The insurance industry is at a defining moment in its history. Competition from financial services companies, coupled with a dramatic rise in operating losses, is draining carriers' reserves. And, when you add consumers' willingness to shop for the best deal, you have a volatile mix of forces that spell trouble for the industry.Most troubling for the property/casualty industry is its worsening financial state. As a whole, the P&C industry reported an after-tax net loss of $7.6 billion in 2001, according to Insurance Services Office Inc. and the National Association of Independent Insurers (see page 6). Here's an eye-opener: the industry's net loss on underwriting (after policyholder dividends are accounted for) skyrocketed to $53 billion last year, up almost 70% from 2001's level.

And, when you add the workers' comp and liability losses from Sept. 11, which most experts peg will cost U.S. insurers $25 billion, it adds up to an ocean of red ink. Indeed, the combined ratio for property/casualty companies deteriorated to 116 in 2001, the third-worst on record.

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