Celebrating 80YearsBy Susan R.A.HoneymanFrom AA&B July2009

The American insurance industry existed long before AmericanAgent & Broker, but the industry looked very different 80years ago. The industry has mirrored the nation's economic,technological and political changes, and AA&B hascovered them. Here are some of the most significant:

Professional organizationcreation
The 1931 creation of theNational Assn. of Professional Insurance Agents challenged thedominance of the National Assn of Insurance Agents, forerunner tothe Independent Insurance Agents & Brokers of America (IIABA),to represent the needs and interests of agents and brokers. Thepast 80 years have given rise to many other insurance organizationsas well, including: Society of Chartered Property-CasualtyUnderwriters (CPCU) in 1944; Risk and Insurance Management Society(RIMS) in 1950; Insurance Institute for Highway Safety in 1959;Insurance Information Institute (III) in 1960; Assn. forCooperative Operations Research and Development (ACORD) in 1970;Insurance Services Office (ISO) in 1971; National Assn. ofProfessional Surplus Lines Organizations (NAPSLO) in 1975;Reinsurance Assn. of America in 1978; Professional LiabilityUnderwriting Society (PLUS) in 1986; and Property Casualty InsurersAssn. of America, (PCI) a combination of Alliance of AmericanInsurers and National Assn. of Independent Insurers in 2004.

Glass-Steagall and Gramm-Leach-Blileyacts
Congress passed theGlass-Steagall Act of 1933, in the wake of the Great Depressionwhen one in every five banks failed, to protect depositors. The lawestablished the Federal Deposit Insurance Corp. and forcedcommercial banks to choose between acting as a low-risk, short-termlender with their depositors' money insured by the FDIC, or as ahigher-risk investment bank. The restrictions were extended in 1956by the Bank Holding Company Act, to bar bank holding companies fromnon-banking activities or from buying banks in another state.

Starting in the 1970s, after considerable industry lobbying, thependulum began its swing toward deregulation. The Federal ReserveBoard repeatedly reinterpreted Glass-Steagall, expanding a loopholeto permit banks to undertake more activities and mergers. Thoughmany attempts in the 1980s and '90s to repeal Glass-Steagallfailed, the Fed's rulings rendered it effectively obsolete.Finally, in 1999, the Gramm-Leach-Bliley Act repealedGlass-Steagall, opening the way for more convergence of insurance,banks and securities firms--and ultimately for the growth of thecomplicated financial derivatives that fueled the financialmeltdown of 2008.

Crop insurance
In 1938,after the Great Depression and the Dust Bowl storms brought adouble-whammy that drove many farmers off their land, Congressestablished The Federal Crop Insurance Corp. to test the waters ofgovernment involvement in insurance. The agency initially providedlimited crop coverage in some areas of the country. Since then, theprogram has been expanded several times to provide widespread cropcoverage and a broader role for private insurers, while limitingthe agricultural industry's reliance on federal disasterrelief.

McCarran-Ferguson Act
Insurance is one of the industries most carefully regulated by thestates, but federal antitrust legislation threatened to alter thoseregulatory powers and the ability of the industry to gather andpool the historic loss data necessary to successfully underwriterisks. The McCarran-Ferguson Act in 1945 retained state regulationof the industry and granted insurers a limited exemption fromfederal antitrust laws.

Package policies
In theprosperous postwar era of the 1950s, demand for insurance was onthe upswing. After a depression and world war, returning soldiersstarted families and bought homes and cars. Many startedbusinesses, including insurance agencies. The industry looked for amore efficient way to write and sell policies. States had beenpassing legislation enabling fire and marine insurers to also writeproperty and surety, breaking down the main barrier to multi linepolicies. Enter the homeowners policy, a combination theft,liability and fire insurance introduced in 1950. Changes in the lawalso paved the way for auto package policies, which can include sixcoverages: property damage, bodily injury, personal injuryprotection, collision, comprehensive and uninsured/underinsuredmotorist. For businesses, the commercial multi-peril policy,introduced in 1958, combined commercial property and generalliability and coverages such as boiler and machinery or marine. Adozen years later it was expanded for small businesses into theinclusive Business Owners Policy, which combines protection frommost property, liability and building risks, though not commercialauto or workers' compensation.

