Retiring Execs Reflect On Market

He speculated that service levels are directly related to the profitability of the people that are providing the services.

"In my younger years, insurance companies and brokers made huge amounts of money. If you make loads of money, you can afford to have lots of people working for you to service the claims," said Mr. Bawcutt, who began his career in the London market in the early 1960s and started RIRG in 1986.

Risk managers want fantastic service, but they dont want actually "to allow the people who are providing the service to make any money," Mr. Bawcutt said, noting that this isnt unique to insurance.

"If buyers want the level of service and attention that was available 30 years ago, theyve got to make sure that the people that theyre using actually make reasonable amounts of money," he said.

He also was concerned that companiesinsurance buyersall over the world still fail to understand risk management or make any commitment to it. "Their solutions still remain trying to buy insurance, rather than to do much about [risk] themselves."

This is particularly "daft," he said, because of the financial problems that many insurers have, he said.

The reason that so many companies are having problems is because their underwriters years ago wrote policies on a losses-occurring basis, he said. This meant that "claims could crop up any time into the future and theyd have to pay for them, which is why theyre continually shoring up reserves to deal with claims on policies that expired 30 years ago."

Given the effect that this is having on the insurance industry all over the world, and the number of companies that have gone bust, Mr. Bawcutt, said: "You would think that someone would say, why are we writing policies which could involve us in having to pay claims that we didnt imagine we would have to pay in 30 years time?"

Insurers are still writing policies on an occurrence basis, he said, and risk managers are still buying policies from companies that are doing the same thing that almost has driven them into bankruptcy.

As a result, he said, he wouldnt ever buy shares in insurance companies with long-tailed business.

"None of these lessons are ever learned," he emphasized.

"It would be much more in [the interests of insurers] to issue a 10-year policy," he said. "And from the point of view of the buyers, it makes much more sense to have a 10-year policy." With a limitation on the policy, there is more of a chance that the insurance company is going to be around in 20 years, he emphasized.

Further, Mr. Bawcutt said he was not convinced that the quality of the people going into risk management is as high as it used to be.

"I think the best risk managers come out of the business that theyre innot insurance types," he said. "They have experience of what goes on in the business and also theyve got more credibility with the people theyre trying to persuade to do things."

Mr. Gilchrist also pontificated over the lessons he has learned in his career, concluding that success as an underwriter comes from "long-term good planning and well-trained people."

"This is a long-term business and you have to think long term–and your reactions and actions have to be long term," he said.

Mr. Gilchrist entered the London insurance market as a broker in 1963 and then joined R.J. Kiln in 1967, where he became an underwriter and eventually chief executive.

Mr. Gilchrist said the figures for Lloyds in 1998-2000 show short-term thinking at work, although this wasnt unique to Lloyds alone. "Expanding rapidly into a falling market is likely to lead to some rather uncomfortable results," he said.

If rates are falling, "you reduce your exposure. You dont increase it," he said, noting that short-term thinking is demonstrated clearly in the figures, he said

He quoted an American saying that he believes applies well to the insurance industry: "When the tide is in, you go fishing and when the tide is out, you cut bait."

When the tide goes out, he said, "you might keep a few lines in the water to keep yourself going, but on the whole, youre cutting bait." He noted that Kiln cut its capacity for two years running during the recent soft market.

Its very important for Lloyds and other companies in the industry to have senior management focused "on the long-term welfare of the individual business" being managed. And, he emphasized, its important that a strong business ethos is passed down from the senior people to the younger people in the company.

It is very important for management to set the scene for the younger people down the line, he said. With training and discipline, when they move into positions of responsibility, they will quickly decide that a better long-term plan would be to avoid expansion during a soft market, Mr. Gilchrist added.

"Its very difficult to do it, particularly if you get masters from other parts of the world who are saying, We want top line growth and you should be making more profits," he said.

In the end, a successful market is reliant on its people, he said. "You have to attract good, quality people. Then you have to train, train, train, train them. You have to create an atmosphere of diligence and attention to what youre doing."

"You have to have, firstly, the commercial aptitude and obviously the intelligence. And then its a combination of education and training that actually gives you the right product," he said.

Mr. Gilchrist said there is no such thing as a brilliant underwriter or broker. "Its just somebody as an individual whos been properly trained and is diligent and attentive," he said. "Bad results usually come from lack of attention to detail."

Quoting his businessman grandfather, Mr. Gilchrist said: "Be diligent in your business and your money will come."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 1, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.