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.

Mounting losses isn't the only thing that's making insurance company executives sweat these days. This issue's cover story on financial services convergence notes that brand-name institutions, such as Wells Fargo and Wachovia, are aggressively expanding into the insurance arena by acquiring large agencies. How this strategy ultimately will affect carriers' efforts to grow market share remains to be seen, but it appears that major banks are eyeing the life and investment side of the insurance market.

The wild card in all of this is keeping customers satisfied. Mounting underwriting losses, and weaker investment returns, will force carriers to quickly raise their premiums on homeowners, auto and commercial policies. Many disgruntled policyholders will begin shopping for better prices, and that ultimately could erode higher-priced carriers' books of business.

There isn't a magic bullet that will solve these and other problems that carriers are battling. However, better attention to claims handling will not only uncover fraudulent claims and save money, it will improve customer retention. It's an area where technology has proved to be effective at improving workflow, customer satisfaction and carriers' bottom lines. And it's an area that many industry experts believe is ripe for implementing new technologies that will show immediate return on investment.

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