (All Other Insurance Related Activities)

Industry Snapshot

Agency and brokerage firms selling and servicing insurance policies constitute the majority of the insurance agency, brokerage, and service industry. These companies are primarily engaged in representing one or more insurance carriers as independent contractors in the sale or placement of coverage. The industry also encompasses various specialty entities that offer services to insurance companies and to policyholders, such as independent claims adjusters, information bureaus, pension and retirement planning services, and research organizations.

In the late 1990s, the insurance industry underwent some adjustments itself, which affected the roles of agents and brokers. While most agents and brokers continued to specialize in life insurance, a growing number began selling policies that cover life, property/casualty, and health and disability. Moreover, agents and brokers began using Internet technology to increase their reach and to offer faster and more convenient service to their clients.

The fortunes of insurance brokers and agents reflect larger trends in the industry. Demographic changes, notably the graying of the boomer generation, increased premium sales throughout the late 1990s and into the year 2000. According to the Insurance Information Institute, total industry premiums reached $956.8 billion by the end of 2000. However, new competition in the insurance industry, by banks and other financial firms, began to put pressure on insurance brokers and agents, who began to lower their prices in an effort to remain competitive. However, when the insurance industry experienced unprecedented losses in the wake of the September 11 terrorist attacks, which exacerbated an already faltering economy, agents and brokers found themselves forced to raise premiums, sometimes by as much as 50 percent in the early 2000s.

Organization and Structure

Insurance agents and brokers serve the function of bringing insurers and people or companies needing insurance together. They help their clients select the right policy for their particular needs. Although their primary function is to sell policies offering financial protection against loss, agents and brokers may also help their clients plan for personal, family, or business financial security. In addition, they often provide advice about various insurance products, prepare reports and maintain records, and help policyholders settle insurance claims.

Insurance agents typically represent an insurance carrier under a contract arrangement. The agreement furnishes the agent with a small salary, fringe benefits, and commissions. The agent relies primarily on commissions for compensation, which are earned by selling new insurance policies and by renewing and servicing in-force or existing policies. An important characteristic of the agency relationship is that the agent is under the authority of the principal, or insurance carrier, and has the ability to make decisions as a representative of the carrier. Therefore, the principal can be held legally liable for the agent's business actions. Additionally, the agent is bound to place all business that he or she solicits with the principal.

Brokers, in contrast to agents, do not necessarily work under the authority of an insurance company. Rather, brokers place insurance policies for their clients with the carrier offering the most appropriate rate and coverage. The broker is remunerated by the carrier, though typically at a rate lower than that paid to the carrier's agents. Brokers may also charge clients who purchase insurance fees for services not compensated by the carrier's commission. Brokers serve an especially beneficial role for organizations with large and varied insurance needs requiring professionals to represent their interests. Some brokers also act as agents in certain areas of their business.

Commercial insurance in the United States is organized into four principal parts: insurers, who bear risk and manage surplus capital for their clients; field organizations, including agents and brokers, that maintain public contact, sell policies, and settle claims; intercompany organizations that establish standards, devise rates, and represent the political interests of insurers; and associations, or boards of agents and brokers that influence legislation, conduct research, and establish standards for the agency and brokerage industry. The American Insurance Association (AIA) is an example of an entity representing the interest of the industry and helping to establish professional standards. Many other organizations offer professional designation programs and lobby for agents' and brokers' interests.

Agents and brokers serve four basic types of insurers: national companies, regional insurers, mutual companies, and reinsurers. While many agents represent only one company's products, an increasing number of agents in the 1990s were selling policies for all industry types of insurers or tiers. The first tier, national companies, includes such massive organizations as The Prudential and The Equitable Life Assurance Society. These companies typically offer multiple lines of insurance for both individuals and businesses, and they support hundreds or thousands of agencies in cities throughout the United States. Agents who represent these companies benefit from such factors as public familiarity with the insurer, national advertising programs, and geographic diversity, which strengthens the carrier. The second tier, regional insurers, support agencies in a limited geographic area. Although some regional companies offer multiple lines of insurance, many emphasize one line of coverage, such as auto or home insurance.

