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The trend toward market specialization.

MANY COMPANIES are extending their global reach in order to stay competitive into the next century. At the same time, however, some insurers are contracting their books of business and specializing in certain markets and coverages in order to sharpen their Competitive edge.

"The trend toward specialization doesn't sound exciting, but it is probably among the most far-flung changes in the history of insurance and will drastically affect risk management," said Lawrence Drake, managing director of Marsh & McLennan Inc.

The difference between a generalist and a specialist, according to Dennis Kane, president of CIGNA Special Risk, is that a large independent agent or generalist "tries to be all things to all clients, whereas a small independent agent can focus more intensely on specific coverages." Mr. Kane says that perhaps the best place to be is holding the middle ground between the two extremes, an area populated by focused companies who pursue business in "attractive niches."

Focused companies, in Mr. Kane's view, are those companies led by experienced professionals with few distractions that deliver prompt services and are consistent and disciplined in their underwriting practices over time. "A structurally sound market and commitment to client needs are paramount concerns in specialty markets," he says.

According to Charles Clarke, president of The Travelers Insurance Cos., watchful executives at the company saw a soft insurance market on the horizon five years ago and knew that Travelers needed more than just an accent on service to successfully weather the rough times. "We were not good at slugging it out on price like other companies," Mr. Clarke says. "We had built up a service infrastructure instead." After quite a bit of corporate soul-searching, backed up with some pointed surveys, Travelers learned first-hand that risk managers were most concerned about workers' compensation claims and how to reduce them. In response, the company has made a large investment in post-injury facilities geared to handle such claims.

"We hired post-injury experts to create a caring environment for employees, and we have claims people who think in terms of injuries, not claims cost," says Mr. Clarke. The result, he says, is a renewed confidence in the company's ability to take on risk and "outperform anyone on workers' compensation claims."

According to Mr. Clarke, specialty market players must "get outside the traditional sandbox" and heed their needs. "I would have needed to abandon my infrastructure or go global like AIG, if I hadn't specialized," he says.

One reason large insurers who try to blanket as many coverages as possible are in disfavor, is the reaction to market force trends that were prevalent throughout the 1980s. During that time nearly one-half of all companies were restructured, 80,000 mergers and acquisitions occurred, 70,000 companies were downsized, 700,000 sought bankruptcy protection and 400,000 failed outright.

According to Kevin Kelley, president of Lexington Insurance Co. in Boston, such refocusing and change led to opportunities for companies that remained lean, flexible, computer efficient and well capitalized. A fresh approach will also allow companies to learn from clients.

-by Tom Johnson
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Johnson, Tom
Publication:Risk Management
Date:May 1, 1992
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