Is the Underwriter ready for a hard market?

Did I read that title correctly? Hard Market? Is it on its way? Hallelujah!

The soft versus hard insurance market as a model was probably always an over-simplification and after years and years of very competitive market conditions, large amounts of capacity and low prices, some in the industry say that the insurance cycle has gone. Change in the market, however, is ever present and one of the most interesting aspects of the insurance cycle model is its emphasis on two speeds – slow decline in prices year by year during a softening market, followed by rapid correction in prices or hardening.

Ask underwriters today, with competition as great as ever for most classes of insurance and most business, they will laugh at the general notion that the market is hardening. Yet, whether it is hardening or not within the market, we have seen of late quick corrections and changes within specific insurance classes and segments, for example:-

  •  – Ogden causing price increases in motor and liability classes
  •  – The 2017 Hurricane season impacting on Property Catastrophe
  •  – IFAs struggling to obtain suitable cover for professional indemnity
  •  – Water damage claims (leaking pipes) impacting home insurance even before the effects of “the Beast from the East” and big thaw (burst pipes) in March.

From a training and capability development view the most interesting question is not have we got a hardening market, but:

“What does the underwriter need for a rapidly changing market?”

And then as a subsidiary question

“Are we meeting these needs by developing their skills, knowledge and capability?”

What does an Underwriter need for a rapidly changing market?

  • – A clearly defined underwriting strategy to implement and follow
  • – Market awareness – of competitors, brokers and customer segments
  • – Product knowledge
  • – Pricing expertise
  • – Negotiation, sales and relationship management skills
  • – Portfolio management skills.

So taking an example – the underwriter has a large (six figure premium) Employers and Public/Products Liability renewal to underwrite, with significant claims history and plenty of potential for large and increased claims awards under revised Ogden.

  • – What is the company strategy, is the risk within appetite, what are the financial targets?
  • – Who is the broker, what is their approach, how do they support us?
  • – Will the risk be marketed, who are the competitors, how attractive is the risk to others?
  • – How good is the wording, what is the breadth of cover, is the limit and excess suitable?
  • – What is the rating strength, are we covering all the components of cost such as claims, expenses, large losses, reinsurance, cost of capital, etc?
  • – What is the right price, minimum price, preferred price?
  • – What are the benefits other than price, how should it be negotiated, what’s on the table?
  • – What’s the wider relationship, connected business, cross-sell opportunity?
  • – How does this case affect the portfolio or business segment?
  • – What are the tactics, how do we win, what does success look like?

These are just some of the questions that the underwriter is required to consider and answer to be able to handle successfully this renewal within a rapidly changing market. The subsidiary question was

“Are we meeting these underwriter needs (that is those required to operate in a rapidly changing market) by developing their skills, knowledge and capability?”

To handle successfully the liability example above through covering off all the questions and potentially many more, takes a comprehensive set of capabilities and skills – what could be called Trading Skills for Underwriters.

Trading Skills for Underwriters

Yes underwriters need to understand risk perception, quality features, policy coverage, pricing models and be skilled at applying them to renewal and new business cases, but the best underwriters and the ones that adapt fastest to the rapidly changing market are those with the wider perspective and with a more holistic approach – i.e. they have highly developed trading skills.

What are these skills and attributes? Well, for example, they would include the following:-

  • In depth understanding of corporate and underwriting strategy
  • Full knowledge of the marketplace – including broker and competitor knowledge
  • Ability to build, maintain and leverage business relationships
  • Negotiation and sales skills
  • The ability to prioritise in the development of business
  • Portfolio analysis
  • A comprehensive understanding of the insurance price
  • Positive behaviours.

Trading Skills – What next?

Are insurers preparing for a hard market, or to put the same thing more realistically, are they investing in training their underwriters for rapidly changing market conditions?

In the last year or two we have seen a couple of insurers investing in such trading skills training programmes, whilst others seem to do little in this area, preferring instead to concentrate on underwriting and class of insurance basics. We are really interested in finding out more about this.

We will be designing a simple on-line survey to ask for specific views on investment in Trading Skills across a wide underwriting and management community. In addition please let us have any comments by using the contact details below.

At MAP Training we have considerable experience in the development of technical competence in insurance – in risk assessment, in pricing, in trading and sales skills and in building structured programmes for underwriters (and other insurance roles).

If you want to discuss this or anything else in this article please do get in touch.


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