Cultivating a Healthy Insurance Market

BACKGROUND

How do we prevent undercutting in the insurance market and instead promote a healthy and growing insurance industry.

How do we avoid a price war where insurance companies hemorrhage capital in order to retain existing market share without resorting to collusion or price fixing (apart from tariffs)?

An article highlights the current weaknesses in the London’ insurance market and provides potential opportunities for market growth. Below are some key points extracted from the article.

Link to article below:-

www.theactuary.com/news/2015/01/we-must-fight-for-our-base-in-london-says-crown-representative-for-insurance


WEAKNESS & GAPS IN THE INDUSTRY

Several threats face by insurers in the London market are a “lack of growth, surplus capital, other competing hubs, competition from local insurers and London’s “adversarial” regulatory environments."

1.CAPITAL SURPLUS

When prices are being driven down, businesses with surplus capital especially in reinsurance sectors spends too much expense (administrative, marketing costs, claims payments) going after less premiums earned.

2.REGULATORS AND MARKET ENVIRONMENT

The article touched on regulatory environments and commented that “If you want to set up in Bermuda, you are offered lunch with the regulator and you are set up in a few weeks. That is not always the case in London."

High level of bureaucracy with regulators and adversary among the players in the London Market helps regulate the industry with management being cautious in business decisions but this creates a down side of slower new product launches and hinders new business setups.


3.UNDERWRITING CAPABILITIES

On the subject of underwriting capabilities, the article stresses the quality of underwriting especially analytics and modeling expertise as absolute fundamentals.

Underwriters make business decisions purely on historical data and old practices (using same rates & clauses years ago) when there is insufficient pricing models in placed. A good insurance market should ideally have pricing models with detailed business segment portfolio reporting capabilities to accurately price the risks.The level of details depends on the complexity of the risks involved.

CONCLUSION

The article concludes with a finding based on interviews with more than 120 market participants revealing that customers preferred buying insurance in their local market or region where underwriting expertise was available locally.

In my opinion this could be interpreted as customers preferring local underwriters who are more flexible & relaxed in the underwriting approval processes granting easier and faster approval.