The third tier, mutual insurance companies, in contrast to stock corporations, differs from most national and regional firms since mutual insurance's clients own a part of the company. Mutual agents essentially sell a membership to a cooperative, allowing each member to simultaneously become insurer and insured by purchasing a policy. The fourth tier, served mainly by brokers, is the reinsurer. Reinsurers provide coverage for insurance companies against unforeseen losses that could devastate the organization.

Products. Agents and brokers sell various forms of life, health, accident, property, and casualty insurance, each generating approximately equal amounts of annual revenue from premiums. Many of them also market financial instruments that complement their product offerings. Many agents and brokers sell policies in both the life/health and property/casualty divisions, although more agents specialize in selling life policies than any other line of coverage.

Life insurance differs from many other forms of insurance because it is usually considered a long-term investment and offers significant tax advantages. Typical products offered by agents in this market include: whole life products; term products, such as universal, variable, and universal variable life insurance; and annuities, which are effectively tax-deferred investment instruments. In 1999, life insurers faced stiff competition from other financial services firms, making only modest gains in capturing savings dollars. While traditional life insurance products showed flat sales, fee-based products, such as annuities, grew in the late 1990s. But the shifting portfolio has also meant narrower profit margins for insurers, causing them to adopt cost-cutting measures.

Whole life policies combine a death benefit with a forced savings plan. In other words, the insured effectively overpays during the early years of his or her coverage when the risk of death is small. The interest earned on the savings is used to build the policy's cash value so that in the future the insured can borrow against the savings at a low interest rate. The policy also carries a redeemable cash value that can be withdrawn at once or used for retirement income. Term coverage differs from whole life in that the customer can avoid the forced savings plan, thus reducing his or her total investment. Products such as universal life insurance combine term and whole life advantages. Annuities, in contrast, do not provide a death benefit. The agent is essentially selling investment instruments that offer potentially higher returns than are available in whole life products, yet retain tax advantages.

Life insurance can also be divided into group and individual, or ordinary insurance. Group policies offer advantages related to economies of scale and provide greater bargaining power for some organizations through their employees.

Health and accident insurance represents nearly 70 percent of the American population. In contrast to life insurance, health coverage is not viewed as an investment instrument. It does provide important tax benefits, however—especially for employers.

Property/casualty insurance agents sell coverage to protect businesses, individuals, and other entities against property loss or losses by third parties for which the insured is liable. While much of the coverage is written on homes, automobiles, and business property, other types of insurance include worker's compensation, product liability, and medical malpractice. The business and individual segments of this category of coverage each account for about 50 percent of the total market. Although brokers are more likely to emphasize business property/casualty offerings, overall agency sales stress individual coverage.

In addition to traditional lines of insurance, increasing numbers of agents and brokers in the late 1990s were offering comprehensive financial planning services to their clients including retirement planning and counseling, mutual fund and annuity sales, and other types of securities sales. Compensation for these services is through commissions or an hourly wage paid for consulting services.

Company Structure. Approximately 30 percent of agents and brokers are self-employed, and their companies are typically very small. For an agent to qualify to represent a carrier, he or she must often meet volume and production requirements. For instance, smaller mutual insurers may require agents to produce $25,000 to $50,000 worth of sales per year. Large national carriers, on the other hand, generally require agents to commit to $500,000 to $1 million in annual sales.

Background and Development

The nature of the insurance industry of the 1990s emanated from fifteenth-century Italian ports where marine insurance became an effective technique of spreading individual losses over a large number of merchants. The structure of the U.S. industry, however, was derived from the English system that originated in the seventeenth century. The concept slowly spread to North America during industrialization in the nineteenth and twentieth centuries. During these early periods a formalized agency and brokerage system was not established. Most insurance was sold directly by the insurer from the office headquarters. In fact, the first reference made to an informal agent/broker industry was in the British case of Power v. Butcher in 1830, where brokers were referred to as "those that arranged policies of insurance."

