Comments on premium rates show the dangers of underpricing in the market

Tony Cornell makes some valid and highly pertinent comments about the nature of the market today ('Vantage Points', Professional Broking, February 2006).

Premium rates have risen a lot in recent years. However, this has been the case because of underpricing over much of the 1990s, coupled with major market events, such as the 11 September attacks.

While there may be some price correction going on in rates, long-term discounts of the magnitude he describes - namely of up to 30% - are, simply, unsustainable.

Insurers have had to take into account year-on-year claims inflation - running at up to 10% in the liability market - and increased reinsurance costs, particularly following hurricane season.

For those insurers who are more forward thinking, the practice of heavy discounting in order to obtain market share from their competitors is not a viable strategy.

In liability, for example, caution is needed when setting the price, as the long-tail nature of the risk is notoriously difficult to cost.

The discounting levels Cornell mentions do nothing for the reputation of our industry.

Conversely, more disciplined pricing leads to a less volatile market, and fewer shocks at renewal time for our customers.

Cornell mentions terrorism has been excluded. In fact terrorism cover is available on commercial property business, for 'all risks' cover including nuclear, and provided for the legal minimum cover on most other products.

John Seaton, Underwriting director,

Norwich Union.