Insurance Times will lead the charge, says Michael Faulkner
' Forget yuppie flu - underwriting amnesia is the affliction creeping through the UK's insurance companies. A pernicious disease that causes the sufferer to forget the industry's past underwriting sins, and not heed the calls to set the technical price for a risk.
The sufferer frequently acts in a reckless manner charging ridiculous rates for risks in a bid to satisfy the voices calling for "volume".
Talking to brokers and underwriters, it appears this disease is commonplace. Brokers talk of "pricing chaos" across the market and a "blatant disregard for underwriting risks" - 30% or more off last year's premium is not uncommon. Yet, claims inflation is running over 10% in some classes of business.
As the Americans say, do the math. At this rate, if this action continues unabated, insurers' results will be heading into the red.
And it's not just insurers' results that will suffer; brokers are feeling the pinch too as commission incomes slide in line with falling rates and cut-throat competition.
The FSA is, not surprisingly, taking an interest in this activity. Insurance sector leader David Strachan has in the past warned of the dangers of uneconomic pricing and the long-term risk to companies' balance sheets and survival. He is now putting his words into action and beginning a probe into insurers' pricing models.
What is required is disciplined underwriting - the right rate must be charged for each risk, and premium growth should not be at the expense of profit not volume. Insurance company chief executives say they are doing this, but the feedback from brokers suggests not all are practising what they preach.
To this end Insurance Times is launching a campaign to champion underwriting discipline. Poor underwriting control and bad practices will be exposed, while strong performers will be applauded.
The flip side of underwriting is of course claims. Just as industry grapples with the underwriting cycle it is also struggling to keep claims costs down. To be successful in managing claims costs, the industry must face up to the compensation culture fuelling claims growth and legal wrangles holding up speedy settlements.
The government is committed to introducing a Compensation Bill to regulate claims farmers and stamp out the compensation culture. And initiatives are afoot to make the compensation process more efficient.
Insurance Times has launched another campaign entitled Claims Sense. Like the Underwriting Discipline campaign, it will highlight claims initiatives, applaud good practice and expose the bad.
The campaign trail starts here. IT