Establishment of the U.S. agent/brokerage industry lagged far behind the development of the British system. In fact, not until 1949, when Congress permitted sales of coverage across state borders, could a single company in the United States offer multiple lines of insurance on a wide scale. As insurers became more widely dispersed and began to increase offerings to many market segments, the need for an effective means of joining buyers and sellers became paramount. Furthermore, larger companies found the need to develop local customer services such as claims adjustment and underwriting. Thus emerged the expansive network of sales organizations supported by main or branch offices that shaped the insurance industry of the 1990s and early 2000s.

As the insurance industry experienced rapid expansion in the post World War II era, the insurance agency, brokerage, and service industry flourished. Property/casualty agents prospered as individuals began to accumulate and insure greater amounts of personal wealth and possessions. Likewise, the surge of giant corporations with large and varied property and liability protection needs stimulated the brokerage industry.

Life insurance, too, experienced unprecedented growth. Aided by favorable tax laws and an aging population with dependents, sales skyrocketed from the 1950s through the 1970s, creating a boon for agents. Furthermore, health insurance agents and brokers benefited from massive growth, particularly in the 1970s, as large companies began to offer health insurance as a tax-deductible benefit. Spiraling health care costs fueled industry profit growth as well. For example, throughout the 1970s and early 1980s, agents' revenues from health insurance commissions grew at a rate in excess of 15 percent per year.

The 1980s. Although many companies in the industry languished in a recession during the late 1970s and early 1980s, agents and brokers enjoyed fairly strong sales and increased demand for new products in most lines of coverage during the mid-1980s. The volume of property/casualty premiums written by stock companies, for instance, rose from $74.5 billion in 1983 to over $140 billion by 1989. In 1994, the net premiums written for this segment were $244.9 billion, up from $217 billion in 1990. Health insurance lines realized bullish growth too, increasing from a volume of $38 billion in premiums written in 1983 to about $61 billion by 1991.

Premiums for life insurance agents experienced more steady increases in the 1980s, with the exception of annuities. More customers switched from whole life to less expensive term life insurance in the 1980s. As a result, term life holders were looking for new vehicles in which to invest their money. Agents and brokers responded by marketing a profusion of annuities and other financial products that could lure those dollars. As the volume of whole life insurance premiums written grew steadily from about $50 billion in 1983 to $79.3 billion in 1991, annuities sales skyrocketed over 400 percent in the same period, from $30.5 billion to over $129 billion. The consequence was a boon of commissions for agents that rode the financial products wave. In 1994, $1.1 trillion worth of life insurance was purchased in the United States, while $11.6 trillion was currently in force. More than one-half of all policies were ordinary, and the average American household in 1994 had $118,700 worth of life insurance.

Industry Turbulence. Solid growth in many sectors of the agency and brokerage business in the mid-1980s was made bittersweet by changes transforming the overall insurance industry. Increased governmental regulation, rising insurance costs, and escalating public pressure were all constraining insurance company profit margins. Consequently, carriers were looking for ways to cut expenses, including costs related to agents, brokers, and service. At the same time, new entrants to the market such as banks and other financial institutions were competing for agency and brokerage sales dollars.

Although sales remained relatively strong throughout most of the 1980s, problems for property/casualty agents in some areas wreaked havoc. Public pressure, for example, was leading some states to enact laws that suppressed premiums on automobile and workers' compensation insurance. In 1989, for instance, California voters passed Proposition 103, requiring insurers to eventually reduce, or roll back, automobile insurance rates by 20 percent. As a result, many insurers were terminating business in regulated states and abandoning their agencies.

Also burdening property/casualty agents and brokers was insurer insolvency, caused by a combination of mismanagement, fraud, and a more aggressive regulatory environment. As over 370 carriers failed in the mid- 1980s and early 1990s, agents representing them were left scrambling to maintain their operations. Although carrier failures had subsided by the early 1990s, the situation created the likelihood of increased federal regulation in the future, which could affect sales professionals.

