Hard Market Will Pay Off For All

With no relaxation of the hard market insight, commercial insurance buyers, sellers and brokers are beingforced to clean up their respective acts when it comes to riskmanagement.

At first blush, this is a bad development for everyoneinvolved.

Buyers who were happy passing along their growing exposures to athird-party at ever cheaper rates and ever broader terms won't bethrilled to have to self-insure a good chunk of their risksthemselves, with all the accompanying administrative burdens andfinancial perils.

Intermediaries accustomed to dumping their clients' risks at themost competitively priced insurer will now have to work harder tolayer coverage among a group of carriers and/or set up formalself-insurance programs.

Insurers, meanwhile, risk losing even more of the overallrisk-financing market to alternative programs, such ascaptives.

In the long run, however, this development might prove to be ineveryone's best interest.

Unrealistic stock market returns made everyone giddy,subsidizing unsupportably cheap and generous insurance coverage.Insurers stopped underwriting. Some buyers grew lax on losscontrol. Many agents and brokers became mere policy peddlers andprice shoppers.

Now, that's all changed. Buyers must aggressively manage theirexposures to lower their cost-of-risk. Intermediaries are earningevery penny they are being paid to innovate with makeshift coverageapproaches and alternative market solutions. And insurers arewriting insurance for a living again, holding all accounts tostrict underwriting standards.

Such discipline will ultimately make this a more dynamic butless risky world. It is insurance as it ought to be.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 16,2002. Copyright 2002 by The National Underwriter Company in theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.