¶ … Strategy Theory and Actual Strategies Being Used in Small Insurance Companies Ask any layman on the street what they think about insurance companies and the answer will invariably be negative. Consumers, by and large, view insurance companies with disdain. It is a business that sits among other necessary, yet not always understood businesses, therefore when the economy began to slump very few people had sympathy for the struggles the small insurance business faced. While insurance is a necessary evil that survives as an industry, through seemingly impossible financial odds at times, there small companies within the field that are working hard to maintain status quo while the economy batters them without sympathy. In addition to the need for economic stagnation maintenance the small insurance office has recently been challenged by big business. Across the nation large insurance companies are flooding the market with mass advertising and lower rates. This competition threatens many of the smaller companies and they are working to develop strategies to maintain their survival and success.

Insurance companies are in a unique position. The state insurance commissioner office and the many rules and regulations that it must follow first and foremost regulate the company (Ho, 2002). In addition the insurance company must be able to pay out to its policyholders in the event of an occurrence (Ho, 2002). The occurrence can be a natural or manmade disaster but the policies have to be paid. There are many factors involved in running and regulating a small insurance company (Ho, 2002). The rates must be high enough to meet the demands of running the company itself, yet they are open to investigation any time it appears they have been raised unfairly or without good cause (Ho, 2002). A recent study by the National Association of Insurance Commissioners that was triggered by allegations that companies have raised their rates to the policyholders following the terrorist attacks in New York last year (Ho, 2002). The allegations stem from a commission report released by the Americans for Insurance Reform and allege that consumer groups have been unfairly gouged in their rates since the events of September 11(Ho, 2002). "The coalition says it wants stronger state regulations to protect people from excessive insurance rates (Ho, 2002).

In a July letter, the coalition urged state insurance commissioners to investigate how the economy affects insurance rates and whether insurers are price-gouging consumers. The group said it was particularly concerned about recent increases in homeowner and medical malpractice insurance and wants those rates frozen (Ho, 2002). " It is these and other regulatory boards and commissions that have a stake and a say so in the day-to-day operations of small insurance companies. The group said that while rates were already rising before Sept. 11, "the price increases were sped up by the terrorist attack, collapsing two years of anticipated increases into a few months (Ho, 2002)."

All of these factors combined have put an enormous strain on the insurance industry. They have been paying out to policyholders for many different incidences such as hurricanes, terrorist acts and other events. The insurance companies have reacted in what the industry calls predictable fashion with the responses they have provided. On the surface there are seemingly only a few options for them to take in the business. They can increase the rate of the premiums that the policyholders pay, or they can cancel insurance policies of those who file claims. Each of these ideas has merit but is not the only options available. Small insurance companies are faced with the additional burden of having to compete with the large companies. This can cause tremendous financial strain for the smaller insurance company, which drives them to react even more strongly. This knee jerk reaction can place the entire company future in jeopardy, especially in these economic times.

While many consumers feel that they are at the mercy of the insurance company, there are many small insurance companies that are at the mercy of many factors, including the consumer, the big companies and natural disasters. With economist predictions that the economy problems of the nation will not improve any time soon small insurance companies are scrambling to discover ways to survive.

Previous research have focused on the leadership of small companies and drawn conclusions about the leadership when it comes to the way their company is run (Becherer, 1999). In a recent study of small company presidents it was determined that the president's attitude and entrepreneurial behavior has a direct impact on the success of the business (Becherer, 1999). The firm's...

The study indicated that further studies would be useful with regard to proactively in running small business. The research was thorough and complete but it did not limit itself to the running of a small insurance company (Becherer, 1999).
Many recent models of business encourage the school of thought that the attitude of the leader and the way the leader runs the business have a major influence on whether the business succeeds or fails. This is also a true example of many insurance business models (Becherer, 1999). However, regardless of the model's projections when it comes to the insurance industry there are additional factors that influence this particular industry that do not affect other industries. This research study will compare actual strategy with theoretical strategy of a small insurance company for the purpose of survival. The proposed study will ascertain strengths and weaknesses of each scenario and then put together a suggestive plan for the operation of a small insurance company. The company in question will not be one that sells life insurance, but instead will focus on companies that sell policies other than life insurance policies. The research will be conducted through the use of a survey study. The survey will allow the research team to determine what works in theory, but not actual practice and what is working in actual practice for survival of small insurance companies especially during these difficult economic times.

This proposal will address an area that has not been fully researched in current literature. It will address by comparison the strategies that small insurance companies need to survive in current economic times. This will be accomplished through a comparative study between strategy theories and actual strategies when it comes to small insurance companies. There have been several recent large-scale disasters, including hurricanes, terrorist acts, floods and fires throughout the nation. The insurance companies have had to pay out many billions of dollars in policy protection through these disasters. The need for payout was felt especially strong in recent years because it was coupled with a sagging economy, which usually means more limited access to funding for insurance companies. This proposed study will determine the differences in actual working strategy and theory of business strategy within the small insurance company industry. It will also review which strategies may be useful in keeping the small insurance company afloat in the face of the recent large scale events that have occurred. Strategies in theory and in practice will be discussed and literature will be reviewed that touch on the peripheral aspects of the topic. This study will be unique in its scope and sequence, and will allow future decision making teams to create a proactive plan for success and survival during future events and economy struggles.

The research will be drawn from a wide range of participants and will encourage discussion about the future of the insurance industry, with a primary focus on the small insurance companies. The small companies are struggling for several reasons and this proposal is aimed at discovering not only why the struggling occurs but also some basic ideas about how the small insurance company can survive in today's economic climate as well as possible future trends. This discovery will be obtained by the comparison of actual strategy and strategy theory being applied to the small insurance company industry,

CHAPTER TWO

ABSTRACT

It seems that the natural disasters in America are increasing in frequency and number. Whether it is a hurricane bearing down on the coast, an earthquake shaking things up, or a flood wiping out thousands of square acres in farmland, disasters are a fact of life when mankind tries to live with nature. Outside of natural disasters there are also small occurrences that can be costly, including car accidents, or catastrophic illnesses. Given the many things that can occur in American daily life, insurance companies are striving to keep up without going under. Small insurance companies are being hit hard with each natural disaster that occurs and they are trying to maintain their business status while competing with the large insurance companies who offer low rates in bulk quantities.

The strategy of insurance companies in theory often differs from the actual strategy being used for various reasons.

Insurance companies usually employ an actual strategy for survival that includes raising premiums and canceling policies. Raising premiums is a tricky option because there has to be a provable and legitimate reason for…