View from the Top: Desperate measures

I haven't met too many people this year eulogising about what a fantastic time we all had in 2012 in the commercial lines market.

Or about how much easier the sector has become in 2013. Or even having any great confidence about when we are going to see the rates insurers need and the commission or fees  brokers need to make the returns shareholders or owners expect.

There’s no respite for brokers. Customers are becoming increasingly demanding, driven by a genuine need to contain costs and the societal trends of commodity purchase and price comparison. Insurers are looking at every lever to improve results, whether selection, pricing, expenses, or commissions. This is not surprising, but what is bizarre is the trend for introducing further capacity into a market where returns on equity are in single digits.

Until there is tighter governance around some of the capital provided to the market then there will be a few lemmings jumping off the cliff – it’s easy to convince yourself that you’re the one able to buck the market when there is insufficient governance to moderate such behaviour. This leaves brokers in the middle of a fiscal vice. But it doesn’t excuse bad behaviour.

We are seeing ‘silent exercises’ and ‘conceptual proposals’ becoming a tactic of choice for some (we used to call it desk topping); panic marketing of too many risks, which increases costs to the broker and ultimately the customer; ever increasing use of some bizarre markets, just to offer the lowest price; and some broker fees to attract new business that are less than half of what’s needed to do the job properly.

It’s not easy to be a broker in the current market, and the bad behaviours are a reaction to customer desperation and some insurers’ failure to control their businesses with sufficient rigour. They may even help alleviate the pressure and massage results for a while – but they are no long-term solution. Success in the long term lies in what is lazily called customer focus, and it needs proper definition in order to become a reality.

This includes value over price, advice over direction, service over handling, hard graft over the easy option and transparency and integrity over sharp practices.
That’s easy for an insurer to say, but it’s our job to support and help brokers to live up to these values – providing solutions, expertise and understanding of pricing to enable them to feel confident and professional in front of the customer.

Dave Smith
Managing director of commercial lines, Zurich

This article was published in the 2 May edition of Post