Welcome To Jurassic Park?
Now that the market is hard again, more corporate insurance buyers are checking out alternative risk-transfer options, either out of curiosity, disenchantment with the fickle property-casualty industry, or plain desperation to get coverage or contain costs.
However, no one should imagine for a second that p-c insurers will go the way of the dinosaur anytime soon.
That possibility was raised earlier this month during Standard & Poors annual insurance conference. An S&P official brought it up after citing the growing captive market and the slow, but steady movement towards other alternatives, such as insurance securitizations.
Two industry heavyweights (if you had to compare them to dinosaurs, they would be Tyrannosaurus Rex, the big meat-eaters of the business) were quick to dismiss the notion. Maurice Greenberg and Ramani Ayer, chairman and chief executive officer of AIG and The Hartford, respectively, agreed that traditional p-c insurers are definitely not heading toward extinction.
They are absolutely right. The alternative markets serve an invaluable purpose. They give buyers an escape pod to save them when insurance prices become unaffordable or when adequate coverage is hard to find.
However, they are no substitute for the efficiency and reliability of the standard insurance mechanism, which still spreads most risks effectively.
The dinosaur analogy is a tempting one, because insurers have historically been slow to adapt to new environments, particularly when it comes to technology and operational efficiency.
However, even if one were to accept the comparison, remember that it took millions of years for extinction to overtake the species. Despite its quirks and faults, insurers should last at least another million years, if not longer.
Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.
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