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Insurance market adapts to changing world

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Industry consolidation, more and better data, the emergence of the Bermuda market and alternative capital, technological developments and the hard — then softer — market swings are among the key trends that have impacted the insurance industry over the past 50 years, say executives.

But in some basic ways, many say, the industry has stayed remarkably unchanged, including in its continuing viability and emphasis on personal relationships.

The 1980s liability crisis was a key industry development, said Joe Peiser, New York-based head of North American broking for Willis Towers Watson P.L.C. in New York. That crisis, which was caused by asbestos and environmental litigation, “nearly bankrupted Lloyd’s of London, and it had a direct impact on the creation of the Bermuda market, which has been a fundamental event in the liability insurance world,” he said. It also led to corporate capital’s entry into Lloyd’s, he said.

Another major change has been the better use of data. Hurricane Andrew in 1992 “really kind of changed our industry in a material way, because, until then, I think a lot of reinsurance underwriters were using seat-of-the-pants technology to evaluate how they booked catastrophe risk,” said Michael O’Halleran, former Aon Benfield executive chairman, who retired from that post in May 2017.

Andrew “necessitated a new way to do business” and led to the emergence of models and “certainly a lot more transparency,” regulatory oversight “and the ability to have a much better understanding of the data behind the numbers,” said Mr. O’Halleran.

Perhaps because of the increasing amounts of data available today, the industry no longer has the cycles of the past, where “truly hard markets” over short periods of time were followed by long slides in rates, said Scott Barraclough, president and CEO of Mount Laurel, New Jersey-based Admiral Insurance Group, a unit of W.R. Berkley Corp.

Another change is that 25 to 50 years ago, brokers, insurers and reinsurers “seemed to have very clear boundaries” as to the business they handled, while now insurers and reinsurers “are figuring out ways to get licensed so they can sell direct,” said David J. Bresnahan, Boston-based executive vice president of Berkshire Hathaway Specialty Insurance Co. The industry also is “now in an age where people are becoming more and more accustomed to buying things online,” he said.

Retired risk manager P. Richard Hackenburg, whose final professional role was vice president of insurance and risk control services at New York-based FOJP Service Corp., said there are “fundamental risks that exist today that didn’t even concern us back 45 years ago,” when he entered the insurance business, including terrorism and cyber security.

Capital is also being used “more efficiently and effectively today than it used to be,” because of technology and the industry’s knowledgeability. “The people in the business today understand the accumulation of risk and the correlation of risk exposures,” said Mr. Hackenburg, who lives in Southport, North Carolina.

Jamie Crystal, executive vice president at Crystal & Company in New York, said, “In 1989, it was not unusual for 20 different syndicates at Lloyd’s to each participate on risks,” sometimes providing $1 million to $3 million of coverage each, “where today, the same placement may need only three or four syndicates each with $25 million in capacity for a $100 million placement.”

The industry is also better able to analyze the business and understand the risks, leading to fewer insolvencies, said M. Steve DeCarlo, CEO of Charlotte, North Carolina-based AmWINS Group Inc., pointing to the disappearance of the New York Insurance Exchange, a Lloyd’s-type venture, among other markets.

While technology has been a big help in the business, it has also affected the quality of the industry’s relationships, some observers say. “You could have an underwriter and broker sitting literally three blocks away, and they won’t talk,” but send emails back and forth instead, said Mr. Crystal.

However, “the days of the three-hour martini lunch are gone, and thank God for it,” said Mr. Hackenburg. The business’s diversity has also increased and one’s gender, sexual orientation or creed “doesn’t make any difference.” The “good old boy network” is gone, he said, adding, “It was time somebody buried it.”

What has not changed is that insurance remains a “people business,” said Mr. DeCarlo, who began working in the industry in 1980. “The foundation of the industry is the trust people have in each other,” he said.

“At the end of the day, we put people’s lives back together,” said J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher & Co., pointing to the industry’s response to hurricanes Harvey and Irma in September 2017.

That has always been the case, but “the way we do it has changed dramatically over the past 50 years, and has made our clients safer and better for their employees,” Mr. Gallagher said.