In the mid-1990s, the 123,998 establishments in the industry employed 661,685 people—nearly 40 percent of the entire insurance-related workforce. The insurance companies served by this industry generated a combined total of about $500 billion in premiums from customers in 1993. This total represented the culmination of steady growth occurring in the insurance industry since 1982, when approximately $250 billion in premiums were written.

Demand for insurance grew sluggishly in the early 1990s, but became more robust as the economy recovered in the second half of the decade. Although the economy was improving, agents and brokers in general were experiencing reduced income and profit—a trend that began in 1989. Reduced margins for most companies were the result of lower commissions, ceding markets in some highly regulated states, increasing operating costs, and escalating competition. In response to the inclement economic environment, agents and brokers started diversifying into new lines of business, working harder to maintain revenues, expanding into overseas markets, and relying on new technology to automate their operations and become more efficient.

Health reform legislation in 1996 provided a boon to health insurance agents. Self-employed people would be able to deduct 40 percent of health premiums from their 1997 taxes; in 1998-2002 the amount would increase to 45 percent and gradually keep rising to 80 percent in 2006. This ruling would encourage the self-employed to purchase health insurance. The 1996 health initiative also encouraged consumers to finance their own long-term health care by including a provision that most of those benefits would not be taxed. In 1995, in anticipation of the health reform bills, 517,000 new long-term care policies were sold, more than any year since records began to be kept in 1987. In total, 4.35 million such policies were sold between 1987 and 1995, with an average growth rate of 23 percent.

A development that was cutting into profits for agents and brokers in all lines was the increased popularity of direct insurance sales, or sales of coverage made directly by the carrier. By advertising and selling insurance themselves, even on a national scale, many carriers were successfully bypassing agents and delivering policies at lower costs to the market. In addition to these and other problems causing turbulence for agents in all lines 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 was 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.

One of the largest acquisitions that provided evidence of these trends is General Re Corporation's (GEC's) acquisition of the Swiss reinsurance operations of Allstate Insurance Company in early 1992. This move strengthened GEC's European position. In June of 1997, the American Insurance Association (AIA) urged Congress to support tax legislation that would help make the U.S. property/casualty insurance industry more competitive in the global marketplace. Two tax law changes, H.R. 1783 and S. 843, would treat the active business income of U.S. financial services industries, including insurance, like the active business income of non-financial businesses.

In 1998, the $82.5 billion merger of Citicorp, a major commercial bank, and Travelers Group, Inc., an insurance firm, sent ripples through the U.S. insurance industry. The move dissolved the traditional wall separating banks and insurers and ushered in a new trend called banc assurance, the distribution of insurance products through banking channels. The merger also hastened the restructuring of the U.S. insurance industry. Congress and state legislatures were considering new laws that would allow banks and other financial services firms to sell insurance. The process began with the Supreme Court's 1996 Barnet Bank decision, which allowed banks to begin selling insurance in small towns in the United States. Soon it became a national trend, presaging the giant mergers of the late 1990s. For small independent agents, the consolidations intensified the pressure to join large organizations in order to survive.

Another trend affecting the property-casualty insurance industry in the late 1990s, according to Standard & Poor's Industry Surveys, was excess underwriting capacity. The economic boom of the late 1990s placed downward pressure on the insurance industry, driving down the price of premiums—and driving up risks for insurers. The Insurance Services Office (ISO) reported that premiums written-to-surplus ratio as of December 31, 1998 reached a record low of 0.84-to-1. The normal surplus leverage is 2-to-1, meaning that there are $2 of premiums written for every $1 of surplus.

The late 1990s also witnessed the rapid growth of distribution channels in the insurance industry. New companies, such as The Direct Response Insurance Co., allow customers to circumvent traditional agents and brokers. Moreover, the Internet offered customers the opportunity to buy insurance online. In Best's Review Life/Health Edition, Mark L. Gardner asserted that independent agents were poised to enter the twenty-first century in an awkward position. "Although the agent may be quite knowledgeable about the insurance products he offers, and he may be located near the policyholder, and he may even be in control of a large clientele," says Gardner, "economic forces over which he has no control will compel him to radically adapt to compete."

