30 POLICY Special edition 2023 How to Gain Profitability? By Rachel Maoz, Corporate & Business Account Department Manager, non-life division, Migdal Insurance company Selling insurance can and should be a profitable business. As an insurance company the main question we need to ask is - how can we manage our business to be profitable? An insurance company is a business like any other business and as such, one of its main goals should be profitability. In this article I will address this question based on the Israeli’s local market insurance experience in handling large complicated business, which usually require using a combination of facultative reinsurance along with treaty insurance. The methodology I am about to present can also be implemented on other types of business. For any insurance company, its underwriting (U/W) philosophy and the U/W process have a significant influence on the answer whether or not its business as an insurer would be profitable. Ideally, an Insurance company should change its strategy and aim to maintain profitable business and make underwriting and pricing changes to transform unprofitable accounts to profitable ones. Should one find such remediation impossible, a non renewal of an unprofitable account is sometimes inevitable. It is not always an easy decision to make and surely and unpopular one. In some cases due to significant changes in terms and conditions, the insurance company may lose clients that were insured for many years as they may pose a severe risk to its business. These concerns may materialize in the short term, but in the long term the business will become more sustainable and profitable. When applying the following U/W guidelines for each and every business, whether it’s a renewal or a new business, the profitability target can be achieved: Reviewing the business activity of the insured – for ex. real estate, factory, stores, hotels Review and analysis of all business risk factors Risk assessment of all aspects of the insured’s business activity The Loss Ratio (L/R) of the business and claims history Creative solutions of safety measures in order to prevent damages. For example, leakage detection systems, special fire extinguishing methods, etc. Property / Business Interruption - Reviewing all sum insured due to inflation and changes in reinstatement values Liabilities - consulting actuary department for proper adequate pricing Adjusting rates and deductibles where needed Using a selective risk approach Close cooperation with claims department in order to mitigate and avoid future losses Examination of the Human Element – Who is the insured and how he is handling his business including the Maintenance level of the business If an insurance company would like to succeed in achieving the profitability goal, it should treat the U/W process very seriously. It would help to use a professional and qualified team and also to hold a highly qualified and experienced in-house Surveyors Department. The insurance company may find this to be highly productive to send its own “eyes” to the field, as it allows receiving full review and information of all business risk factors, including information regarding maintenance level and examination of the human element. An experienced surveyor may be able to recognize a potential loss and even reveal a “ticking bomb” on a sight visit and thorough conversions and interviews with the Insured management and employees and this way prevent a significant loss to the insurer. In some cases, the insurance company may consider even sending the specific underwriter to join the surveyors at the site in order to receive first hand accurate information about the risk. The adoption and successful implementation of such underwriting philosophy as reviewed in this article would result in gaining profitability and establishing a healthy, steady and profitable growth in the upcoming years after.
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