Davey's blog: The death of underwriting?

We have all sat and listened to insurance company chief executives discuss the need for rates to harden. We have all agreed with these statements and said that the sooner there is a return to underwriting profitability the better.

These are not just the hollow words of company bosses looking to fill their coffers and hike premiums for the sake of it. These rate rises are much needed and are merited by the changing backdrop in which underwriters are operating.

Solvency II is on its way and is driving the need for bigger reserves. The low interest rates and volatile markets of recent years have shown that investment returns cannot be guaranteed or relied upon to balance the books.

Historic reserves have already been eaten into and diminished, while reinsurance costs are likely to rise in many markets on the back of major global catastrophes in Japan, New Zealand and Australia.

Branches don’t know what chief execs want

Why then are we seeing insurance companies offering to ‘beat any quote in the market’ for certain lines of business? How is it possible for major carriers to be buying in business solely on commission?

Are things so tight with some UK insurers that they cannot weather the cashflow implications and therefore eschew underwriting for long-term profit and adopt a short-term strategy to secure market share?

Unfortunately, it would appear so. Certainly it feels that there is a fracture in the communications pipeline between the boardroom and the shop floor and that, despite what chief executives are saying, regional branches still have to write for market share rather than profit, simply to hit targets, meet overheads and keep things lumbering along.

We deserve more

The worry is that this approach, as well as losing money, will seriously undermine the skills that are available and the approach that individual practitioners take to servicing customers. Good entrepreneurial underwriters have always been in demand, but how will we ever encourage more of them into the market if their only job is to undercut the competition by 5%?

When insurers take this approach, how can they then finance well-staffed and highly efficient claims departments? How can they train and motivate staff to provide the very best service for policyholders at the back end, when everything is about cost cutting and bargain basement rates at the front end?

Stop going round in circles

The insurance market talks about being seen as professional as if it is something it has a right to. But the insurance market will only earn the right to be seen as professional by following consistent and objective strategies that are there to deliver long-term sustainability and success.

At the moment, it feels like we are still going around in circles instead of moving forward with a more professional and sustainable approach. If this spiral continues, we may end up losing some of the most valuable and prized skills from the market as the technically competent, commercially astute, entrepreneurial underwriter becomes virtually extinct … perhaps with an insurance company or two along the way.

Jonathan Davey is managing director of Keychoice