Current Conditions

At the turn of the twenty-first century, many life insurance agents and brokers struggled with decreased commissions. This was largely a result of the switch to term life policies, which offered less commission than traditional whole life policies, and the increased popularity of annuities. These changes signaled an industry-wide shift from a commodity-based market to a service-intensive market. At the same time, agents and brokers also found themselves forced to lower prices due to increased competition. Although consolidation in the industry had slowed, industry giants continued to join forces, squeezing out smaller rivals. Roughly 300 insurance related mergers and acquisitions, worth a total of $41.5 billion, took place in 2001. While this paled in comparison to the 565 deals, worth more than $165 billion, completed in 1998, consolidation did remain a factor for smaller agents and brokers.

According to an October 2002 press release from the Council of Insurance Agents and Brokers, pricing cuts began to pose serious problems for agents and brokers in the early 2000s. "One of the most significant issues facing the industry, the experts agreed, is lack of reserves to cover the cost of liabilities from coverage written at inadequate prices." The weakened economy, along with the impact of the September 11 terrorist attacks, caused the insurance industry to experience record losses in 2001 and 2002. As a result, agents and brokers had no choice but to begin increasing premiums. Some analysts predicted that insurers would need to continue raising premiums throughout 2003 and possibly throughout 2004 to erase the reserve deficit.

Agents and brokers, already struggling to make sales in the sluggish economy, have begun to seek alternative means for keeping premiums in check. For example, some agents and brokers have started to offer policies with much higher deductibles, which allows them to offer a lower premium because clients are assuming more of the risk.

Environmental liability also posed a potential threat to profitability in the early 2000s as claims related to asbestos and mold began to mount. 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. 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.

Industry Leaders

Of the top 10 companies that write 40 percent of the property/casualty premiums in the United States, The State Farm Group of Illinois was the largest in 2001 with $37.9 billion in net premiums written. The State Farm Group began in 1922 by providing auto insurance to Illinois farmers. By 2002, the firm employed 79,400 people and enlisted the services of 16,000 agents. One in five cars in America was insured by State Farm, which was also the largest insurer of automobiles, homes, and pleasure boats. In 2002 sales grew 6.4 percent to $49.7 billion.

Allstate Insurance, also of Illinois, was the nation's largest publicly held property and casualty insurance company. It had over 14,000 agents and 20 million customers in the United States, Canada, and Japan. The company offered multiple lines of insurance, including life and health, and was started in 1931 by Sears Roebuck & Company. In 2001, the company wrote $21.9 billion in net premiums and held $39.3 billion in assets. Sales in 2002 totaled $29.6 billion, an increase of 2.7 percent.

In addition to capturing the lion's share of the property/casualty insurance market, State Farm and Allstate also experienced the greatest exposure to catastrophic losses. State Farm was especially hard hit by the disasters, because it did not carry reinsurance to offset losses, as do many other large carriers. In the late 1990s, State Farm stopped offering unlimited replacement coverage on California home ownership policies and transferred its 1.5 million home ownership insurance customers in the state into a separate policy. State Farm covered one in four insured California homeowners, and this decision spurred opposition from consumer groups who stated that the insurer was reducing its risk and putting more of a burden on the policyholders.

The third largest property underwriter in 2001 was Zurich/Farmers Group with $17 billion in net premiums written, followed by American International Group, which wrote $14 billion worth of policies, and Berkshire Hathaway Insurance Group, in fifth place with $11.6 billion worth of policies written.

Workforce

Insurance agents and brokers comprised a 387,000-strong workforce in 1998. About 30 percent of agents and brokers were self-employed. Due to intense industry competition, however, the job outlook for insurance agents and brokers was not good. Experts predicted slower-than-average growth through the year 2008, with most new entrants to the field replacing agents and brokers who retire. Opportunities existed in five functional areas, including sales, claims, underwriting, accounting/finance, and professional staff support positions.

