Stability is the way forward

As direct sales continue to erode broker share in the personal lines motor market, the commercial sector is falling prey to the same expectations for value and downward pressure on price.

The fleet sector, in particular, has been subject to accusations about price undercutting. Instead of fanning the flames of debate, the insurance industry should learn lessons from history and maintain current price stability.

Market conditions during 2001 and 2002 resulted in good margins. While the market threatened to show signs of softening earlier this year, it has now stabilised, and there is solid evidence that fleet rates are rising again.

As so often happens when at the top of the underwriting cycle, however, people have now begun to talk prices down. The industry has spent so long reaching this point that to throw it off course with knee-jerk reactions to hyperbole would be senseless.

The fleet sector has spent the past few years getting back on track. The industry must learn from this and stand firm to create a long-lasting plateau based on strong pricing and underwriting control.

While none of us wants to lose money, the squeeze on stock market returns and dwindling interest rates mean insurers do not have much room for manoeuvre.

There are no spare capital reserves to cushion misguided underwriting decisions. Quality of risk is key to sustainability, as profitability becomes the driving force.

The market has come a long way in improving its pricing and underwriting disciplines during the past year and insurers and intermediaries are starting to produce comprehensive case fact finders. If the industry understands risk exposures better it can reflect them in the terms applied and pricing.

Acquiring new business can lead to lower profit margins but the market must not let this descend into the soft market behaviour that has been so damaging in the past. As long as claims inflation can be kept under control, insurers' current account profitability can be sustained.