NZI EGM Travis Atkinson asks the industry to question whether continuing to slash huge chunks off premium rates is not only undermining the industry’s reputation, but also undervaluing its entire purpose, in this candid opinion piece.
OPINION: I love working in our industry. I would have to say that insurance must be one of the most optimistic businesses in the world. I think that insurers are certainly much more optimistic than our customers. Our whole business is based on betting on our customers’ good fortune while they bet on their own bad luck.
As an insurer I embrace risk and our role in facilitating our customers’ ability to take risk. No risk, no reward. I think it’s also fair to say that risk is not going away any time soon, in fact for many occupations it’s increasing.
We often talk about the balance between science and art when describing the underwriting of risk, and at times this is true. However, insurance is essentially about getting the right rate for the exposure presented and the uncertainty that exists.
That’s why it continues to surprise me when I see examples of pricing that is clearly not relevant to the risk at all. Perhaps it’s based on the last couple of good years of a particular risk, or the science and art combo. Whatever the case, dropping 20 or 30 points off expiring terms when little else has changed does not seem to add up at all.
So, why then, as an industry do we continue to undervalue what we do by dropping rates as I’ve just described. We play such an important part in the economic prosperity of the country but I’m sure our behaviour must undermine our reputation.
Of course part of the answer may well lie in the forces of supply and demand in the market we operate in, and the global interest rate environment we are currently contending with.
Regardless, NZI’s position is quite clear. We have always looked to support our partners and clients but at the same time maintain disciplines around understanding and pricing appropriately for risk. This is to ensure that we provide viable offerings for our customers while still remaining competitive so we’re around for the long term.
This is particularly relevant in the commercial property market space where we’ve all seen considerable change. In many cases premiums have reverted to those in place prior to the Canterbury earthquakes or even lower.
As an organisation, our view in respect to Wellington for example, is that further reductions in earthquake rates are not sustainable. In a number of segments and in certain sectors, price increases are required.
My message to the NZI team has been fairly simple, “being unsustainable is just not good business”. Our goal is to behave in a smart manner, work really closely with our brokers and customers, get the right price for the risk and furthermore, decline business that is unsustainable.
We’ve all seen our fair share of events over the years. And, it’s at times like these the light gets shone on the consequences of having the right cover with a sustainable insurer.
It’s interesting to put some context on the fact that globally we are seeing a very benign period of natural disasters. I read recently it’s been nearly 10 years since a hurricane has made landfall in Florida, the longest period in over a hundred years. Food for thought when you think about what may lie ahead.
At the end of the day, it’s paramount that customers are aware of, and understand, just what they are covered for, and select the right insurance solutions to meet their needs by taking on the advice of a broker. We see everyday examples of that advice being far beyond just the cheapest price. Price will get you what you pay for. There’s a lot more to an insurance policy than price, and this can ultimately have a fundamental impact on a customer’s assets and their ability to financially recover from a major event.
NZI will continue to have a single focus and that is to help brokers deliver the best possible product offerings and services to their clients. What we won’t be doing, is facilitating further premium reductions and pricing that isn’t aligned to the risk at play, and the uncertainty that the future inevitably brings.
