With considerable uncertainty over prices and conditions in the commercial insurance market, insurers need to be prepared to walk away when prices fall below a prudent, risk-based premium level, the Lloyd's market advises.
That counsel is contained in the Lloyd's report, "Managing the Insurance Cycle," which contains various recommendations–including providing the right incentives for underwriters, and investing in risk management tools.
Lloyd's cautioned that in the softening market cycle, as prices decline to the point that profits diminish or vanish completely, capital needed to underwrite new business is depleted, and insurers that have not underwritten prudently can lose millions. Besides not following the herd, investing in the latest risk management tools and being smarter with underwriter and manager incentives, the report recommends four other key steps to ensure that the industry becomes less unpredictable.
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