While the industry operates by the current pricing cycle, its reputation will continue to suffer, says Stuart Reid
There has been much written and said over the past year about the reputation of the insurance industry. Who lobbied on our behalf post September 11? Where are the headlines "Man gets claim paid"? While our industry has many things to be proud of, will we ever get a good reputation when insurers live or die by the ridiculous pricing cycle?
I am loaded down with examples of insurers doing battle over risks they would not even entertain last year. This competition is over all types and size of risk, even liability, and by insurers of all types and sizes. Why? Is it because reinsurance rates are coming down or, as Andy Cook recently wrote, that more capacity has come into the market? Is it that some insurers are now making money and in order to simply keep market share are "buying business in"?
Put yourself in the position of a commercial consumer. Rates have risen dramatically over the past 12-24 months. They have risen so dramatically that advice has been taken to undergo costly, but important, risk improvements. How happy the client must be then, when faced with a renewal premium significantly cheaper than last year. The client is not happy; he is livid. What advice did insurers and brokers give him over the past 18 months - premiums are going up, get your house in order, the market is contracting. The broker ends up remarketing because the client has completely lost faith in what has been said in the past and sought alternatives. It all ends up in the usual Dutch auction, with everyone losing. The biggest loser - our reputation.
We have even got to the sorry state where insurers fight in-house over the same risk. While my experience of Norwich Union has been very good, asked recently who was Norwich Union's biggest competitor, one of its employees said Norwich Union Leeds.
There are things that insurers are trying to do, for example a retention measure as a part of profit share deals, and three-year deals (yes they are back) , but what other business overhead fluctuates as heavily as insurance? As an industry, we do ourselves no good simply following this cycle. Insurers make poor results meaning that a hard market cycle is inevitable, further undermining our position.
As always, there are no simple answers. I personally do not think it a broker-led problem but then I wouldn't, would I. If the prices and deals were not available, then the problem would not be there. If reinsurance costs are coming down, or capacity is increasing, insurers should surely pick those areas of business they want to be in, provide a high quality product with a high quality service and hold their nerve. Who knows, this might lead to a degree of stability.
Let us not forget, a statutory objective of the new FSA regime is to "maintain confidence in the financial system". Furthermore, brokers and, more importantly, clients have no desire for a cycle of any type, particularly if it is self-imposed. Our collective reputation suffers all the more for it.