On July 1, 1994, the third EC insurance directive will further deregulate the European insurance industry, providing another brutal increase in competition that will put in jeopardy the fortunes of the majority of Europe's traditional insurance providers. Indeed, dramatically changing patterns of competition have already begun to anticipate the painful effects of deregulation: the industry is on the verge of a structural shake-up, and the losses will be heavy. The strong likelihood is that many traditional multi-line insurers will break down under the pressures—financial and managerial—of a genuinely free market. But there are basic changes these companies can—and must—make now to steer their way through the coming period of deep structural change.

With its assets of more than US$2.2 trillion growing faster than GDP, the European insurance industry has long been a well protected and very profitable financial machine. It has also been extremely fragmented: more than 2,000 companies; a wide variety of sales methods, financial reporting methods, and tax regimes; and huge cross-border variations in market penetration and in the premiums charged for comparable coverage. (The average per capita premium in Greece, for example, is US$115; in the United Kingdom, US$1,907.) As a result, when the protection offered...