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Problems spur change among commercial lines insurers.

Problems besieging the domestic component of the commercial insurance industry will likely change the industry's composition before the turn of the century, according to an executive with a leading insurer.

"At the end of this decade, the commercial insurance industry that you and I deal with today will have a very different face," Joseph Smetana, chairman and chief executive officer of AIG Risk Management Inc. in New York, recently told members of the Captive Insurance Companies Association (CICA).

The problems, he explained, include rate inadequacy, prompting insurer withdrawals from certain lines, a drain on surplus due to the 1986 Tax Reform Act and legislation such as California's Proposition 103, which allows buyers to dictate insurance terms and prices. These dilemmas are likely to cause the U.S. sector to shrink, particularly during these times of increased globalization. Already, foreign insurance companies, such as Allianz, have made significant inroads into the American marketplace, he said.

But the 269 attendees at CICA's Scottsdale, AZ, meeting have little to fear, according to Mr. Smetana. "We expect the commercial insurance market to continue to support the captive movement," he said.

However, the companies risk managers, particularly those running captives, will be dealing with will be different. "I would not be surprised that if at the end of the decade, one, two or three or four of you might be dealing with a new fronter with a Japanese name," said Mr. Smetana.

In addition, the number of companies providing such support is expected to dwindle. "The majors who support captives in the multinational captive arena will probably be no more than four or five," he said.

Whether now or in the future, Mr. Smetana cautioned risk managers to carefully select their insurers. Strong insurers have "financial strength, underwriting integrity, a risk management orientation and a historical track record," he said.

Other speakers also talked about the insurance marketplace. Charles Ruoff, senior vice president of Sedgwick James Inc. in New York, predicted that insurance availability and pricing will remain soft for all lines, except worker's compensation, through mid-1992. Premium volumes for property, general liability and other lines are expected to continue to decline, partially due to the withdrawal by some insurers from certain personal lines. These withdrawals are also causing excess capacity in the commercial lines market as personal lines carriers redeploy their capital there.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Schussel, Mark L.
Publication:Risk Management
Date:Jun 1, 1991
Words:389
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