Abstract: Risk and Responsibility: The Commercial Union's U.S. Business in the 1980s
Risk is an essential component in the business operations of an insurance company. In the life business it stimulated calculations into life expectancy; in the fire business, premiums were based on assessments of the vulnerability of the premises, the materials stored, and long-run climatic predictions. As the insurance business diversified to embrace other risks, notably motor insurance, accident and health insurance, and personal liability, calculations of risk have become both wide-ranging and more sophisticated. This paper is not concerned directly with the calculation of such risks, but rather with the overall viability of one company's insurance operations in the United States, which of course rested upon assessments of insurance risk. It offers a case study of "sub-prime" insuring two decades before the term entered vernacular use. As a result of a strategy of mergers and acquisitions, the British-based Commercial Union inherited a wider range of American insurance obligations, many of which were "sub-prime." Exposure to substantial risk was identified by 1982, and firm action was required in 1984-87 to turn the business round. This case study, based on a program of interviews with leading executives, raises issues such as: managerial reach across national boundaries; the cultural dimension in insurance trading; and the relationship between senior management strategies and "on-the-ground" decision-making lower down the managerial hierarchy.