Efforts at Zurich to be more disciplined in its underwriting have been undermined by a poorer claims ratio

Zurich’s first-quarter UK general insurance results show the number of challenges and crosswinds insurers face in today’s tough conditions.

The company’s more stringent underwriting is continuing to erode its premium income, yet improvements were not seen in the combined operating ratio this quarter.

First quarter underwriting performance at insurers in general could be expected to be better this year because of a lighter burden of severe winter weather claims. Benefits should also come from more disciplined underwriting. However, in Zurich’s case, a 3.2 percentage point improvement in the loss ratio was wiped out by a 3.4 point deterioration in the expense ratio, thanks to increased pension expenses and commissions.

The effects of these items would probably have been less pronounced if the company was writing more premium.

It seems that just when insurers get one portion of their combined ratio in check, something else pops up to confound them. Zurich is not alone. Take Direct Line Group’s recent example. The company has done sterling work taking risk out of its book, but various one-off costs and adjustments continue to push up its expense ratio and keep its combined ratio stubbornly above 100%.

Zurich has recently revealed plans to cut up to 400 jobs in its personal lines division, which should improve the expense ratio. However, this will take time to filter through and by then who knows what new challenges the industry and Zurich will be up against.

It is also bears repeating that one quarter’s results are a poor proxy for overall performance. A much clearer picture will be seen by the end of the year.

Commercial lines needs Watchdog-style expose

The news broke today that Towergate Underwriting has bought the book of business of SSP’s Keychoice Underwriting, after the business had “struggled to achieve the scale” it needed. Keychoice managing director Jonathan Davey said that dual pricing was a large part of the reasoning behind the deal.

The issue is particularly pressing for brokers and MGAs alike. Many commercial lines rates are incredibly competitive anyway, and when this issue is compounded by dual pricing and stiff competition, many intermediaries find their margins increasingly squeezed.

The Watchdog programme singled out motor insurance dual pricing for criticism last month and both Admiral and Swiftcover said they would review the practice.

Consumer groups such as Watchdog are unlikely to ever look at commercial lines insurance, but I bet there are a lot of intermediaries out there wishing that they would. Is dual pricing here to stay, and what will stamp it out?

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