Ian Clark outlines his top 10 hopes for the new year, including sustained motor rate rises, more employment and steadily improving confidence
Christmas is a little over a week away. It is the time of year when people reflect on the events of 2010, but the industry needs to look forward, too. As far as possible, we need to try to shape the future as we emerge from the current difficult conditions. So here is my wish list for 2011:
1. Maintaining underwriting discipline: Now is not the time to aggressively compete for new business or to loosen terms and conditions to attract new business. The industry is increasingly looking like it is in a long-term soft market – and it needs to get used to it. Everybody should look closely at what Lloyd’s is doing: its actions are a credit to the industry as it seeks to control undisciplined price competition. Lloyd’s is setting the way forward. The rest of the industry has to follow.
2. Sustained motor rate rises: These are needed to ensure we do not have yet another car crash in UK motor market results. This will require the industry to act en masse, and for individual insurers to refrain from going for price-led growth in a hardening market. Santa should be the only one filling his boots this Christmas.
3. A benign winter: Not a good start here, given the recent cold spell. The loss-adjusting sector has learnt much from recent claims-surge events, but I am not sure that the same can be said for insurers. Trust is frequently absent from the insurer/adjuster relationship, with insurer procurement departments negotiating hard on deals, leaving little margin for adjusters to go the extra mile. It is time to return to a true partnership culture to reduce claims costs.
4. A claim is a claim: It is not a payment to a personal injury law firm or claims management company that has bought a referral at an ever-increasing cost. When will The Law Society realise that its image is being threatened by certain members adopting inappropriate practices?
5. A regulator that listens: There is much regulatory change to come in 2011, but gold-plating of new legislation is to be avoided if the UK is to remain competitive. While I am on my new hobby horse, do we really need more disclosure on broker remuneration? It’s fine for a client to ask, and there must be a requirement to disclose remuneration if requested, but the system works fine as it is.
6. Rising private sector employment: The return of increased employment in the SME sector will lead to a welcome return to organic growth for commercial brokers and an improvement in their profit margins.
7. Continuing improvement in business confidence: The insurance industry will benefit from this as business volumes rise and profits improve.
8. Stability of bank lending to the insurance sector: The industry is largely in good hands with its bankers, and sensible decisions are being
taken by lenders who understand the industry. However, in the current environment many insurance businesses are underperforming against budget, putting pressure on lending covenants. Bankers need to hold their nerve: they don’t want to be left holding distressed equity as a result of their own actions.
9. A reopening of the IPO market: The private equity industry has been supportive of the insurance industry, particularly among intermediaries and businesses operating in the supply chain. However, private equity needs an exit, and secondary buy-outs and trade sales are often difficult when many of the subject companies are over-leveraged. The long-awaited reopening of the IPO markets will lift much of this pressure.
10. An active M&A market: After all, there is only so much golf a man can play.
Have a happy Christmas. IT
Ian Clark is a partner at Deloitte.