Business "by any means necessary" is not sustainable, says Adrian Colosso
The UK banks’ half-year results show that the economy is not in total stasis and that some insurers are beginning to display signs that the storm clouds might be clearing.
But all is still not well with the economy; profits may have increased or been maintained, but that is generally due to efficiency rather than growth. There is no sign of a hard market.
An attitude of recklessness coupled with aggression seems to have gripped the insurance and broker sector this wet summer.
The real heat to light the damp barbecue sets will come from the global brokers. They are ready to fight for every morsel of business – by any means necessary. The deepening US recession and currency fluctuations are slowly exposing the inflexibility of these monolithic entities. Regulators have given them a windfall, however, by allowing them to grab contingency, so putting more pressure on the insurers to show resolve!
Generally, their tactics will be double-digit cuts in pricing to spitefully undermine the competition.
But, similar to the valiant English cricket team, Heath Lambert has a firm grip of the bat and expects to hold aloft the Ashes of any opponents.
Naturally, tactical pricing pressures will be at the detriment of the client and service will become a poor cousin to the short-term gain of streamlining a few costs. Cutting corners is not the answer.
This view was reinforced last week when Lloyd’s published its global survey of chief executives’ perceptions and priorities, in association with the Economist Intelligence Unit (EIU).
It highlighted that risk managers are taking a greater role and are under more pressure than ever to secure the future and protect their companies. Risk management and truly understanding the risk appetite of the business is paramount to survival.
This is why, in order to deliver the right cover, brokers need to listen to the client, and build and adapt an insurance programme to cover all risks, while understanding the future potential issues.
If this high margin approach ticks all the right boxes, then the final price is worth paying, however competitive.
Flexibility is a cliché; agility is probably a more apt term. Brokers and intermediaries are often forgotten when the commoditised world of distribution dictates the mantra “Cheap, I just want it cheap.”
Brokers cannot be ignored, although they clearly were in another recent report (they are coming in thick and fast) from the Treasury and the Insurance Industry Working Group. Biba chief executive
Eric Galbraith was right to say that it was a surprise to see a lack of any reference to the intermediary’s role.
If the government expects the insurance industry to pick up the bill for the welfare state over the next 20 or so years, then it needs to offer the consumer, and business, more products and a better tax regime.
The product creation will inevitably come from the broker community. Insurers will not be creative producing new lines as they become more risk-averse, worrying about their capital requirements under the new Solvency II rules.
Over-regulation at this crossroads in the economic climate will be a disaster. I’m not the greatest fan of the UK regulatory regime but, unlike some, I feel it is premature to write off the FSA.
I agree with the Cass Business School comment, however: that it doesn’t matter where the regulator chair sits – Treasury, FSA or Bank of England – but who sits in the chair. Only practitioners and executives with real industry knowledge can give proper regulatory evaluations and make fair decisions.
Adrian Colosso is group chief execuitive of Heath Lambert.