To find the answer to profit in a low interest rate period, the industry needs to look back to what they were doing in 1966 – 1976 (similar period) before the concept of “Cashflow Underwriting” became a reality. Risk Control / Loss Prevention activities were well funded in those days and the companies had fairly large engineering departments staffed with well trained loss prevention engineers who could investigate losses and recommend immediate improvements, consult with clients before the client installed new hazards and report to the u/w regarding untennable situations at the risk (i.e. low values, uncontrolled hazards, etc.) through the process of fairly frequent risk inspections.
Today, If a risk inspection is done, it is often done by the “low bidder” for the inspection business and often results in incomplete inspections & useless reports done under the guise of being “cost effective” (I hate that phrase) and the wind up “filling the file” in case the u/w is audited regarding the use of loss control on an account.
The math should be easy to understand. When you can make a nice u/w profit when interest rates are 4% using adequate degrees of risk control (frequent loss prevntion inspections, valuation calcs, loss investigations, OR, using drastically underfunded loss prevention activities when interest rates are 14 – 15%, companies should be investing somewhere between 5-7% in (increased) loss prevention during the lower interest rate periods.
Today, everybody in the industry is trying to reduce costs rather than actually doing something to improve profit. What % of premium does your company spend on Loss Control / Loss Prevention activities (for the MBA’s in the audience, that’s where profit resides in the insurance game.
To find the answer to profit in a low interest rate period, the industry needs to look back to what they were doing in 1966 – 1976 (similar period) before the concept of “Cashflow Underwriting” became a reality. Risk Control / Loss Prevention activities were well funded in those days and the companies had fairly large engineering departments staffed with well trained loss prevention engineers who could investigate losses and recommend immediate improvements, consult with clients before the client installed new hazards and report to the u/w regarding untennable situations at the risk (i.e. low values, uncontrolled hazards, etc.) through the process of fairly frequent risk inspections.
Today, If a risk inspection is done, it is often done by the “low bidder” for the inspection business and often results in incomplete inspections & useless reports done under the guise of being “cost effective” (I hate that phrase) and the wind up “filling the file” in case the u/w is audited regarding the use of loss control on an account.
The math should be easy to understand. When you can make a nice u/w profit when interest rates are 4% using adequate degrees of risk control (frequent loss prevntion inspections, valuation calcs, loss investigations, OR, using drastically underfunded loss prevention activities when interest rates are 14 – 15%, companies should be investing somewhere between 5-7% in (increased) loss prevention during the lower interest rate periods.
Today, everybody in the industry is trying to reduce costs rather than actually doing something to improve profit. What % of premium does your company spend on Loss Control / Loss Prevention activities (for the MBA’s in the audience, that’s where profit resides in the insurance game.