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An Eye on the Future

Industry association executives speculate on the most important issues and challenges facing the insurance industry in 2007.

Greg Heidrich
SVP of Policy,
Property Casualty Insurers Association of America (PCI; Des Plaines, Ill.)

Joe Pomilia
Executive Director,
Insurance Accounting & Systems Association (IASA; Durham, N.C.)

Denise Garth
Vice President Membership & Standards,
ACORD (Pearl River, N.Y.)

Frank Keating
President and CEO,
American Council of Life Insurers (ACLI; Washington, D.C.)

Q: What are the top trends, issues and challenges for the insurance industry in 2007?

A: Greg Heidrich, PCI: One of the key challenges for 2007 will be catastrophes. The 2004/2005 hurricanes revealed the potential for greater frequency and higher severity of insured losses related to natural catastrophes. The determination and implementation of solutions to address the catastrophe exposure will be a key initiative for 2007.

Today, insurers operate in an environment where prices and coverages are highly regulated and generally are not allowed to respond freely to changing risks or conditions, as opposed to one that relies on private markets to solve these problems with prices set according to the risks assumed. Greater market freedom is needed to address the catastrophe exposure. Free markets encourage the entry of new capital, and pricing and coverage terms send vital signals about the realistic cost of insuring against catastrophes and the most efficient means to accumulate assets to fund these exposures.

A top challenge for the insurance industry in 2007 will be the passage of a permanent solution for terrorism reinsurance -- The Terrorism Risk Insurance Extension Act, which will expire on Dec. 31, 2007. Terrorism is a national economic security problem. It requires a long-term, national response, which includes a federal role.

A: Joe Pomilia, IASA: In 2007, I expect softening pricing in the marketplace to challenge insurance companies -- and thereby IASA members -- to maintain growth and profitability as they deal with sliding rates. The impact on combined ratios will put pressure on those in underwriting and investment strategies, and likely lead to a greater focus on expense management, a need for increased productivity and a renewed emphasis on operating efficiencies. It may also fuel industry dissatisfaction with regulatory burdens currently adding to overhead or stifling product development or deployment.

A: Denise Garth, ACORD: One of the trends is a move toward agility and flexibility as well as an enterprise view to meet the changing demands of the world and the industry. We need to be able to react and adapt to everything from natural disasters -- the magnitude of which we saw in 2005 -- to increased mergers and acquisitions, and the unexpected. There's also globalization and new markets with new opportunities. By harnessing the power of both new and existing technology, companies can become more limber and ready to take on these challenges. We need to have business and technological architectures in place to remain competitive, and using standards to communicate among those systems and with trading partners is crucial.

A: Frank Keating, ACLI: The looming retirement of 78 million baby boomers will be a key issue in 2007 and for years to come. Boomers in general haven't saved enough for retirements that can last 20 years, 30 years or more. For those with savings, ensuring the nest egg lasts throughout retirement won't be easy. Life insurers are well positioned to address this crisis -- through annuities and other retirement savings products, long-term care insurance, as well as disability income and life insurance. In many ways, the industry has the answer to the retirement security riddle.

Closely tied to the retirement security crisis is the need for a regulatory structure that helps insurers respond swiftly to the retirement planning and financial security needs of Americans. To better serve our customers, the industry needs a modern system that will help us get our products to market more swiftly and not get bogged down in the approval processes of 50 different states with differing regulations.

Q: What will be your organization's top priorities and areas of focus for 2007? What makes these areas of focus so important for your membership in the coming year?

A: Heidrich, PCI: PCI's top priorities for 2007 are the extension of the Terrorism Risk Insurance Extension Act and Catastrophe Risks. PCI is expending every resource to seek passage of a new Terrorism Risk Insurance Extension Act or extension of the current law before the end of 2007. In regard to the catastrophe risk, we are working with state and federal lawmakers to help them to understand the risks and to offer solutions to address those risks.

A: Pomilia, IASA: IASA's top priority in 2007 will be developing new accounting/financial and systems/technology products and services for members dealing with limited time, travel and training budgets. Ever-increasing regulatory pressures, softening prices and the inevitable belt-tightening that goes along with such conditions will defy IASA's insurance company members to find quality, high-value education and information resources of which they are able to take advantage. In 2007, IASA's docket of products and services will deliver a tailored education experience right to the doorsteps of our members.

A: Garth, ACORD: For ACORD, next year is about driving implementation, and meeting new and growing member needs for standards. We'll also be assessing how we can expand and support the increasing globalization of our standards. We've expanded our membership and standards to support markets in the U.S., London, Canada, E.U., China, other Asia-Pacific, Australia, South Africa and India. 2007 will see even more global use of ACORD standards with increased implementations. We will have a very strong focus on implementation and reporting of implementation within the industry. We've worked to enhance our standards to meet these new, diverse global needs. In fact, ACORD P&C/Surety Version 2 was developed with these needs in mind, and ACORD's Life, Annuity and Health Version 3 standards will build on the global aspects that the current version has today. The ACORD Standards Strategy lays out our long-term vision for standards evolution, incorporating these key factors and our existing standards with the ACORD Standards Framework.

A: Keating, ACLI: Regulatory reform -- through enactment of federal legislation creating an optional federal charter (OFC) for insurers and promoting uniformity of state regulations -- will be our top priority. Under an OFC, an insurer will be able to choose between being regulated by the individual states or by a single, federal regulator. Among many things, this will streamline the regulatory process for product approval and allow new and innovative products to come to market more quickly nationwide. At the state level, we expect more states to sign on to the Interstate Insurance Product Regulation Compact, and we will work for improvements to state regulations for producer licensing and market conduct examinations. At the same time, we will be promoting retirement security initiatives that will help increase savings and provide incentives to encourage people to guarantee their savings last throughout retirement with an annuity, and protect their savings through long-term-care insurance.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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