Is the Insurance Crisis Under Control?

Six major events occurred in 1986 and 1987 that will have significant implications for financial executives. First, the Tax Reform Act of 1986 implemented some changes that will make the insurance industry less of a tax shelter and investment haven. Second, the Risk Retention Act of 1986 opened the door to: 1. the creation of group risk-funding mechanisms on a more favorable basis, and 2. the federal regulation of insurance. Third, the growing recognition that the US tort liability system has been allowed to run amok could lead to some form of federal intervention. Fourth, recent experiences with the cycles of the insurance marketplace have led some buyers to lose confidence in the market's ability to provide cover and rate risks. The market also has lost self-confidence. Fifth, in 1986, there was a rapid expansion of new risk financing techniques. Finally, the role of risk management has changed, with a greater emphasis on risk and loss control.