The business of insurance: someone has to pay.

• Author: Page, Richard M.
• Position: Special Global Report

In 1985 and 1986, at the onslaught of the hard market, America woke up to the true value of insurance. Why.? Because, for many companies, insurance had become either too expensive or unavailable at any price. Today, the situation has changed, with insurance premium rates generally decreasing in the last four years. In fact, we predict that rates will continue to decline for the next two years, without a change in the cycle until late 1991.

Where is the money in the insurance business? North America leads the continents with $232 billion of premiums, by far the largest marketplace in the world. Europe is next, with $157 billion; the AsiaPacific region follows, with $83 billion (Japan alone has $63 billion); and the rest of the world has $12 billion. In the U.S., $95 billion is for personal insurance coverage and $125 billion is for commercial coverage. The largest segment of that $125 billion is what your companies pay for workers' compensation coverage (not including any monies spent on self insurance).

But a new and fast-growing trend is emerging in the U.S. insurance industry. Some $47 billion is now invested in the alternative insurance market, i.e., for self insurance, captive insurance, and self retention. By the end of 1990, premium dollars allocated to these alternative insurance mechanisms probably will approximate 35 percent of the market. That's something for domestic insurance companies to worry about.

The hurdles to leap:

More than 3,500 insurance companies exist in the U.S. today, though relatively few are global players. Many firms with adequate assets and surplus for investment just don't want to become factors in international insurance. Surprising? Why wouldn't these companies want to become part of emerging growth areas throughout the world? There are several important reasons:

Home base is familiar territory. The risks are known and quantifiable. When something goes wrong, the company knows how to fix it, which may not be the case in a foreign country.

Regulatory environments are always a problem overseas, The ultimate position of Japan and the European Economic Community (EEC), with respect to foreign insurers, is still unclear.

The differing legal environments are often a headache.

The cost of entering the international arena is high, and the competition is fierce.

Language is a barrier, especially for those who don't like to speak foreign languages.

Staffing is a real problem. it's tough enough to find, train...