Sales. The greatest number of jobs in the insurance industry, by far, are sales positions; this field is also the most accessible for people trying to enter the industry. Sales positions are available by the tens of thousands through local insurance offices scattered throughout the United States and Canada. Each of these offices represents products from a parent company.

People just entering the sales field usually do not receive a salary, but instead depend on commissions. As the salesperson's list of clients grows, he or she benefits from commissions on repeat business from previous sales, in addition to any new business he or she generates.

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.

Claims. A position in claims in the property/casualty industry involves assessing the dollar value of damage a policyholder 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 detail-oriented and structured. A claims adjuster position 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.

Underwriting and Accounting. 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. Typical career progression is entry-level underwriter, senior underwriter, and finally underwriting manager. Many underwriting managers progress into general management, which is one reason this is a very popular route for professionals seeking executive level positions within the industry.

Accounting/finance positions can also provide a route to senior level positions within the industry. 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.

Professional Staff Support Positions. 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 that involves finding ways to prevent injury, theft, and damage—mostly by educating policyholders.

America and the World

The forces of globalization are transforming the insurance industry. The mergers of the late 1990s, which greatly expanded the international reach of insurance companies and banks, built upon the trend set in the mid-1980s, when a 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.

From the viewpoint of U.S. 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.

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 insurance sectors 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 also continued to be particularly attractive to U.S. insurers.

The newest opportunity exists in the People's Republic of China, where a national insurance law was enacted in 1995. Since then, China has only permitted two foreign firms licenses to sell insurance—first in Shanghai and more recently in Guangzhou. One of those foreign firms was the American International Group. 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 twenty-first century is expected to give U.S. firms further access to this growth market.

Research and Technology

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 late 1990s were increased use of market research and customer focus, and integration of advanced automation technologies to reduce costs and improve service.

As they entered the new century, insurers strove to become more customer focused in response to the increasingly competitive property/casualty environment. According to Tim Pease in National Underwriter, new technology will level the playing field between insurers. "With the right technology and strategy," says Pease, "any company—whether an independent agency, insurer, reinsurer, direct marketer or direct writer—can win in the new game."

In addition to upgrading their technological capacity, insurers seek to identify customer needs, often fulfilling them with very niche-oriented insurance products. The implementation of automated systems served to improve customer service, reduce errors, improve delivery time, and reduce human intervention in the entire insurance process.

Examples of new technology that 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, multimedia training tools, and information management and delivery systems that used satellites. Industry regulators were also using this technology to identify potentially insolvent insurers. Several companies have realized significant cost reductions and improved customer service through comprehensive automation programs.

Further Reading

"Agents Will Thrive in Hard Market." National Underwriter, 5 August 2002.

Bowers, Barbara. "Banking on Insurance." Best's Review, Property/Casualty Insurance Edition, June 1998.

Gardner, Mark L. "Pressure to Sell Out." Best's Review Life/Health Edition, October 1999.

"Insurance Experts Predict Another Year of Hard Markets, Voice Concerns About Inadequate Reserves." Washington, D.C.: Council of Insurance Agents and Brokers, 7 October 2002. Available from http://www.ciab.org .

"Insurance: Life & Health," Standard & Poor's Industry Surveys. New York: Standard & Poor's Corporation, 8 April 1999.

"Insurance: Property-Casualty," Standard & Poor's Industry Surveys. New York: Standard & Poor's Corporation, 8 July 1999.

Occupational Outlook Handbook. Washington, DC: U.S. Department of Labor, 1998-99.

Pease, Tim. "Technology Will Level the Playing Field." NationalUnderwriter, 12 July 1999.

Pintar, James. "Insurance: Insurers Need to Make Up Ground in E-Business." American Banker, 20 July 1999.

Property/Casualty Insurance. New York: Insurance Information Institute, 2002. Available from http://www.financialservicesfacts.org .

Turner, Samuel H. "UL Future Hinges on Service-Intensive Sales." National Underwriter Life & Health, 5 July 1999.

Unsworth, Edwin. "More Consolidation, Demutualization Expected." Business Insurance, 26 July 1999.



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