Know your exposures before you talk price

The re/insurance industry should never talk about pricing without first thoroughly understanding its exposures, Suki Basi, managing director of Russell Group, told Baden-Baden Today.

Basi explained that the industry must learn from some of the recent events and capture what otherwise had not been captured.

“If you look at Hurricane Harvey for example, there was a huge spike in motor claims, as many cars had been flooded. In a big cat loss no-one would actually expect for there to have been a big motor loss,” he said.

“The industry is writing the business. Surely the industry must know what percentage of motor business is transacted. That points to information that is lost within an enterprise, because business is lost in silos.

“The cat silo doesn’t ask the motor silo ‘how much you have written in this space?’. Maybe it should—the whole thing is connected anyway.”

Basi believes it is a good climate from his perspective as people are starting to question their exposures and attempting to understand their numbers more. They want more transparency and detail.

Market participants are starting to talk more about their exposures and are having in-depth discussions about pricing, and reinsurers are starting to convince others that pricing levels are not adequate, Basi stated.

He also stressed the importance of understanding the relationship between exposure, price and capital utilisation.

“For every dollar of exposure I am taking, what is the effect on my margin of capital, and what is the effect on price?

Sometimes, I may actually want to diversify. I’m still using the same capital,” he said.

“Even in the current soft marketplace, the clever people are writing profitable lines of business.”

In the past, Basi suggested, people wrote loss of specialty on the back of cat in order to diversify away from it, which he believes is becoming more commoditised.

“A lot of people are writing specialty now, which unfortunately drove the pricing down. That was true then, but even now you can switch between D&O and E&O, for example.

“That level of concentration of the portfolio into different types of risk is a lot of what is going on and what people have been using to gain profitability in the soft market.

“As things harden, we would still like to have that similar discipline but at the right pricing level,” he concluded.

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