Conning: P&C Shakeout Coming

Hartford, Conn. - The dominant position of large market leaders, the effects of burgeoning technology and a robust, competitive pricing environment will cause dozens of insurers to exit the personal P & C industry over the next few years, according to a new study by Conning Research and Consulting Inc., a Hartford, Conn. provider of public and proprietary research as well as consulting services to the financial services industry.

"We have analyzed industry results for the period 2002 to 2004, and some of the underlying causes for those results, and found significant changes in the competitive landscape over the three-year period," said Hale. "A handful of larger personal lines market leaders, and a few outperforming specialist players, will soon be able to set and maintain aggressive pricing levels that will be untenable for many lagging insurers."

Technology is playing a crucial role in the emerging shakeout, says Conning analyst and author of the report Bruce Hale. Hale believes predictive modeling will help shift the industry from traditional wide market swings - price wars followed by big price hikes - to equilibrium. "Market leading insurers with this technology are much less likely to under-price business than 10 years ago, so there will be no need for a broad correction. Leaders will prosper and many lagging insurers will struggle year after year in the new equilibrium."

The Internet will also play a role, says Hale. "Many new policyholders in their twenties are eager to transact online with established brand name insurers with smooth interfaces. This will help expand the leaders' competitive edge."

The Conning Research study, "The Emerging Shakeout in Personal Lines," identifies the handful of market leaders and analyzes their characteristics. The study also probes the conditions that will likely hold trailing companies back, exit strategies for the laggards, and the impact of market consolidation on personal lines and on the broader property-casualty industry.

"The personal lines market is ripe for a major consolidation," said Stephan Christiansen, director of research at Conning. " Size and advances in technology, coupled with the market dynamics outlined in the study, will play to the advantage of the leaders for some time to come. Some also-rans will be looking to sell, merge, or otherwise leave the field."

Source: Conning Research and Consulting Inc.