Washington — The financial and housing crises, along with a prolonged soft market for insurance products, are converging to create a highly challenging environment for the U.S. insurance industry in 2009. These factors will force insurance carriers to adopt new skills and business discipline in order to survive the economic turmoil, according to new research from TowerGroup that identifies key insurance trends for the coming year.

TowerGroup expects "four Rs"— risk, revenue, regulation and retirement—to shape the insurance industry in 2009. Risk and regulation will be at the forefront as insurance carriers pump money and resources into initiatives designed to optimize risk management and meet new regulatory mandates. Increased costs and decreased revenues will lead to further industry consolidation and redistribution of assets. As a large number of experienced insurance workers reach retirement, the strain on insurers will increase as decades of knowledge walk out the door.

"The convergence of several negative economic influences has resulted in unprecedented financial pressure on insurance carriers," says Karen Pauli, a research director in the TowerGroup insurance practice. "Although these challenges are clearly daunting, it is critical that carriers maintain a long-term vision despite the short-term economic imperatives. Carriers that focus on both financial and human resources at the enterprise level, incorporating both operational efficiency and risk management, will come out of the current crisis ahead of the pack."

Highlights of the new research include:

• TowerGroup believes that data management and predictive analytics are no longer merely nice-to-have technology initiatives. Carriers that fail to recognize this fact will see significant deterioration in their results as well as plummeting loss of competitive position.

• Insurance carriers must implement effective risk governance initiatives that span both the organization and its distribution partner network, where integrating information is imperative.

• A drop in investors' and policyholders' confidence resulting from the current economic crisis will lead to increased instability in the industry and heightened merger and acquisition activity in 2009.

• Cost containment will be a top priority for insurers in 2009, but customer-facing initiatives to improve customer service and the ease of doing business will continue to enjoy funding and support.

"Insurers must continue to focus on customer-facing initiatives even in the face of cost-containment pressure, given that these initiatives will be key to rebuilding confidence among policyholders and shareholders," says Rachel Alt-Simmons, a research director in the TowerGroup insurance practice. "Customer-focused insurers that concentrate on solutions rather than products will emerge as the top competitors in the market."

Sources: National Association of Mutual Insurance Companies, TowerGroup

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