Brighter Days Ahead

MARKET CONSOLIDATION, pricing considerations, legislative reforms and capital concerns are going to be hot tickets in the insurance industry in 2004, according to some late 2003 predictions. And as the fewer but stronger players emerge, this could change waste companies' insurance policies and premiums.

Each year, Tillinghast-Towers Perrin, a New York-based actuarial and management consulting firm to the financial services industry, provides a forecast of what issues the insurance industry will face in the upcoming year. The firm predicted that the number of insurance carriers will be whittled down, meaning there will be fewer companies to buy policies from and fewer breaks on premium prices.

However, this actually could be good news for waste industry policyholders who have seen insurance companies dissolve, stop providing a specific line of insurance coverage or suffer earnings losses. In fact, in the long run, waste management companies could benefit from stronger but more demanding insurers, the consultant says.

The past few years' poor economic environment, stock market volatility and credit losses have taken a toll on the insurance industry and led to several company failures or departures from specific liability markets, such as professional and environmental liability. But the companies left standing after the consolidation will be better equipped to provide good service, the consultant predicts. For example, 2004 is expected to bring:

  • More reserve “surprises.”

    Many insurance companies have recently announced they are boosting their reserves to become better prepared to handle claims, and more of these announcements are anticipated in 2004. Rising costs of claims or unanticipated claims from new or emerging risks often lead to reserve and pricing problems. This may affect immediate earnings or earnings forecasts. But by boosting reserves, companies will be better prepared to meet future claims.

  • A softening market

    In a “soft” insurance market, premium prices generally tend to dip — but there may not necessarily be deep price cuts in 2004. The insurance industry has no appetite for cutting prices right now, according to the consultant. Instead, prices should begin to level out.

  • More thoughtful underwriting

    There will be a “new religion” around underwriting. Enterprise risk management and aggregation risk management — even in the casualty lines — are crucial to underwriting, according to the forecast. So for waste companies, this could mean a push to step-up risk management efforts to meet their carrier's underwriting criteria. In other words, insurance providers will be a lot tougher in how they underwrite policies and to whom they provide policies, but this move should boost safety records.

Waste companies can expect the insurance industry's metamorphosis in 2004 to lead to a consolidated, stronger insurance industry. But in this case, consolidation could affect them for the better.