Insurers showing a poor spread of risk premium, broker tells CIP Symposium

The contention that “strong” premium growth is a feature of the current soft market is laughable because the industry is currently seeing a poor spread of risk premium, Fred De Francesco of Fairview Insurance Brokers told the CIP Society’s Symposium 2008 in Toronto.
De Francesco said the industry has spent too much time chasing after the best class of risk premiums, tailoring their underwriting to attract this specific class. The result has been a ‘cookie-cutter’ style of underwriting that focuses too much on attracting what is ultimately a minority share of insurers’ total business portfolios.
Speaking about the auto product in particular, De Francesco said insurers have not demonstrated much underwriting innovation in the attempt to expand their business portfolios to different classes of risk premium. He joked that the last new product to hit the auto insurance market was “the horse and buggy.”
Since underwriters have become fixated on writing only common classes of business, classes perceived to be ‘sure things,’ they have imbalanced portfolios as a result, De Francesco said.
The consequence is a poor spread of risk premiums, which will make insurers vulnerable to rising claims costs. “Claims don’t soften” with the premium pricing, De Francesco noted, adding the claims costs are always rising independent of whether premium rates in an insurer’s book of business are set too low.
“The majority, under-priced portfolio cannot sustain long-term profitability without a balanced, higher-priced equal portfolio of business,” De Francesco noted in a slide shown at his presentation.
Hence, De Francesco called on insurers to start underwriting more innovative products.