Why we should stay a cut above the rest

We are trading in exceptionally difficult times that probably none of us – or any of our customers – has experienced before.

Confidence in the financial services industry has been shattered. But while the banking and life sectors have been badly hit, general insurance has been relatively unscathed. Unlike many industries, our customers have little choice but to buy insurance cover and, indeed, may need to purchase more because of the poor economic and social climate.

Most will stay in business through the recession. Turnover, wages and values may go down, but that reduces exposure which should help us carry our rate increases.

But we can learn important lessons from the other sectors of the financial services industry, such as the need to drive up our levels of integrity, competency, professionalism and risk control.

The professional integrity and competence of our industry will come under the spotlight during these difficult times, so we need the best in knowledge and experience. If we allow another round of blood-letting to reduce expenses, we could be doing ourselves and our customers a great disservice. It is crazy to let go of our most experienced people even if they are more expensive and do not fit into a slimmed-down structure.

Downsizing and downskilling in a recession could be fatal for some insurers as their greatest risk is in claims costs, not expenses.

In the past few years, most of the general insurance industry has been investing time and money in distribution strategies and consolidation. I believe this time and finance could and should have been better spent investing in people and in the reputation of the industry.

We need to build customer confidence in us so we are around long enough to pay their claims. We can best do this by ensuring that rates are at levels that will ensure satisfactory profits.

Insurers chasing growth or distribution over profit now have an impossible balancing act as we are in the fifth year of a soft market and facing an increase in losses from recession.

Customers want to know their insurer has a good capital base and will be there in their “moment of truth” (an Allianz mantra). I never thought I’d say it, but I think “boringly safe and secure” may be the new “sexy”.

Aligned with ensuring strong solvency and professionalism, we must demonstrate our competency to our customers by helping them to manage their risks better.

We used to be good at offering advice, ideas and plans about what clients could do to mitigate their risks, but it’s an area that I fear we are starting to neglect, especially in the small and medium-sized enterprise (SME) sector. Perhaps because some brokers and insurers have consolidated their offering and cut out local face-to-face contact.

Some of us are trying to do something about it. I am currently chairman of the Risc Authority, which is working on 72 projects to mitigate fire risks and improve safety. At a recent seminar in London we announced the launch of ROBUST, a software toolkit for the production and management of effective business continuity that is free to all small and medium-sized businesses. Our research shows that eight out of 10 SMEs that have a serious fire will not recover; ROBUST will be a powerful tool in risk reduction.

Our own “internal” risk strategies are equally important. Those of us in general insurance have seen our risk controls stand us in better stead than those in banking. Assessing risk is what we do day in, day out, so I guess we should be pretty good at it.

The considerations I have mentioned – having quality employees and having a strong capital base – cannot be stressed enough if we are to demonstrate that we are a competent and professional industry.

One final point: as we navigate out of this storm, we need to take advantage of the poorer reputation of other industries to attract new talent.

Sandy Scott, director-general of the Chartered Insurance Institute, recently forecast that the banking collapse would lead to more graduates being drawn to a career in insurance. He rightly claims that, with some timely effort on our part, we could attract talented individuals who previously would have looked to banking.

If we can manage to grasp that opportunity, this could be a transformational moment for our business.