FAIR plans
The socialupheaval of the 1960s led to riots in big cities, which in turn ledto a shortage of available property coverage in urban areas. Statesresponded by establishing Fair Access to Insurance Requirementsplans, sometimes called assigned-risk pools or FAIR plans, to servepeople unable to purchase property insurance in the voluntarymarket because of excessive risk that may be beyond their control.These pools might provide insurance against fire, vandalism, riotand windstorm for businesses, homes and autos, depending on thestate and its plan. Though plans vary by state, they all requireproperty insurers licensed in a state to participate in the pooland share in the profits and losses.

Alternative risk arrangements/unbundling ofservices
High liability awards,coupled with inadequate rates, caused insurers to limit writingliability insurance in the early- and mid-1980s and led to aliability crisis for many industries, especially medicine and daycare. For coverage, buyers turned to alternative-risk arrangements,including risk pools and domestic and offshore captives. Thesecovered losses, but did not provide specialized services such asclaims handling and claims payment that had been included ininsurance policies. Independent services companies emerged in the1990s to fill these gaps. Meanwhile, large insurers recognized thefundamental shift in the way middle-sized and large businessesviewed and managed risk, so they responded by unbundling theirservice offerings from the insurance they provided, enablingbusinesses or risk groups to buy only what they wished.

Tort reform
Whenplaintiffs' lawsuits started to boom and damage awards to soar inthe 1980s, insurers began an ongoing state-by-state push for tortreform as a way to slow a rise in premiums. Lobbyists petitionedlawmakers to enact legislation that would place caps on economic,non-economic, and punitive damages, making it increasingly moredifficult for victims to receive compensation for their losses.Some states have passed legislation to reduce liability costs bylimiting damage awards and modifying liability rules.

Technology
Throughoutthe second half of the 20th century, the information-heavyinsurance industry adopted increasingly sophisticated technology.Not until the late 1990s, when the industry scrambled to protectits systems and information from the potential Y2K disruption, didits dependence on technology become so clear. Over the past 25years, technology has moved well beyond record keeping toenhancement and support, from marketing to underwriting to claims.Some of the most instrumental types of technology include agentmanagement systems, standardized forms and now, real-time.

Disasters, natural and otherwise
It's common belief that lightning--and by extension,other natural events--never strike the same place twice, but thehurricane season of 2005 dramatically disproved this theory.Hurricanes Dennis, Katrina, Rita and Wilma each pounded thesoutheast U.S., generating more than 3.3 million claims and morethan $57 billion in insured losses that took some 15,000 adjustersacross the nation to settle.

One storm that season--Hurricane Katrina--proved to be the mostexpensive in insurance history, with insurers paying an estimated$40.6 billion to settle 1.7 million claims in 6 states,dramatically surpassing 1992's Hurricane Andrew, which had cost theindustry an inflation-adjusted $23.8 billion to settle 790,000claims. The Northridge, Calif., earthquake in 1994 caused insureddamages of $12.5 billion, or $18.2 billion in today's dollars,making it the third most expensive natural disaster.

No event has more personally affected the insurance industrythan the Sept. 11, 2001 terrorism attacks, especially the attack onthe World Trade Center in New York. Not only did it cost the livesof many insurance people who were in the buildings when the attackcame, but settling the claims proved a gut-wrenching experience foreven hardened brokers and claims professionals. The devastationraised many coverage issues and also proved the value of technologyin documenting policies and losses. Insured losses totaled about$18.8 billion, or about $22.8 billion in today's dollars. Thedevastation of Sept. 11 also led to the passage of the TerrorismRisk Insurance act in 2007, establishing a temporary federalprogram of shared public and private compensation for insuredlosses resulting from acts of terrorism.