New York, Jan. 13, 1998 — In the first year of operation as a for-profit corporation, Insurance Services Office, Inc. (ISO) has marshaled its scale and depth of expertise to help insurers compete in an insurance marketplace marked by uncertainties and shifting boundaries, said Fred R. Marcon, the company's chairman, president and chief executive officer.
"ISO will engage the forces that are reconfiguring the insurance marketplace," Marcon told senior insurance executives at the yearly Meeting of ISO-Participating Insurers. "We're building on ISO's traditional economies of scale to be in tune with your needs for information to make informed decisions in a marketplace where specialized knowledge is a competitive necessity, and where increasing scale means the stakes are greater for every decision you make."
ISO's chairman also reported that:
Marcon noted that, in October, ISO acquired the operations and assets of the American Insurance Services Group, combining that organization's claims expertise with ISO's expertise in managing and analyzing large data bases. Also last year the board of governors of the National Insurance Crime Bureau agreed to migrate its claims data base and related software to ISO, enabling ISO to create and manage an industrywide all-claims data base to combat the industry's $20-billion-a-year fraud losses.
To meet "The ISO Challenge" that he announced last year, Marcon said, "we will grow by developing and introducing new products and services that you, our customers, find useful to buy because those products improve your bottom line." He noted that this year is the sixth straight year that ISO has maintained its participation fees for core services without change for most lines of insurance.
ISO's strategies are in step with insurers' strategies to "deal with relentless, grinding competition from each other and from alternative markets," said Marcon.
As insurers are finding ways to deal with competition — by consolidating into bigger entities, specializing, and investing in emerging technologies to reduce costs and improve service — ISO is delivering new services that meet insurers' new needs.
On the information-technology front, Marcon announced ISO's biggest product development of the year — delivery of circulars, forms and the Commercial Lines Manual via the Internet. "Internet delivery will instantaneously bring accurate, up-to-date ISO information to the desktops of insurance professionals throughout the country," Marcon told the insurance executives. The service will be available in the spring, Marcon said.
As the lines between insurance and capital markets become blurred and more insurers embrace the strategy of securitizing insurance risk through capital markets, ISO is providing data-management services to companies that generate indices that serve as the basis for catastrophe futures traded on the Bermuda Commodities Exchange and catastrophe options traded on the Chicago Board of Trade.
To further help insurers facing $3 trillion in insured hurricane exposures, ISO has combined its actuarial and data-gathering expertise with the expertise of two leading catastrophe-simulation modelers — Applied Insurance Research and Risk Management Solutions — to help insurers, investors and regulators appraise the costs and benefits of buying catastrophe options.
To address specialization, ISO has expanded its consulting service to include actuarial and forms consulting for niche markets, and has developed specialized data products to help insurers evaluate the desirability of individual market segments and serve them profitably.
In addition, ISO is expanding its core services to embrace specialized, fast-growing markets. ISO filed with regulators the industry's first standardized employment-related practices liability program and its first standardized personal umbrella coverage form.
In assessing the state of the industry, Marcon told industry leaders that a drop in catastrophe losses was a major reason that the industry's combined ratio last year was an estimated 101 1/2 — better than any annual result since 1979. The decline in catastrophe losses, said Marcon "accounted for about a third of the industry's $9.5-billion growth in net income for the first nine months last year.
"But workers compensation results continued to slide. The National Council on Compensation Insurance estimates the combined ratio climbed to 101 last year from the recent low of 97.0 in 1995.
"We're also seeing more and more challenges to recent workers-comp reforms, including strong attempts to roll back hard-won progress," Marcon noted. "A high degree of vigilance is required on our part to protect recent gains, let alone push forward with additional needed reforms."
The industry continued to benefit from robust financial markets. For the first nine months of last year, a fifth of the industry's net income came from realized capital gains. Since 1987, three-fifths of the industry's cumulative surplus growth has come from capital gains.
Warned Marcon: "Capital gains aren't dependable. In seven of the past 28 years — which is to say, in one year out of every four — the industry has suffered capital losses, almost always associated with a drop in the S&P 500. Whether the S&P 500 can sustain its current level is an open question. I, for one, won't bet on that."