The recent economic slowdown has middle-market companies reassessing their relationships with insurance brokers and adopting a more basic approach to securing insurance coverage.

In the past, middle-market companies have selected their insurance brokers based on the quality of customer service provided by competitor firms. Middle-market companies tend to reward brokers that provide high levels support due to the lack of specialized risk management professionals employed by larger corporations, Recent research data gathered in the Greenwich Associates’ 2008 Middle Market Insurance Research Study revealed that companies began de-emphasizing broker customer service in favor of a straightforward approach on obtaining the best value and price in customer’s insurance purchases.

Greenwich Associates defines “middle market” as companies with $10 million to $500 million in annual sales. The firm conducted more than 18,000 interviews with U.S. as well as 1,500 large companies around the world a part of its 2008 Global Large Corporate Insurance Study middle-market companies as part of its 2008 study. the results of which will be released later this month.

Greenwich Associates asked companies to enumerate their insurance brokers and the respective carriers, and to rate both their satisfaction and their willingness to recommend these providers to other companies. Companies were asked to evaluate brokers and carriers on 25 categories in the research.

Greenwich Associates creates a statistical analysis that reveals the qualities and capabilities of brokers and carriers that are regarded to be recommendable. This analysis reveals the factors that are driving corporate perceptions and decisions about insurance carriers and brokers.

Over the past few years, customers rated customer service as the most important factor in middle-market companies’ assessments of their insurance brokers. The results of this year’s research and analysis reveal that companies are now giving equal weight percentage to three main factors: price, value and customer service quality.

This study is further evidence of the deterioration of the economy and the revenue and cost pressures faced by U.S. companies. In these tough times, companies can no longer afford to overpay for insurance coverage.

The study also reveals that companies are becoming less willing to rely entirely on carrier recommendations from their brokers and more inclined to research the capabilities of individual carriers on their own. As a result, companies increasingly are holding brokers accountable for the carrier recommendations they make.

Conclusion:
Companies are giving less consideration to brokers’ ability to provide general risk management advice and their overall problem solving ability. Based on these findings, he recession is forcing middle-market companies to be much more diligent and meticulous putting more emphasis in getting high quality coverage and service for the best possible price.

With the economy in disarray due to slowing US consumer demand and consumer confidence in the financial industry at an all time low, it is inevitable that insurance industry will have to take a hard hit for many months to come.
A few months ago, the federal government has committed $150 billion in assistance to a bailout of American International Group Inc, once the world’s largest insurer. AIG nearly collapsed last year after becoming overexposed in the largely unregulated market for credit default swaps, which was undermined by the sharp U.S. housing downturn.

Currently, there are over 6,000 insurers in the United States, but no central federal regulator for them. These companies answer to more than 50 state and territorial authorities with different practices and regulations.
Several U.S. lawmakers strongly support federal oversight of insurance companies and suggested the creation of an entity within the Treasury Department dedicated to oversee the insurance industry.

With the new White House administration, there will be major regulatory reforms to ease the crisis in the financial services sector. There are powerful factions within the industry that wants regulation centered in Washington, D.C. Several insurance companies are more welcoming to the prospect of federal regulation like big insurers such as Allstate Corp.

Democrat and Republican lawmakers share the belief that steps must be taken to ensure that a similar situation does not occur in the future citing the Federal government’s bailout of distressed insurer AIG. They also cited last year’s problems in the bond insurance industry as further evidence of the need for Washington to play a greater role in supervising insurers.

The American Insurance Association, a lobbying group for large property-casualty insurers, issued a statement of support for the lawmakers’ letter.
The new Treasury Secretary Timothy Geithner pledged to strengthen regulation of over-the-counter derivatives, such as credit default swaps, which have largely contributed to the industry’s losses and to pursue registration of hedge funds.
In a written letter to senior House Democrats, Geithner indicated that there will be sweeping changes in regulatory policy, the oversight structure and creation of better tools for crisis management.

The American public may have to wait a while until this manifests into a workable scenario. This presents a great challenge to the Obama administration especially with its policy of better government transparency. The average Joe is simply too tired of bailouts of the wealthiest companies using taxpayer money.

In the year when dozens of U.S. banks and financial institutions failed, insurance companies seem to ride the storm well.

Providers particularly property/casualty (P/C) insurers X handled economic troubles better than insurers who branched out into other financial services sectors. Industry experts attribute this to their clear-cut management techniques and focus on their core business.

While insurers saw their collective policyholder surplus drop in 2008 amid the turbulence in the world’s equities markets, most were still able to conduct business as usual, a feat amid the ongoing financial crisis.

A mix of industry analysts, regulators and media representatives, agreed that the insurance industry is not facing a credit or liquidity crisis. Unlike banks and other financial entities, which have been struggling, insurance companies, in general, do not borrow to make investments or pay claims. So even when some investments perform poorly, the effect is not magnified as it is than when investments are put in stocks or loan capital.

Michael S. Pritula, director of McKinsey & Company noted that insurance ”is a relative island of calm” as compared to the banking and  securities industries, which saw widespread merger activity in 2008 and even some bankruptcies.

“P/C insurers have shown themselves to be among the best risk managers in financial services by sticking to a basic business plan, avoiding recklessness and standing by the risks they write,” said Sam Friedman, editor-in-chief of National Underwriter.

“Those that kept their business strategies simpler fared better,” added Vincent J. Dowling, Jr., managing partner, Dowling & Company, noting that the insurers who were most adversely affected by the 2008 economic downturn were companies that had moved away from their core business and into other, more risky ventures.

Friedman also noted that it was problems originating in a non-insurance entity within AIG’s holding company, not with its insurance business, which prompted the federal cash infusion into AIG.

There are, however, other insurers out there who may also need federal assistance.

“Life (insurers) felt the pinch more than the property/casualty sector,” said Connecticut Insurance Commissioner Thomas Sullivan referring to the number of life insurance companies that have sought to qualify for the federal Troubled Asset Relief Program (TARP) monies through the acquisition of federally regulated thrifts.

Despite the relative calm of the insurance market, there is still lingering talk about  the future of insurance regulation, and to what extent the federal government will attempt to assert itself in a field that has traditionally been handled exclusively at the state level. However, a consensus emerged that the issue may not rank as a high priority amid all of the other pressing matters pending in Congress.