vice profit pressure

Briefing by Saxon East

Can things get any worse for insurers struggling for commercial underwriting profits? In a word, yes.

The PRA returns reveal a grim picture: premium fell 19% to £4.4bn, and insurers’ combined operating ratio (COR) worsened to 103.6% in 2015 from 103.4% in 2014.

In the coming years, UK insurers face giving away even more commercial commissions to the new consolidators. 

Some insurers may bulk up premiums by partnering with consolidators, but they will need to watch that it doesn’t erode their already worrying CORs even further. 

There will be other insurers working on strategies to partner with the remaining brokers who aren’t consolidated. It will be an almighty scrap. 

Be more selective

Another way to improve COR is for insurers to be more selective in helping brokers that deliver good, as opposed to bad, business on claims. 

In years ahead it is likely insurers will expect larger brokers with resources to have technologies to improve clients’ risk management and help catch fraudsters across liability and commercial motor.

And, finally, on the topic of liability, these results also show insurers must work harder to improve their performance. As fraudsters turn to liability as an easy target, insurers’ investment in fraud detection and robust claims vetting techniques is an absolute must.  

PRA Returns key indicator

Some insurers play down the PRA Returns as not reflecting true performance. But they are arguably the best indicator of underwriting performance as it is possible to strip out technical income – for example mid-term adjustment money, cash from monthly premiums and even income from brokers owned by insurers. 

Whichever way you cut it, insurers can and will do much more in the future to improve commercial performance as the pressure tightens even further.