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Staking a claim in a global area.

American insurance companies with an eye on the global market should keep their minds open and be willing to learn and adapt foreign business strategies. According to executives at four major American insurance companies, overseas operations require an appreciation of foreign needs.

"The single greatest trade barrier confronting U.S. insurers is essentially psychological," said H. Edward Hanway, president of CIGNA Worldwide, during a recent International Insurance Council symposium in New York. "There is a reluctance of top management to leave the U.S. market and venture beyond the safe haven of the homefront."

To succeed in the global market takes a four-step approach, continued Mr. Hanway. Multinational insurers, he said, need to maintain a strong local presence; be more cost efficient and price competitive; deliver products shaped by the need of their customers (this is especially the case for small insurers serving specific customer segments with targeted products and services); and expand with companies that increase their global activities, tailoring their programs and risk management products and services to meet their customers' changing circumstances. Mr. Hanway added that a "sure way" for American insurers to lose global market share is by "not seizing the moment and taking the risk."

The Learning Curve

American insurers may not have much choice when it comes to participating in foreign markets, said Jan Jobe, president principal international of Principal Financial Group. Mr. Jobe cited the flatness of the American market when compared to overseas opportunities, the influx of foreign insurers coming into the United States and winning 20 percent of all premiums written there, and the potential effects of government intervention in such issues as a national health care program as major reasons to look abroad for diversified profitability. "Being able to take advantage of upswings in other markets help us to absorb downswings in the United States," he said. "That ensures longterm stability to our policyholders." Mr. Jobe maintained that American firms can learn well from foreign markets. As an example, he pointed to Principal Financial Group's study of how Spanish banks are marketing insurance prducts. "If we can learn to effectively market through banks in Spain, then we're hoping we can benefit if deregulation leads to banks selling insurance here [in the United States]," he said.

However, the global market requires various approaches for different regions. Reliance National Insurance Co. considered this when it decided to expand its activities three years ago, said Joseph Graziano, senior vice president. Its first move was to create separate, wholly owned subsidiary in London to provide the firm with access to the lucrative European Community. The next step will be a presence in Mexico, which Mr. Graziano described as offering a favorable political and economic climate. However, unlike the London operation, this project will probably be in partnership with a local company.

Later this summer, Reliance National will begin discussions on a Pacific Rim operation, including a location. Mr. Graziano warned that "any company's decision to go beyond its borders should not be clouded with the temptation to go beyond its abilities."

The Human and the Monetary

Entering the global market and maintaining a profitable edge requires strength in staffing and financing, according to Arthur Klein, executive vice president of Frank B. Hall International. "To be a competitor on a global basis," he said, "U.S. insurers must do a better job of selecting and training people. There are many excellent people working with U.S. multinational insurers, but not nearly enough to meet the demands of the 1990s. The industry definitely needs to attract, train and retain internationalists."

Strengths and Weaknesses

As for financial strength, Mr. Klein wondered how American insurers could afford to become global giants if they could not solve the problems of weakening financial strength and solvency problems in their domestic market. He did, however, stress that American insurers have a major asset in the quality of their risk management programs.

Which markets should American insurers consider? Mr. Klein noted there was a demand within the developing markets of Eastern Europe, Asia and Mexico. However, he deadpanned an offbeat piece of advice: "Don't go near Yemen!"
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
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Title Annotation:American insurance companies
Author:Hall, Phil
Publication:Risk Management
Date:Feb 1, 1992
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