Risk managers will any increase in the cost of insurance

Risk managers will ‘resist as far as market forces will allow’ any increase in the cost of insurance, because the extra cost would damage their businesses, John Hurrell, chief executive of AIRMIC, told representatives of the London market at a briefing for the International Underwriting Association (IUA) on 24 March.

Hurrell said AIRMIC members understand why the market was likely to make a correction in pricing during the next six to 12 months, but members could not simply absorb the increase in expense. It would inevitably mean cost cutting in other parts of their business, and would be likely to include the possibility of having to make redundancies.

He called on underwriters to use their improved ability to analyse data and manage their exposures when the market turned. ‘I urge the market to focus on differentiating itself by distinguishing between well managed and less well managed risks, and thus to avoid what we have seen in the past, which was across-the-board increases.”

Hurrell’s message to the insurance market was a mixture of praise for its achievements and pointers to aspects that continue to trouble AIRMIC members.

‘Virtually all insurance contracts are now delivered on time, which is a terrific achievement,’ he said.

Claims, however, were a perennial issue. ‘They are absolutely the issue that defines an effective insurance product and what will distinguish between effective and ineffective insurance.’ AIRMIC had developed a protocol with the market over the reservation of rights by insurers on major claims, but speed of settlement had now become a concern.

‘This was less important a year ago, as banks would provide bridging finance, but this is no longer the case in many instances. Insurance is now front and centre in the ability of a business to recover,’ he said.

AIRMIC is talking with its partners and the Chartered Institute of Loss Adjusters about a protocol that would protect a business’s cash flow in case of major loss. ‘There are many instances where insurers say – we do that. But we haven’t got a protocol or transparency.’

One issue now generally resolved, said Hurrell, was that of commission for brokers. The majority of AIRMIC members said they now got automatic disclosure from their

brokers, and those who did not get voluntary disclosure got the information on request and made sure they asked for it.

Slides of Hurrell’s briefing are available on the AIRMIC website.