News has reached me through the grapevine that a certain Lloyd's underwriter is offering some very generous terms and conditions for motor fleet business. My source tells me that, on a sliding scale, the underwriter is willing to give brokers discounts based on their loss ratios.
For example, if the loss ratio is less than 40%, then the lucky broker will get a 10% rate discount on renewal. If it is between 41-50% then it's a 5% discount on renewal. Fair enough but it is when it gets to over 50% losses that the strange calculations start coming in.
Apparently, if the loss ratio is between 66-70% then the rate will be increased by 5% on renewal and if you manage to run a book that racks up a loss ratio of 90%, then you can expect to see a rate increase of a mere 20%.
I don't know about you, but this makes no sense to me whatsoever. Why on earth would an underwriter go anywhere near a book of business that had a 90% loss ratio? Unless the company in question is putting some astronomical rates into the market, then I just don't see how this can work. I'm not an expert by any stretch of the imagination but surely this is essentially encouraging every broker with a poorly performing motor fleet book to, I believe the term is, fill their boots.
I'm absolutely sure that this is not an isolated incident but it is indicative of an industry that sometimes ignores common sense and exhibits some very strange, borderline suicidal, behaviour.
Look, if anyone can explain to me how this is in any way a sensible business model, I'm all ears and I'll be happy to stand corrected on the record. But until then, I'll just have to assume that there are companies out there employing Kamikaze tactics in order to secure growth. Is growth so important that you will risk heavy, heavy losses to secure it? What happened to underwriting for a profit? Does that concept even exist anymore?
Insurance is a great industry and the most human of all the financial services but certain players do it no favours when they behaves like this.
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