Gary Head says our industry won't be taken seriously until we take a new track

I have read many comments recently from insurance industry leaders about disciplined underwriting and avoiding the rate cuts of the past, and wonder whether they really know what is going on in the trenches.

Yes, the 2003 results for many companies were producing better returns than the building society, but have they already forgotten the losses of 2002, 2001, 2000 and so on?

Only leadership from the top can help flatten the insurance cycle. Capacity should only be allocated to business models that incorporate a proven and robust pricing model, and not just a premium income target.

Only when the industry puts its house in order to prevent this roller-coaster ride will customers begin to view us as professionals delivering a vital service for their personal and business lives.

The more we can avoid the 'buy one, get one free' type of marketing, the better.

One area of the market where this selective memory loss appears to be particularly acute at present is professional indemnity (PI).

As an established leader in many specialist areas of PI, it seems to us at Hiscox that the level of competition is becoming almost ridiculous, as new capacity tries to grab its market share.

Unfortunately, established markets which underestimated this threat in their initial planning are reacting predictably and grabbing it back, so the vicious circle continues.

As the PI market emerges bruised and battered from another solicitors' renewal season I can only hope that this will be the straw that breaks the camel's back.

Anyone studying the Solicitors Indemnity Fund figures will know that the £242m collected by the primary insurers last year is not enough.

As the Hiscox Group underwriting director, Rob Childs, often says, claims come from exposure, not premium, so the £235m for double the limit this year doesn't add up.

Surveying is another sector for which the industry has not been able to come to terms with some of the rates now being charged.

Accountants, technology risks and even smaller miscellaneous business are all heading the same way.

With personal lending at record levels and the property business becoming more and more competitive all the time, the underlying exposure for surveyors is increasing. I remember specialist markets for surveyors' PI that no longer trade.

An added burden on the primary PI carriers is the reinsurance squeeze we are seeing. Unlike previous cycles, which have been led by reinsurers dropping their prices, the quality reinsurers appear to be standing firm this time around.

If we charge the old prices without the reinsurance back-up, while exposure and claims are increasing, the squeeze slowly but surely begins to empty the balance sheets of the primary carriers.

Our great industry is not too complicated - unless we make it so.

As Hiscox's chief executive, Bronek Masojada, has commented: "How can two years of combined ratios in the low 90s lead to 15% to 30% rate cuts? The maths simply doesn't work."

At Hiscox we have not been afraid to walk away from business when the price is not right, however brokers know that we will be there when the prices recover, as they inevitably will.

Our focus is on providing our brokers with practical assistance in this difficult, softening market - in particular how to target new areas and not just 'fish' the same pond.

Two recent studies we have undertaken found that 45% of public relations consultants and 39% of IT consultants do not buy PI, indicating that there is still plenty of opportunity out there.

Our team of professions underwriters likes the challenge of seeing new and emerging risk classes and we encourage it to look for innovative ways of meeting the changing needs of these new customers.

We see these emerging professions, such as media, consultancy, technology and other service-based businesses, as major opportunities in the PI market.

In conclusion, we have seen the damage caused to the industry by past market cycles, and it is something we do not want to repeat.

Provided our reputation is not beyond repair, we must all work together to avoid another roller-coaster ride and so fulfil our professional role in society. IT

' Gary Head is professional indemnity underwriting manager at Hiscox