I thought the February / March 2010 CII’s The Journal write-up on the topic: Insurance Pricing was interesting and some eye-opener…. in particularly those relating to the Lloyd’s seven steps to managing the insurance cycle.
With fluctuating premiums, varying levels of competition, instability and uncertainty being some common occurrences within our Malaysian insurance market place, perhaps it is cool…. if we can pick up some useful methodologies from the entrenched Lloyd’s practices in the managing of insurance cycle.
We have reproduced the outline below (with thanks to The Journal – Chartered Insurance Institute):
|Don’t follow the herd||Invest in the latest risk management tools||Don’t let surplus capital dictate your underwriting||Don’t be dazzled by higher investment returns||Don’t rely on “the big one LOSS” to push prices upwards||Redeploy capital from lines where margins are unsustainable||Get smarter with underwriter and manager incentives|
|Insurers need to be prepared to walk away from the markets when prices fall below a prudent, risk-based premium||Insurers must push for continuous improvement of these tools based on the latest science around issues such as climate change, and make full use of them to communicate their pricing and coverage decisions.||An excess of capital available for underwriting can easily push an insurer to deploy the capital in unsustainable ways, rather than having that capital migrate to other uses such as hedge funds and equities, or returning it to shareholders.||Don’t let higher investment returns replace disciplined underwriting. Notionally, splitting the business into insurance and asset management operations, and monitoring each separately, is one way to achieve this.||The spectacular insured loss should not be used as an excuse to raise prices in unrelated lines of business. Regulators, rating agencies, and analysts, not to mention insurance buyers, are increasingly resisting such behaviour.||There is little that individual insurers can do to alter overall supply-and-demand conditions. But insurers can set up internal monitoring systems to ensure that they scale back in lines in which margins have become unsustainable and migrate to other lines.||Incentives for key staff should be structured to reward efficient deployment of capital, linking such rewards to target shareholder returns rather than volume growth.|
Are these steps and their rationale equally applicable for the Malaysian insurance markets?
TRY IDENTIFYING AND MANAGING OUR INSURANCE UNDERWRITING CYCLE for more certainty over the longer term.