JOURNALS

Journal of Insurance Research and Practice

Volume 20 part 1 (January 2005)

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Strategies, size and success in UK long-term insurance companies
By Stephen Diacon, Ken Starkey, Chris O'Brien and Chris Odindo

Abstract

This paper explores the sources of success in UK life insurers. We undertook face-to-face interviews and conducted a questionnaire survey of strategic planning and business development managers in UK life, health and pensions companies in order to find out what factors contribute most to the success of the leading insurers.

We identified a number of companies reported to be successful and considered how success is evaluated. Sales growth and return on equity were most important for proprietary companies, while mutuals looked to performance in customer satisfaction surveys and to sales growth.

For large insurers, a key success factor was broker/independent financial advisors relationships, together with a wide range of distribution mechanisms. For small insurers, a focus on niche market segments was most important, together with financial controls and the quality of senior management.

The report concludes that many different business models within the UK long-term insurance market have the capability to deliver superior performance. However, there is no magic recipe for success.

Large companies have the opportunity to gain advantages from their sheer scale, some opting to build up using a well-known brand and multiple-distribution strategies. However, they might also experience problems particularly if they have grown via merger and acquisition and have to contend with multiple legacy systems and other legacy issues (such as mis-selling).

Similarly, small companies may suffer because of their size, but there were felt to be opportunities for nimble companies that are sufficiently customer-focused to be able to identify and serve niche markets.

The report discusses a variety of factors that are thought to influence performance, efficiency and success including organisation structure, strategic intent and change management.

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Managing international business risk: political, cultural and ethical dimensions: a case study approach
By M Shahid Nawaz and Dr John Hood

Abstract

Like any other private sector company, multinational companies (MNCs) seek to maximise rewards and minimise risks. The risks faced by the MNC are, however, likely to be wider in scope and scale. As part of their strategy for managing these complex risks, MNCs would be expected to have an integrated system of corporate risk management.

This paper will analyse the rationale for a system of integrated risk management for MNCs and investigate the evidence of its existence, ie although the rhetoric for such a system is strong, is the reality less so?

We will look at three distinct types of risk faced by MNCs which do not always fall within conventional risk identification and assessment frameworks. We then analyse three case studies reflecting the nature of political, cultural and ethical risks and discuss how, in two of these, the dangers of not integrating these less commercially-quantifiable risks into an integrated risk management system may seriously undermine the potential rewards flowing from the business endeavour.

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The development of fire underwriting in the UK with particular reference to the period 1960-1995
By Martin Briers

Abstract

For more than 120 years the tariffs, rules and regulations of the Fire Offices Committee (FOC) were a major influence on the conduct of industrial and commercial fire insurance in the UK.

Whilst this paper concentrates particularly on the period from 1960 to 1995, it is necessary to firstly consider how rating developed from the period immediately following the Great Fire of London in 1666.

From 1960 the FOC was subject to various pressures which necessitated the emergency introduction of the surcharge in 1963 followed by the schedule of percentage adjustments the following year. In 1970 the supply of fire insurance in the UK was referred to the Monopolies Commission who produced its report in 1972. At about this time the FOC was attempting to improve its statistics and consideration is given to the ratable factor coding scheme which was introduced.

Whilst tariffs had been in existence from the formation of the FOC, some had not varied to any great extent during the 120 years. The structure of the tariffs is considered with particular reference to the well established hosiery tariff together with the latest tariff which covered the plastics industry.

Finally the opportunities for the introduction of new rating structures following the demise of the FOC in 1985 together with statistics for the period 1990-94 are considered.

The conclusions reached are that:

• the rating methodology which underpins any classification system needs to be radically revised to place less reliance on the trade itself and its individual physical risks and more emphasis on individual risk factors
• the instability which has characterised the post-FOC era will continue its cyclical nature unless the competition dominant culture with its reliance on account underwriting is replaced by a return to individual risk underwriting with the use of investment income to stabilise funds on a long term basis rather than subsidising current inadequate rating levels
• underwriting methodology whilst now being free of the constraints imposed by the tariff system has not adapted to the changed industrial and commercial situation
• more co-operation is required between insurers, market associations and academics to facilitate further research without which progress will not be made towards a more modern and equitable rating system.