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The North America Insurance Sectors : A Company and Industry Analysis (December 2005)
Mergent, Dec 2005
This report looks at the insurance industry in the United States and Canada
Current Environment - Key Points
- Hurricane Katrina which slammed New Orleans on August 29, 2005 set a record for being the costliest insurance industry disaster, with insured losses estimated at between US$25 billion and US$35 billion in the US
- In September, five insurers were accused by Mississippi's Attorney General of fraudulently depriving survivors in damage payouts by getting them to sign forms saying that they sustained flood damage, which is not covered by their policies
- The NASDAQ Insurance index fell below the 3,450-point mark, down 2.8% from the 3,550-point mark in June 2005, after it was hit by the devastating impact of Hurricane Katrina
However, insurance stocks should rebound soon as savvy investors see the current market weakness as a buying opportunity
- The Consumer Association of Canada filed a complaint to the Federal Competition Bureau in October, proposing a raid be conducted on the insurance industry, in the wake of concerns that insurers were misusing brokerage offices to sell only their own policies
- In October, the Insurance Bureau of Canada exposed a C$1 million (US$839,067) insurance fraud involving 22 Ontario businesses which ran away with customer payments worth C$300 (US$252) to C$600 (US$503), after promising discounts on auto insurance
Industry Profile - Key Points
- The US insurance industry is the world's largest, with about 2,490 domestic providers, comprising property/casualty, life/health insurers, agents, brokers and services personnel
- Skyrocketing operating costs have become a concern as a result of the soft pricing environment and high negative spreads
- The US$600 billion US Spanish market is tipped to be the next boom market, with an increasing number of insurers attempting to penetrate the market with Spanish speaking agents, TV commercials and even Spanish telephone voice recognition units
- The Canadian insurance industry is known to be financially powerful and influential, with earnings on the upswing ever since it emerged in 2003 from one of the hardest insurance markets in history
- Proposals by the Canadian Council of Insurance Regulators to introduce legislation to regulate the payment of performance-based benefits to advisors by insurers led to a large number of critical submissions from insurers, organizations and advisors
Market Trends and Outlook - Key Points
- Sales of variable annuities have shrunk compared to sales during the booming stock market days of the late 1990s, and are specifically designed to meet the needs of increasing numbers of affluent investors
- Demand for pet insurance is growing in the US, with the number of policyholders forecast to grow by more than 25 fold by 2008, according to pet insurer, Veterinary Pet Insurance Co
- Health insurers in the US are withdrawing from the industry, with some analysts believing the shrinking participation is due to rising healthcare costs which are gradually eroding profits
- The level of contributions to the terrorism insurance fund in the US are slowing, as insurers and investors forget 9/11, and are beginning to take for granted the importance of cover
- The impact of an ageing population and declining birth rates have reduced the number of beneficiaries for employment insurance coverage over the past two years, with four Canadian provinces notably Alberta, Manitoba, Ontario and British Colombia reporting the largest decline
- The average treatment cost for auto insurance crash victims has risen dramatically over the past few years, and insurers are becoming cautious, and doubt whether the C$1.5 billion (US$1.3 billion) on direct payments for medical fees and rehabilitation costs is well spent
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