Everything counts

Hiscox News on why proper pricing is crucial not only for the industry’s reputation, but also for its very survival

When Quinn Insurance went into administration at the end of March, it sent shockwaves through the industry. But it isn’t the only insurer to fall prey to market pressures that were the result of too many players trying to deploy too much capital. Within the high net worth market, it’s been a problem for years, compounded by the fact that the cost of the average claim is rising.

Steve Langan, Hiscox UK Managing Director comments “one of the worse things a retail insurer could do is charge too little for too long for their products. If an insurer chooses to go down this route as a long term strategy the company will go under and it’s always a matter of when not if.”

Quinn’s fate is a timely reminder of the dangers of underpricing. But rather than waiting for some external catalyst that’s going to turn the market, the industry is going to have to take a deep breath, step forward and get pricing back to a level that is both sustainable and that allows us to provide a good product and good service.

Pricing matters
Why is the pricing issue so important? With the UK economy still not out of the danger zone, the threat of a soft market during a recession looms. But there is a wider issue at stake here: that of the reputation of the insurance industry as a whole.

However much insurers demonstrate their value, whether through the day-to-day service they provide to household and commercial clients or perseverance in the face of a catastrophe such as Hurricane Katrina or the collapse of Enron, insurance is still seen as something that exists only in the context of bad news.

Sadly, the industry itself is partly responsible for perpetuating the commoditisation and devaluing of what it does. The myopic focus on price, rather than value, means that some insurers cut their offering and service in order to gain market share or to simply break even. This does little to promote the positive role that insurance plays and is hardly a sustainable business model in today’s shaky financial climate.

The bottom line is that the industry’s reputation has suffered for too long and it’s time to reclaim it. Not only does the insurance industry play a protective role, it also enables entrepreneurs and risk-takers to create wealth and opportunities. The cut-price insurers simply do not have the time or money to offer the kind of expertise and care that they could if their pricing were more realistic.

Steve Langan, comments “adequate pricing backed by a strong capital base is the only way for the general insurance market to go. For us, this, combined with great underwriting, our strong brand and excellent customer service gives us a great offering in the market place.”

While the reputation of the financial services sector has been tarnished beyond recognition during this recession, the insurance industry has, on the whole, been a beacon of responsibility, quietly getting on with the job of supporting businesses and homeowners. It should be recognised for this, but it depends on the industry working together to get pricing back to sustainable levels – and on us not being afraid to shout about the good work that we do.