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Will discipline in underwriting insurance survive long in 2009?

Many general insurers in the last few months of 2008 professed market discipline in premium rates.

QBE Insurance, as reported here previously, actually came out with the rate increase range it would be setting in its policies across the board. Others have not made any public pronouncements but are making their approaches to and through insurance brokers. Underwriting agencies, in which group Australia is a world leader, are doing the same. Rates offers are varying already on the personal contact approach.

However, the pressure on all insurance sectors general, life and health, to stay solvent in the gloom and doom of 2009 presaged by so many seers, must force premium rates and charges upward.

If they don’t stay solvent then all the government agencies are down on them – APRA, ASIC, ACC, ACCC and the private authority ASX, and investors if they are listed.

In general insurance for instance, if insurers do not maintain income the industry will not be able to keep up the $86 million a year it pays out for claims.

Life insurance will suffer as an investment opportunity and a wealth protector. Health insurance already has risen – and its rises are almost always granted by government – despite grumbles.

While the seers forecast unemployment as high as 8 per cent by the end of 2009, although government does not believe it will go that high, and that consumer and corporate expenditure will reduce, general insurance will be fighting as hard as it can to maintain premium income.

Led by the urging of the Insurance Council of Australia, the general insurers’ main body, each section will be endeavouring to convince society to keep protecting itself.

Indeed, one of Australia’s largest insurance broking groups, OAMPS Insurance Brokers, a Wesfarmers Company, issues a media release appeal directed to SMEs on Christmas Eve to ensure they complete an insurance check in the lead up to the New Year.

OAMPS was tagging on the Insurance Council’s revelation that 26 per cent of Australian SMEs enterprises do not have any form of general insurance.

OAMPS Insurance Brokers Head of Strategy and Development, David Wyner, said: “It’s tempting in these challenging economic times to dismiss insurance as an added expense, or to get caught up in the Christmas rush and forget about the detail, but it really is protection for your business’ future.

“A major business disruption can put your entire livelihood in jeopardy – and starting the New Year off recovering from a major interruption to your business won’t be much fun”.

Hard to argue with that – but it is also hard to maintain insurance cover when premiums are bound to go up and income and employment is bound to go down.

The insurers who come up with the most conducive insurance offers will be in the best position for longevity.

Those that chase market share hell for leather – like HIH before its collapse – will do just that and no one wins.