The property and casualty insurance industry is facing an interesting paradox.

On one hand, we are seeing evidence that we are entering a hard market. Insurers are demonstrating an abundance of caution while underwriting new policies. With a focus on minimizing losses, they are taking a closer look at exposure. There is a push towards increased premiums.

On the other hand, consumers are exhibiting characteristics consistent with a continuing soft market. They are opting for lower premiums and reduced insurance cover. Switching between insurance companies is rising.

Clearly, the transition from a soft market to hard market has been unusually prolonged. Reasons include the economic slow down, credit crunch, poor investments (in some cases), and pressure on reserves and surplus.

Insurers are responding through a series of steps to re-align their businesses. Strategies being executed to counter the current situation include spinning off non-performing lines of business in order to concentrate on core areas, entering new business areas and markets, and re-organizing investments to minimize losses.

It is going to be interesting to see how this insurance cycle plays out. Some level of shakeout seems inevitable.

In my last blog, I talked about how insurance companies are responding to a challenging market situation by realigning and entering new business sectors.

Pet Insurance is an example of such a promising new area. Interestingly, pet insurance falls under the Property and Casualty segment. It is an admitted line of business; some carriers are offering it as a type of specialty insurance. There are probably no more than 15 carriers today that cater to pet insurance.

Early entrants will likely gain from a first-mover advantage. Questions to be considered include:

• Are business processes and technology systems agile enough to quickly support a new line of business?

• Are sales and marketing channels ready to get to the right audience?

• Does the expertise to rate, underwrite, and manage this line of business exist today?

• Does the requisite technology and process expertise to ensure success exist in the company?

It remains to be seen how many carriers can actually raise the bar in successfully tapping these new lines. So far we have seen only mid-sized companies in this area. Larger insurers have not got into this yet.

Does that mean that mid-sized insurers are more agile? Something to take up in my next blog!