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Nathan Golia
Nathan Golia
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Can Insurers Maintain Underwriting Discipline?

2013 was a very strong year for P&C insurers, but some question the ability of the industry to maintain best practices.

What a difference two years makes: After the 2012 Property/Casualty Joint Industry Forum, "underwriting discipline" was the watchword. But this year, insurance CEOs were singing a slightly different tune.

"I look at 2013 and I think it was a terrific year. P&C rates were up all over the world, investment performance was high, and CATs were low," said Marsh & McLennan CEO Daniel Glaser. "But while everyone talks about disciplined underwriting, people aren't able to sustain it."

Glaser was referring to a remark made by Barclays insurance analyst Jay Gelb in an earlier session. 2013 was "a great underwriting year" for the industry, Gelb said. Yet entering this year, there are "signs of less underwriting discipline out there."

Looking for an opinion from outside the room, I asked Duane Heady, COO of Imperial Management Corporation, if he agreed with the assessment of his peers.

"The temptation is there [to loosen standards] because we had a great underwriting year in 2013," Heady says. "It's like, one good year and we forget the past five. All these small details add up to the difference between companies that are profitable and not profitable."

But savvy insurers can see signs that the quiet year of 2013 isn't the norm, said General Re CEO Franklin Montross.

"When you're looking at this benign trend perspective, it can be very difficult for the industry to assess [peril]," he noted. "But we still saw very significant events around the world. The Boulder flooding was a thousand-year event. Hailstorms in Germany were concentrated, but similar. And there was Typhoon Haiyan, which was only a couple hundred miles away from being an even worse event than it was."

What do you think? Can insurers stick to what works and keep the good momentum in the industry going? Or will the white-hot competition in the space lead to compromises in order to spur growth?

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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Nathan Golia
Nathan Golia,
User Rank: Author
1/24/2014 | 8:31:27 PM
re: Can Insurers Maintain Underwriting Discipline?
Right, the either/or thing is saddening. At a time when companies have access to historical and predictive data like never before, it's unfortunate to see that they're not leveraging it to its fullest potential.
User Rank: Author
1/18/2014 | 2:11:29 AM
re: Can Insurers Maintain Underwriting Discipline?
The pendulum is a common feature of most industries/businesses, and insurance is no different. Conventional wisdom & best practices swing back and forth -- centralization/decentralization, bricks & mortars & live people/cyber-digital, global/local, growth/scale back, etc.Different strategies make different sense at different times. The problem is there never is any middle ground -- it's always either/or. While stronger market conditions may reasonably allow for somewhat more flexibility or aggressiveness, that's no reason to relinquish underwriting discipline -- especially when today analytics & modeling tools give insurers so much better capabilities for identifying and understanding risk. Another possible consequence of letting up on underwriting discipline is the prospect of tech-enabled, non-traditional competitors with underwriting prowess entering the market & doing the job better -- as experts such as Novarica's Matt Josefowicz have predicted.
User Rank: Author
1/17/2014 | 2:43:45 PM
re: Can Insurers Maintain Underwriting Discipline?
Interesting that after one solid year, "underwriting discipline" may go by the wayside. I understand the need to loosen standards as a way to compete, but some restraint must be exercised.
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