Chicago Insurance Forum

December 9, 2009 During this time that the insurance industry is busy reacting to the results of regulatory reform, increases in the industry of government intervention and possible changes in the tax laws as the result of the financial crisis, it is possible that it will be at least a few years before the industry as a whole will be able to return to relative stability and certainty as it reacts to these changes says a recently released report.

It is generally accepted that during the next five years or so, the industry will take on a markedly different appearance as most Americans find their insurance policies underwritten by a handful of large expansive firms that are heavily capitalized and that are able to demonstrate financial strength and economies of scale. This is according to a report released by PricewaterhouseCoopers LLP in its article entitled “Emerging from the Storm: The Day After Tomorrow for Insurance.”

According to the report there are nine developments that during the next coming five years, can be expected to reshape the insurance industry. For those living in the United States, the most significant of these developments will probably be regulatory changes that are the result of proposed legislation directed toward the reform of health insurance and the increases in the federal oversight of both the insurance and financial industries.

For most insurance companies, in the U.S. at least, regulations are occurring at the state level. There is however, ongoing political pressure to increase the extent of federal oversight. It is generally believed that the proposed creation of a Federal Insurance Office will ultimately result in making available to federal policymakers the information and resources that will make it possible for them to be able to respond to health services crises, to alleviate systemic risks and to help to make sure that there is available a well-functioning financial system. The report does warn however, that the establishment of regulatory controls at the federal level could also result in dual regulation at both the state and federal levels.

Bill Chrnelich, who is a partner in PricewaterhouseCoopers’ insurance sector and who was responsible for the report, says that because insurers are in the business of managing risk and measuring probability, they are not happy with uncertainty. In spite of this he says, they are now facing two enormous reform initiatives, the possible outcomes of which cannot be known but which could clearly alter their status as companies. He adds that there are many insurers which are being cautious and are taking a wait and see approach, and that there are still others that actually see these changes as being a once-in-a-generation opportunity to shape their future.

PricewaterhouseCoopers says that those insurers that are most likely to succeed when regulatory changes are put into place are those that can anticipate the most likely opportunities for reform.