Premium hikes, customized coverage on insurance horizon

The insurance industry is changing, according to Dick Jackson, president and chief executive officer of Barker Phillips Jackson, 1500 E. Sunshine.

But while the national situation is a factor, the winds of insurance change actually began blowing a few years ago, and likely will continue for the next several years, Jackson said.

These changes center upon the reinsurance industry. "There are about 3,000 primary property and casualty carriers and approximately 500 reinsurance companies that deal with the total industry on a broad basis," Jackson said.

Reinsurance companies partner with insurance companies, carrying the liability that insurance companies cannot prudently afford to carry on their own. Reinsurers are vitally important to the insurance industry as a whole, Jackson said.

"That's how the whole thing hangs together," he said. "Reinsurers have been getting clobbered, and they're going to want to recover their losses over the next 5-7 years. Their margins began dropping precipitously last year."

Jackson said prices began firming as early as the third quarter of 1999, due to lack of profitability and the fact that in-surers and consumers were bracing for possible Y2K losses that didn't materialize.

Jackson cited two ways in which insurance companies will seek to boost profits. "They will raise rates, but they will also make it harder for people to get insurance," he said. "They'll make it more difficult by tightening underwriting requirements."

Some of these changes will present themselves right away, while others will evolve over the coming months and the next few years, Jackson said.

Reinsurers likely will take a pounding from the losses of Sept. 11, which Jackson said could top $100 billion. Smaller regional carriers that are re-moved from Sept. 11-related losses will fare best, he said, but also will pass along higher reinsurance costs to customers.

Acceptable loss ratio

"A company that has no World Trade Center exposure and a reasonable ac-ceptable loss ratio with a reinsurer can probably expect a 10 to 15 percent in-crease in reinsurance cost," Jackson said. He added that the end user will likely see a 10 percent rate increase due to rising reinsurance costs in certain product lines, including general liability, commercial auto and umbrella liability.

According to Jackson, there is no doubt that the catastrophic losses of Sept. 11 will compound changes that were already in the insurance industry's immediate future, but the insurance industry is strong enough to withstand the trial. "The $60 billion savings-and- loan dip almost broke banking," he said. "This (the Sept. 11 losses) could eventually end up to be double that amount."

Don't look for the Sept. 11 insurance effects to run their course any time soon, according to Jackson. "Most of the worst of it will be over in seven or eight years, but that could evolve for some time," he said. "This is the largest man-made ca-tastrophe in history."

Auto and residential insurance costs are expected to rise, Jackson said an increase that is long overdue. "Those products have been underpriced for years," he said.

Health insurance changes

Health insurance also will see changes, he added. "Health insurance costs are rising fast because of over utilization of the system, increased use of expensive, non-invasive techniques, and the use of lifestyle drugs (such as Viagra and Ro-gaine). What we're going to see inevitably is a defined contribution health plan, where employers make a certain number of dollars available and have several plans to choose from."

These plans will allow the employee to choose plan benefits that fit their needs. "We began seeing those about a year ago, and we will see that come to pass over the next 10 years," Jackson said. "At first, only large companies will be able to handle this."

Regarding the fact that banks and other financial institutions are now entering the insurance business, Jackson said that there are consumers who get insurance services from banks for the sake of convenience. "But there are some people who are leery of having banks get into insurance, because of a perceived conflict of interest. The bank's entry into the insurance business has been overblown and has underperformed to date."

Legal liability coverage

Jackson noted that types of policies written change right along with America. For example, he said, employee-employer legal liability coverage didn't even exist five years ago. Now companies purchase this type of coverage to prevent losses due to sexual harassment or discrimination cases. "What we see is that the insurance industry evolves along with social and cultural changes that take place in society," Jackson said.

Even with the inevitable changes Jackson is confident in the insurance system. "Our world cannot function without insurance," he said. "Without the insurance mechanism the world cannot operate. America ought to thank God that we have such a mechanism in place. Amer-ica has the strongest insurance system in the world."