Insurer's market experiment reveals 'worrying' trend
Groupama's managing director has warned that lack of underwriting discipline will damage the long-term profitability of commercial lines insurers.
François-Xavier Boisseau said that the market was in a "dangerous downward spiral" as underwriters slashed rates to reach "top line targets".
Speaking to Insurance Times, Boisseau said Groupama had recently conducted an experiment on its quote for larger commercial risks.
He said the insurer dropped its rates 35% below the technical price to see the holding insurer's reaction. "The holding insurer dropped its price to defend its book [of business] at all costs," he said.
"This behaviour is worrying. We are seeing stupid pricing, which is damaging and difficult to explain to the customer. The commercial market is heading for trouble," he warned.
In recent months, there been fierce competition among commercial insurers for new business, particularly for larger property risks. In some instances rate reductions of 40% have been reported.
Boisseau defended Groupama's underwriting, saying that the company did not have to slash rates to achieve the 50% increase in commercial lines revenues for the first six months of 2005.
He said Groupama's main market was small commercial business. "This is less competitive. We didn't have to change our pricing stance." Groupama's commercial lines GWP grew to £34.1m for the second quarter of 2005, up from £22.7m in the second quarter last year.
