Can an insurer sustain liberal underwriting with competitive pricing?
RB: In the short term, this may be very possible. But sooner or later this dangerous cocktail will catch up with them, and the fallout will not be particularly pleasant. Fallout will arise from one of two sources. The more likely source will be the market itself: as producers recognize this as the company’s practice, they will be targeted more and more for business that would not be accepted at other companies. The other possible source of fallout is the company’s reinsurers. The reinsurers will be looking closely at the actual-to-expected business performance, and it won’t take long for them to discover that there is something wrong here. The consequences from this disagreement could be pretty dire, possibly leading to the reinsurer denying claims. MC: What metrics would you examine to determine if a company was underwriting liberally and pricing competitively? RB: The first spot I would look at is their actual-to-expected placement. Are they placing 40 percent of their cases when the
