A London-based independent market analyst said the currentfinancial turmoil could lead to an increase in insuranceprices.

The Datamonitor's analysis written by Jonathan Steiman, analyst,financial services technology, remarked, "Although it is too soonto tell, the recent events could mark the beginning of the end ofthe soft market."

While premiums of nearly all commercial lines as well as somepersonal lines have been falling for three years and this "incombination with withering investment income has had a crushingeffect on the industry's bottom line, it could change," Datamonitorsuggested.

It was noted that many times after a market shock, as forexample, the September 11, 2001 terrorist attacks, the industrygains greater pricing power.

Datamonitor added that American International Group, in a"weakened and distracted" state since it was forced to give thegovernment a 79.9 percent interest, could cause a supply shock thatputs upward pressure on prices. The firm cautioned, however, that"a shaky economy" may temper demand, making it difficult to pass onhigher premiums.

Furthermore, it noted that insurers have a chance to gain marketshare from AIG.

While AIG's insurance units are solvent, the market has anotherperception, Datamonitor said, quoting a survey of 1,000 insuranceagents and brokers that found 44 percent of AIG policyholders haverequested to move their account. Some 62 percent of the producerssaid they expect to place less business with AIG.

"This shift in consumer and agent perception presents competinginsurers with a great opportunity," according to the analysis.

Last week's financial turmoil will also have a long-term effecton technology strategies, Data monitor said.

Datamonitor said in its survey of 200 global insurers conductedin the first half of this year that 61 percent and 47 percent ofnon-life and life insurers, respectively, said they were planningto increase investment in risk management and compliance systems inthe 2009.

The firm called these "healthy figures" and said it anticipateseven greater spending in light of the recent events.

Vendors must react to this demand by not simply providing moreof the same but by designing innovative ways to re-engineer therisk management practices of insurers. "The old assumptions simplydo not work," Datamonitor advised.

It noted that "safe" bets, like Lehman Brothers debt, provedpoisonous, and said the current tools failed to account for "thelabyrinth of unregulated and loosely agreed-to credit defaultswaps."

While new regulations should help mitigate these problems,next-generation risk management systems must be able to quicklycapture and evaluate complex transactions from every corner of theenterprise, Datamonitor counseled.

Vendors have an opportunity to differentiate themselves bygrasping the new realities of risk and designing relevantsolutions, the firm said.

Datamonitor said the past week's events will have a long-termeffect on insurers' technology strategies and it expects they willlook to increase their investment in risk management and compliancesystems in 2009 by far more than they planned in the first half of2008.

The firm said, "While the only certainty in today's market isuncertainty, Datamonitor believes that AIG was a one-of-a-kindevent within the insurance sector," noting that AIG, unlike otherinsurers operating within the life and non-life market, was heavilyinvolved with credit default swaps (CDS), unregulatedquasi-insurance products that protect against bond defaults.

Datamonitor noted that on Sept. 16, MetLife had announced it had$800 million of investments between AIG and Lehman Brothers and is"continuing to assess the recoverability of these investments." TheHartford also has exposure, particularly $127 million insubordinated Lehman debt.