The insurance industry faces uncharted waters dealing withpotential ramifications of the current economic crisis, but oneundeniable consequence will be louder outcries for increasedregulation, executives said at a conference here.

George A Steadman III, chairman of the Council of InsuranceAgents & Brokers, addressing attendees at the CIAB's annualInsurance Leadership Forum, said increased focus on regulation willcome as legislators and regulators seek ways to ensure thefinancial services sector does not fall into another crisis likethe subprime crisis.

The insurance industry was on the verge of getting surplus linesreform legislation through the Senate, but the crisis pushed thatissue to the back burner momentarily, said Mr. Steadman, who ispresident and chief operating officer of the insurance brokeragefirm Rutherfoord in Roanoke, Va.

He warned, however, that no matter who wins the upcomingpresidential election, attention will once again come to insuranceregulation. It will be up to members to be vigilant and to supportthe CIAB's efforts to look out for their interests.

John J. Degnan, vice chairman and chief operating officer ofWarren, N.J.-based Chubb, said participants in the financialservices sector have witnessed a series of unprecedented eventsthat have rocked it to its core, wreaking financial havoc on muchof the nation, including the nationalization of AmericanInternational Group. The government took a 79.9 percent stake inAIG as collateral for an $85 billion loan.

Mr. Degnan said it is too early to assess the fallout from theseshake-ups, but he seemed to admonish insurers who may seek to takeadvantage of AIG's situation. They “should not gloat over thevictims,” he said.

“When one of our largest and most prestigious insurancecompanies needs to be bailed out by the government, we all suffer aloss of confidence by our customers,” he said. “They wonder whowill be next.”

The industry needs to assure customers that insurers are strongand stable and will be there to pay claims when called on to do so,he said.

“If there is one lesson to be learned here for carriers, it isthat our desire to earn a superior return for our shareholders mustnever overpower our responsibility to preserve our financialstability so the wherewithal to fulfill our financialresponsibility to our policyholders will never be jeopardized,” hesaid.

In an interview with National Underwriter, Markham R. McKnight,president of BancorpSouth Insurance Services Inc. and the incomingchairman of the CIAB, said what is particularly alarming about thecurrent crisis is the fast pace of change that is taking place.

“My answer in two-and-a-half hours from now could be differentfrom two weeks ago,” he remarked, adding that the financial crisishas “absorbed all the oxygen” that could have been used to pushthrough needed industry reforms such as gaining greater marketefficiency.

However, for the coming year, one issue that will occupy theindustry will be preventing onerous regulation from becoming areality. More regulation is coming, he said, and as the countryworks through this financial crisis, one concern is that some willwant insurers to use their loss reserves to cover losses from badassets and erode the carriers' ability to pay claims.

“We need good regulations,” Mr. McKnight said.

“We want to interact in such a way that we protect consumers andsurplus. But we do not want to be so overly regulated that itthrows costs burden back on us.”

More important, he said, will be reinforcing confidence byreassuring clients of the soundness of the industry and providingan understanding of what is happening before it become news.

“We do not know where the tail is going to whip on this thing,”he pointed out.

Others brokers here said AIG's financial difficulties haveprompted clients to reevaluate their position with the insurer.

Prior to the conference, Patrick J. Gallagher Jr., president,chairman and chief executive officer of Itasca, Ill.-basedinsurance broker Arthur J. Gallagher, told National Underwriterthat his firm is monitoring changes at AIG and getting as muchinformation as possible out to clients who are hungry to know whatis happening.

AIG is “an important, prominent player in the market. Whicheverway it goes with AIG, we will take care of our clients. There isplenty of market out there.”

Eric J. Andersen, CEO of Chicago-based Aon Corp.'s U.S. retailbusiness, said a lot of clients are calling with questions aboutAIG. The broker has responded my making information available andoffering Web-based conference discussions.

He said the primary question from clients is, “is AIG alone?That is the $64,000 question clients want answered.”

He added that company third-quarter results “will beconfessional time.”

“It is not a price issue but quality of the insurer,” noted Mr.Andersen. “Price is secondary. [Clients] want to know they can getthe coverage and limits they need.”

“Our desire to earn a superior return for our shareholders mustnever overpower our responsibility to preserve our financialstability.”

John Degnan, Vice Chair, Chubb