NEW YORK, Jan. 14, 1997 — The chief executive officer of Insurance Services Office,Inc. (ISO) today established a challenge for ISO to provide useful services that would enable the company to raise revenues by 40 percent by 2001.
The second part of the double-barreled challenge is to hold insurers' participation fees for ISO's core services at— 8/100ths of a cent per premium dollar or lower for the next five years. ISO's core services include prospective loss costs (estimates of future claims payments), policy forms, and rating and policywriting rules.
Fred R. Marcon, ISO's chairman, president and executive officer, announced his targets for ISO at a meeting today of ISO participating insurers. The meeting came shortly after ISO's conversion to a for-profit stock corporation became effective Jan. 1.
"Over the next five years, we're going to make it our business to introduce new services that you will find useful to buy because they improve your bottom line," Marcon told insurer executives, many of whose companies are both customers and shareholders of ISO. Added Marcon: "Revenue growth from new products and new markets will be the basis of improving ISO's profitability and value for our shareholders."
ISO's targeted revenue growth would raise ISO's revenues by $100 million to $349 million in 2001 from an estimated $249 million last year.
ISO's growth, Marcon said, would come from "increasing our real value to customers."
ISO's customers include about 1,500 insurers, as well as agents, regulators and others.
The for-profit conversion, said Marcon, "provides us with flexibility and incentives to fund, develop and deliver additional services that add value to your own operations, and new profit incentives to intensify our demonstrated cost control."
ISO's for-profit structure will enable the insurance information-services company to more readily develop new products and services by drawing capital from sources that are readily available to for-profit corporations, Marcon said.
Marcon noted ISO's new financial structure enables ISO to sell or issue more stock, "if capital needs increase in the future, or if a strategic opportunity becomes clear."
Under its new financial structure, ISO will "provide information beyond pricing and underwriting data," said Marcon. "We'll be a one-stop source for information across lines of insurance — for claims and other operational information that you need to service niche business, specialty programs and other markets," he said.
Policy forms, for instance, will no longer be "just plain vanilla," but will go beyond coverage programs by line of business to provide standardized programs for individual classes of risk and individual industries, he said.
"You can count on us to focus first and foremost on meeting your needs," Marcon said. "Our first priority will be to deliver services that will lower your costs, increase your revenues, help you manage your risk, and improve your bottom line," he said.
Marcon said ISO planned to extend its product line in a number of areas, including risk-specific information, multiline surveys of risks and premium auditing.
"You can also look to us to leverage our core competencies with the similar — or dissimilar — expertise of other firms," said Marcon. As examples, he cited ISO's strategic alliances with Equifax Insurance Services and Policy Management Systems Corporation for the delivery of ISO information through their electronic delivery or policy-processing systems.
Marcon said development of ISO's new capital structure is in keeping with changing customer needs in a worldwide insurance marketplace that is swiftly transforming because of six developments.
Consolidation that "has a long way to run" before acquisitive insurers are satisfied they've increased their market shares sufficiently, reduced their work forces, eliminated overhead redundancies, and attained the financial strength and capacity they seek.
Specialization and focus on niche markets. "Insurers of all sizes and in just about all markets are moving from an 'all things to all customers' focus to a focus on selected market segments," Marcon noted.
Competitive pressure to cut expenses, including pressure from alternative markets that have taken a third of the commercial-lines business. Such competition has helped suppress average annual premium growth to a level nearly 2 points below the rate of economic growth since 1988.
Catastrophes, which since 1989 have run an average annual tab of $10.6 billion for the industry — more than four times the average of $2.4 billion a year for the seven preceding years.
Increasing globalization, which Marcon viewed not only as a source of competition, but as a growth opportunity, as well.
Rapidly advancing information technology "and the profusion — some would say confusion — of alternative technology solutions" that offer the promise of being a " Key strategic and competitive advantage in many business areas," including marketing.