Public & private

It has been a tough few years for public services organisations as they cope with substantial price increases and market volatility in the insurance sector – but is a sense of confidence and stability emerging at last?

The condition of the insurance market, combined with the impact of two years of substantial rate increases, has caused – not unnaturally – concern within public service bodies. Organisations find it difficult to anticipate where price increases are likely to fall and are forced to find funding from their margins against a backdrop of ever-increasing demands on limited resources.

The insurance market has experienced an exceptionally torrid time. Tumbling stocks, tough legislation, capital adequacy, spiralling claims costs and a runaway compensation culture have all contributed to the pressures on the industry.

Often, when a sector battles with historically unprecedented pressures, it emerges stronger and more confident as a consequence. General insurers have done just that.

They have risen to the challenges of the past couple of years by focusing on the basics – ruthless cost control, stringent claims management and, most important of all, an incisively sharp focus on the fundamentals of sound underwriting. The result is the emergence of a sector that is far stronger, more stable and with renewed confidence in its ability to absorb volatility in the future.

Public service organisations have experienced significant rate increases over the past two years but – although some may find it hard to believe – these have been substantially lower than other industry sectors.

Often, when a sector battles with unprecedented pressures, it emerges stronger. General insurers have done just that

But as public service insurers bring a heightened level of stability back into play, there is recognition that there are two sides to the equation. The key to minimising premium increases is sound risk management practice within each public service organisation to balance the underwriter's evaluation of risk and exposure.

In recent years, public service bodies have become far more receptive to the implementation of effective risk management programmes and, as a result, the quality of risk has improved. But there is still some way to go. Each risk is underwritten individually and pricing relates to the risk posed and its loss history. Risks that carry a poor track record will ultimately attract higher than average price increases; risks that are managed effectively will win the day. Accountability clearly rests on both sides of the risk transfer equation.

So, what lies ahead for public services in the rest of 2004?

A combination of stabilising market conditions and a proactive approach to risk management will lead to improved insurance prospects for all public service organisations.