John Head, managing partner of John Head & Partners L.P. while addressing about 200 participants in the 24th annual International Risk Management Group Ltd. conference, being held through Wednesday at the Marriott Castle Harbour Hotel.

And he predicted sweeping and unavoidable changes for the industry over the next decade, prophesying that the change can be mapped over the next ten years, as opposed to five years.

He said, "It will happen longer, slower, more painful, more burdensome and more expensive than we ever thought.'' Mr. Head spoke of a "disease of liability'' in the insurance industry.

"Liability attacks everybody. It attacks people on a retrospective basis. It attacks people with the deepest pockets. The more money you've got, the more standing you've got, the quicker it goes right at you. It doesn't like the small or the poor.

"It's a disease that is subject to the social standards of the times and the country that it's in. It will affect our industry. The responsibility for covering the errors, the omissions, the sins and the responsibilities of the past are being borne by the insurance industry. It's part of the business in which we operate. This business can be priced and can be dealt with.'' He said it won't be rolled back, even though there have been significant moves in the US Congress to put caps on product liability.

"The year 2005,'' he said, "will show increasingly an insurance industry that is covering physical assets, things you could touch, kick and feel, but won't be covering the social responsibility issues of the future, the present and unfortunately, the past.'' Moving on to another prediction, he said the industry is selling the wrong product and buyers, increasingly, want a different product. He said that they no longer want what amounts to money swapping coverage, but real catastrophe coverage.

He raised issues involved in the Dow Corning breast implant litigation. While not commenting on the merits of the cases for any of the participants, he remarked about the severity of the situation the company finds itself in where it had to file for Chapter Eleven bankruptcy, affecting a lot of people's lives.

"They (Dow Corning) needed to have true catastrophe liability coverage. They didn't buy the product that they really should have bought.

"What happens if I have a billion, two billion, three billion, five billion, 10 billion dollar liability of exposure. They had been buying down low. They had been buying what happens if they have a ten million, 15 million, 25 million dollar loss, whether it was a physical accident or liability.

"They bought insurance for the effects where their own balance sheet should have protected them. We should only buy insurance to cover events that will materially affect the financial position of the company.

"By the year 2005, the insurance industry will stop a lot of the money swapping that now goes on.'' Mr. Head said that companies were all materially uninsured. Corporations are bigger, richer and have more assets, but they do not protect those assets over a long time period.

He forecast the need for a lot more capital for the insurance industry, saying that the business is materially under-capitalised. He said it was interesting that insureds laid off risks to insurance or reinsurance companies that had less capital then they did.

Insurance companies had to have at least 10-20 billion dollars in capital to be world class and they have to make the risk adjusted rate of return so that the capital markets will give them the money. If they don't, they won't be around, he said.

And reinsers needed more capital than insurers. He said that people will wake up by the year 2005 and realise the people taking the biggest risks must be bigger than the insureds.

He complained about the 10 to 15 percent of the total volume of business paid to brokers by insurers, when the insurers were only looking at a hope of making a three to five points profit on premiums.

He said it costs too much when the head office of insurers consumes about 10 percent of premium to administer the business and the buyer will soon no longer pay for it.

Mr. Head also raised the issue of the increasing requirement for insurance companies to be a government tax collector for free, using the UK premium tax as a recent example.

He said that he was always interested in what a chief executive's salary was per policy ratio. If he doesn't have enough policies, the policies need to go up, or the salary should go down. In the insurance company, there should be risk takers, not administrators.

He predicted increasing regulation at the retail level (e.g. house, car and life insurance) and deregulation at the wholesale level, because of technology.

He said margins will become so low that it no longer will be acceptable not knowing the company's financial position until six or nine months later.

"You'll have to have an income statement and balance sheet and the ten important numbers that manage your business on your desk every day when you come in.

Head issues insurance warning And you'll have to be able to access that before everyone in the world, via technology and telecommunications.

"Because, if you don't, the guy across the street, your competitor, will. And he will eat your lunch.'' Mr. Head said the insurance industry's return on equity was unacceptable and had to improve.