Managing the insurance cycle the Lloyd’s way

Can't figure out technical pricing, demand-supply, Risk management, regulatory....

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?


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7 comments for “Managing the insurance cycle the Lloyd’s way

  1. KM
    July 2, 2010 at 18:43

    I like the part concerning remuneration for the underwriters

  2. June 9, 2010 at 00:29

    Today Tuesday, and so glad to find this blog because I have long been interested in this topic, and by the way I found your blog on Google, the phrase insurance journal

  3. jonn
    May 26, 2010 at 15:15

    With lack of discipline and the supply of cover has now outstripped the demand for cover, it is necessary the prices would fall drastically. Thus it makes better sense to be in the right position within the underwriting cycle.

    • May 27, 2010 at 09:36

      with so many players including the takaful ones, it is extremely difficult to be discipline- stay discipline especially in what is perceived as good times, you ended up losing business, but push forward, ended up at the wrong side of the cycle! At the end of the day, this be some form of art rather than some sciences or mathematical assessments.

      • May 28, 2010 at 18:34

        Stay sane and manage portfolio in the most robustic of ways including identifying the sets of KPIs to deal with the future.

    • May 28, 2010 at 18:40

      Question is on how to organise people to be discipline enough! Are organisations disciplined enough?

  4. May 25, 2010 at 23:23

    [New Post] Managing the insurance cycle the Lloyd’s way – via @twitoaster

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