Pillars of Market Discipline

Discipline is at the heart of the insurance industry. A pretty simple statement, I realize. But without discipline – in a number of areas, not solely around price – the very stability of the industry could be questioned. When I step back and think about what discipline means to insurance companies, it defines our core capabilities. Ensuring technical mastery in underwriting, actuarial and claims is fundamental to our business. It is our responsibility to ensure that we are charging customers the right price for their risk. We must ensure that as a company we are able to manage our portfolio, and we need to effectively manage our claims process, thus fulfilling our promise to the customer.

I’m often asked whether I think the industry has heeded the lessons we learned in the last cycle. Are we keeping our promise to maintain our discipline and not to deliver irrational terms and conditions? The answer is yes. I do believe that for the most part insurers are resisting the temptation to revert to the old habits. Based on what I am hearing from underwriters on the front lines, as well as from our sales force and our broker partners, we aren’t seeing the wild fluctuations that we were seeing a few years ago. Many industry analysts have said that there is a distinct softening on the commercial side, particularly on property, which is putting pressure on pricing. In a well-functioning, competitive marketplace there will always be some fluctuation in prices. But underwriters know it is okay to walk away from business that doesn’t fit an insurer’s appetite, or if the terms and conditions aren’t acceptable.

PILLARS OF DISCIPLINE

Three key pillars of discipline – underwriting, claims and actuarial – are the cornerstones of success. Getting those core competencies right – and excelling – is what companies base their reputation on here in Canada and globally.

Underwriters are highly specialized; they hold certifications and designations, such as engineering, that go well beyond the traditional insurance qualifications. I view underwriting, claims and actuaries as the engine that keeps the company going. Sales tend to get the spotlight, but without a strong technical platform, it’s difficult to respond to the changing needs of the customer. Focusing on technical expertise in these three pillars allows insurers to understand how to win in the marketplace – and develop the products and services that will work. Specialized underwriters are able to see demand in the market and develop the right solutions to win.

INVESTING IN CORE COMPETENCIES

Investing in core competencies is how companies differentiate themselves in the marketplace. Royal & SunAlliance, for example, has established a number of training programs both locally and globally. In Canada, we are the only insurer with a “bricks-and-mortar,” comprehensive National Learning Centre in Dartmouth, Nova Scotia. The centre is dedicated to developing technical commercial underwriters, both novices and veterans, and we are leveraging that expertise to provide training to claims professionals. Globally, we participate in the Technical Academy. The program was designed to strengthen technical mastery in claims, underwriting and actuarial, by sharing information around the world and promoting learning and best practices. The academy will enhance technical knowledge to better serve brokers to help grow the business and customers.

BENEFITS OF TECHNICAL MASTERY

In order to win in the market, and add value for brokers and their customers, I believe insurers must understand their customers’ businesses and provide a customized solution that meets specific needs. Investing in technical excellence allows us to challenge the traditional ways we do business to win.

Insurers should be able to rely on their underwriters to understand the customers’ needs, and develop solutions that articulate both the traditional risks as well as the non-traditional risks as business continues to evolve. For example, last year, Royal & SunAlliance launched ClearSky Solutions for wind energy, which relied heavily on the expertise of our underwriters and engineers to understand the unique risks associated to wind farms and how to insure that risk. Our underwriting specialists and loss control experts have extensive experience in power generation and wind farms; they understand the risks, including the cost of downtime. An insurer’s commercial proposition should be built on being able to support our brokers in understanding the needs of customers, the particular risks inherent in their individual businesses and providing a solution that addresses those risks.

As insurers and brokers compete for market share, it becomes increasingly important that we differentiate ourselves and hone our competitive advantage. As an industry, we must challenge our traditional approach of managing risk and underwriting. That’s why technical expertise and discipline are important: they are the foundation that allows us to grow – and to win.