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WHITE SULPHUR SPRINGS, W.Va.-The convergence of insurance and financial services, as well as advances in technology, are shaping the insurance industry's future, a panel of insurer and broker executives says.

The increased use of capital market instruments, acquisitions by insurers of investment banks and the entry of banks to the insurance field were cited as examples of this convergence.

At the same time, advances in personal computing technology were seen as producing a possible split in the market between buyers who would prefer to buy commodity-type products online and those who would still rely on traditional brokers and insurers to meet their needs.

"Convergence is not new, it is merely accelerating," said Steven Gluckstern, a member of the corporate executive board of Zurich Insurance Group in New York and head of Zurich's reinsurance operations. To be successful in this environment, an insurance company doesn't necessarily have to buy an investment bank, as Travelers Corp. did with its recent purchase of Salomon Bros., but it needs to know what investment banks are doing, he said.

"The typical insurer doesn't need to own an investment bank. Their core activities don't assist the insurer," agreed Dennis Chookaszian, chairman and chief executive of CNA Financial Corp. in Chicago. "The issue is more a convergence of distribution systems," he said, noting that insurers might eventually wish to turn to an investment bank rather than insurance agents to sell securitized insurance products.

The two executives were part of a far-ranging panel discussion held during the Insurance Leadership Forum at the 84th joint annual conference of the Council of Insurance Agents & Brokers and the Council of Insurance Company Executives at the Greenbrier resort in White Sulphur Springs, W.Va., last week.

Two brokers on the panel defended the role insurance agents and brokers will play in the convergence of insurance and financial services.

"I don't see brokers as a threat but as an opportunity for partnerships," said Donald K. Morford, vice chairman of Sedgwick Inc. in Seattle.

"Our customers will always need our help," said J. Patrick Gallagher Jr., president and CEO of Arthur J. Gallagher & Co. of Itasca, Ill. "Part of convergence on the brokerage side is that (brokers) need more expertise, not less. How it's delivered is the big issue."

Technology also will play a key part in determining what products brokers deliver in the future, suggested Mr. Morford.

"The information now available to us via the Internet will have a major impact. Commodity-type policies will increasingly be sold via the Internet or other more efficient means," he said.

Mr. Chookaszian agreed the Internet will be used for commodity products but emphasized that these will be predominantly personal lines policies. "Commercial lines will continue to be sold via independent agencies and brokerages," he said.

Mr. Gallagher agreed. "The basic goal of insurers is to sell as little coverage for as much money as possible. Someone has to step in and help (the policyholder) with that transaction," he quipped.

The panel was divided on the role capital markets will play in the insurance industry.

One hurdle to be overcome is raising investors' understanding of and comfort with securitized insurance risk, said Mr. Gluckstern.

"If you want speculators like George Soros, or hedge funds, to take the other side, you need them to understand the risk," he said.

One thing that stands in the way may be a mistrust of instruments whose return is based on insurers' own calculation of catastrophe losses, Mr. Gluckstern said.

"Until we get some true third-party indices of losses, investors will be reluctant to put up money against losses," he said.

"I see things like the USAA deal and what happened with the mortgage industry and see a lot of potential," said Mr. Gallagher, who noted that each tranche of the USAA catastrophe bond offering was oversubscribed.

The first such deals have been one-year instruments, he noted. As they are renewed or reissued, it is likely to be for longer periods of time, he said. As a result, "a market will develop to trade ownership of multiyear contracts," Mr. Gallagher predicted.

Ultimately, insurers may come to be seen as "accumulators of risk" that is then sold to investors, he said.

Another factor influencing the insurance industry is consolidation, especially among brokers, the panel noted.

"Consolidation among the major brokers is largely done," said Mr. Morford. The next wave of broker consolidation is more likely to focus on midsized brokers, he said.

In addition, future consolidation may involve not only brokers buying brokers, but also brokers merging with Big 5 accounting firms, banks or other financial services entities, he said.

Consolidation is driven by a pressure to grow larger and increase earnings, said Mr. Gallagher. "We're an inefficient business, with huge costs, and there is pressure to grow," he said.

Some in the industry say customers are demanding consolidation, Mr. Gallagher noted. "I don't agree; I think it comes from pressure to grow profits."

Zurich's Mr. Gluckstern said consolidation is being partially driven by stock analysts.

"There's more and more consolidation because they want to increase top line growth, not profits," he said of companies involved in mergers and acquisitions. "This shows analysts and the capital markets that business is growing."

But showing growth of premiums and revenues is difficult to achieve in the current market, he noted. "So acquisitions are made to boost top-line growth."

Mr. Chookaszian took the opportunity of the panel discussion to also criticize the number of property/casualty trade organizations, which presents a fragmented front to customers and lawmakers.

"The multiplicity of trade organizations makes no sense. There are too many organizations on the agency side and company side; it's counterproductive," he said.

"If you asked me to describe what each of these organizations do, I'd be hard-pressed to do it, and I dare say not many other people could," he said.

"We need to put our resources together and speak with one strong and clear voice.*.*.*.Our congressmen tell us that repeatedly," he added.

Mr. Morford noted that consolidation should serve to shrink the number of industry trade associations.

Globalization also was on the minds of the panelists.

CNA is largely focused on the domestic market, though it is expanding into international markets, said Mr. Chookaszian.

"We've addressed globalization and international opportunities by starting small, often with international alliances and small acquisitions," he said.

But there are significant hurdles to doing business in emerging markets, he said. For example, while India and China represent huge potential markets for insurance, at the moment only a small minority have any need for such products as auto insurance, he said.

"Emerging markets is not Zurich's strength," noted Mr. Gluckstern. "The only way to do it is to get your feet a little wet."

One way to do this is to make investments in emerging economies, which can give a company a sense of how the market operates, he said.

The panel discussion was moderated by James R. Woods, a managing partner with LeBoeuf, Lamb, Green & MacRae in San Francisco