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Insurance

Industry Overview

If you want to impress your friends and family with a job full of glamour, sizzle, and prestige, insurance is the wrong game for you. But while no industry offers genuine job security these days, insurance comes closer than most.

About 1,800 U.S. insurance companies offer personal and commercial product lines including basic health/life and property/casualty protection as well as a long list of other coverages ranging from automobiles to mortgages to insurance for insurance companies (known as reinsurance). These products protect customers from losses resulting from illegal actions, medical needs, theft, earthquakes and hurricanes, and a variety of other causes.

Insurance companies calculate the likely cost of a given loss, divide it by the number of people who want protection against it, add something for profit, and reach an amount that they charge each customer for a policy guaranteeing compensation should the loss occur. But that's only the beginning. Insurance companies also mount huge marketing campaigns to convince customers that they need protection in general and the company's products in particular.

They also function as financiers, deriving a large part of their revenues from investments. Insurance companies must maintain enormous reserves of capital to back up potential claims obligations. They invest those reserves in stocks, bonds, and real estate, within the U.S. and overseas, providing an enormous amount of liquidity to financial markets and giving the industry an influence on the national economy far out of proportion to its size. That can be a risk, as when industrywide over-investment in Latin America during the 1970s led to huge losses for the entire industry and repercussions far beyond the insurance industry itself.

Despite the fact that it is regularly accused of deceptive sales practices and even consumer fraud, America's security blanket also protects the economy against losses of all kinds. U.S. companies are currently playing catch-up to worldwide players in the global marketplace and absorbing mammoth deregulation legislation.

Terrorism and Insurance
In the wake of September 11, 2001, insurance companies were faced with tremendous claims; estimates range from $30 to $70 billion. As a result, reinsurers stopped writing terrorism policies in the U.S. Primary insurers, as a result, started stripping terrorism coverage out of policy renewals, in states where that was legal, and stopped offering and/or renewing policies that included terrorism insurance in states where it was not. In response, the Bush administration stepped into the picture with the Terrorism Risk Insurance Act of 2002, which acts as a kind of safety net for writers of commercial insurance. The Act requires insurers to pay terrorism-related claims up to a ceiling; beyond that ceiling, the government will pay the bulk of claims, thus limiting the insurance industry's risk exposure.

Deregulation
Deregulation is redefining who can offer insurance. Repeal, in late 1999, of the 1933 Glass-Steagall Act (which formerly separated all arenas of financial services) promised a major facelift for the insurance industry. Insurers, banks, and securities brokers are now free to merge and cross-sell each others' products. This clears the way for financial service superstores that will offer insurance as well as investment and savings options. Commercial banks have been making modest inroads on traditional insurance markets for several years, but repeal of Glass-Steagall could lead to much greater and quicker changes in the role of traditional insurance agents.

Shift in Demand
The shape of the life insurance sector has morphed over the past generation. Nowadays, demand goes beyond straightforward life insurance. Rather, the market is looking to the insurance industry to provide investment products, such as annuities, which provide the consumer with regular payments for life or for a fixed period. What this means in macro terms is that the life insurance sector has had to shift its primary capability from analyzing and predicting mortality rates to a more investment-management capability. The recent collapse of the stock market has made annuities relatively even more attractive. And in a creative move insurers are building a market for products that protect the investor against a variety of risks simultaneously while allowing them to draw down a death benefit while still alive.

Technology
The Internet promises to cut costs in a competitive market, provide a new way for consumers to compare quotes and choose policies, and make for a more convenient service -- the ideal customer-friendly combination. This transition is having an impact on the job market, with companies increasingly seeking tech-savvy candidates who can support the move to e-commerce.

Consolidation
Continuing the trend that essentially began 30 years ago, insurance companies are responding to global competition and the need for cost efficiency by forming strategic alliances, merging into conglomerates, and buying smaller companies. This trend is doing away with the independent agencies that used to define the industry. Consolidation also means that companies will offer a full range of insurance products instead of specializing in certain realms such as property or casualty.

Life and Health Insurance
The policies in this sector provide benefits packages that policyholders pay a premium to enjoy. Health insurance has gone through some major overhauls, including the replacement of fixed-fee Blue Cross/Blue Shield-inspired policies with managed care networks. The life insurance business is experiencing slow growth, and life insurance companies are likely to be merging with banks and securities firms. Hartford, Prudential, and Metropolitan Life are U.S. leaders in the life insurance game, while Aetna and CIGNA rule the HMO realm.

Property and Casualty (P/C) Insurance
The focus in this sector is on protection for owners of cars, homes, and businesses from loss, damage, and injury. Competition is fierce in this sector, and profits are falling. Only the strong will survive as weaker companies continue to tank and even more secure ones sell off this line.

Insurance Brokers
Brokers act as go-betweens, uniting buyers and sellers of insurance and creating the contracts that bind them. Furthermore, they play the role of risk consultants for large clients, researching industry information to advise companies how to manage risk exposure. Major players include Aon and Marsh & McLennan Companies.

Reinsurance
In the most simple terms, reinsurance is the insurance of insurance companies. Insurance companies pay reinsurers to assume some or all of the risk the insurers have taken on in writing policies for their clients. Insurers use reinsurance to protect against the risk of unusual losses. Reinsurers write reinsurance because their business allows them to pool enormous numbers of individual insurance risks, making their risks even more predictable than the risks faced by primary insurers.

Due to the replacement of agents by Internet sales, job opportunities in this industry are increasing at a below-average pace. But the entrance of insurance companies into the grand arena of financial services marks a new era: Agents will be called upon to provide a full range of services -- including insurance, investment banking, and savings -- in multidisciplinary teams, on a global scale. Companies are looking to hire college grads with proven ability in sales and information analysis. Growing occupations include systems analysts, adjusters, and examiners: These positions require fewer hands-on skills and more interaction with information, especially the ability to gather and manipulate information strategically. Furthermore, the insurance industry will become more hungry for techies as computers play an ever more integral part in business processes.

Want to work abroad? There are opportunities in insurance. Europe and Canada are still a focus for claims processing and investment and actuarial services, but Asian markets -- particularly Japan, Taiwan, and South Korea -- are even more attractive places to land new business. If international financial markets are something you understand, and you speak a foreign language, you're someone insurance companies will want to talk to.

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