Zen and the Art of Insurance Underwriting

As aficionados of the classics of American literature will know, “Zen and the Art of Motorcycle Maintenance” (first published 40 years ago) has very little to do with keeping one’s Harley in good working order; and is not meant to be a treatise on Zen Buddhism either! At its core it is, in fact, an exploration of the philosophical meaning of concepts such as “Quality”.

Why is this relevant to the world of (re)insurance (beyond the prevalence of scooters and the like on Bermuda)? Because quality and philosophical consistency should underlie all that we do. Too often, companies in our industry claim to be driven by the “quality” of their underwriting and maintaining discipline in the face of softening markets and the temptation to write volume. Yet, the financial history of insurance is littered with examples of companies for which  the hope that a benign CAT season and good investment performance would bail them out of poor underwriting decisions and irrational pricing proved as illusory  as a Chimaera.

And what happens then? Assuming that management has not managed to weaken the company’s capital and franchise to such an extent that it has to go into run-off, or is the subject of regulatory action, they parade before the market and the press; express contrition; claim that they are reformed; promise to do better… and start the cycle all over again, because problems of agency act as enablers of self-interest!

It is, therefore, somewhat comforting to see that many of our peers do seem to be aware that, while 2013 may have been an unusually satisfying underwriting year, there are threats, some of which may be existential, looming; and that they should not and cannot be complacent or believe that somehow they will always be “better” or “smarter”. While the proverbial rising tide may have lifted those boats that were not already holed below the waterline, quality will out. In the face of the wave of capital flooding the market, a still uncertain economic climate, and increased regulatory burdens, the true underwriter (who does not follow fad or fashion) will maintain his or her Zen-like composure and discipline, so as to be prepared for the next “big one”, which will inevitably come.

-The Awbury Team


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