Chicago — The first four months of the year must have imparted a sinking feeling to property/casualty underwriters. A new survey shows that a $600 million net loss in underwriting helped halve the U.S. insurance P&C industry’s net income in the first quarter of 2008.

According to numbers from Jersey City, N.J.-based ISO and the Property Casualty Insurers Association of America (PCI), there was an $8.9 billion adverse swing from the $8.3 billion in net gains on underwriting in the first quarter of 2007. Shrinking premiums, coupled with rising loss and loss adjustment expenses, contributed to the reversal.

After taxes, net income fell to $8.2 billion in the quarter, a precipitous decline compared with $16.2 billion in first-quarter 2007, and a cyclical peak of $17.7 billion in first-quarter 2005. Moreover, the combined ratio for the first quarter, 99.9%, was the highest for any quarter since 2002, and a large increase over the 91.7% ratio recorded in the first quarter of 2007.

These anemic underwriting figures seem to make sense in light of another recent report from Bermuda-based Accenture, which commissioned a survey of 108 insurance equity analysts around the world, including 49 P&C analysts. The analysts cited a need to improve process efficiency by modernizing aging infrastructure as a key for P&C insurers, with 73% of those surveyed singling out underwriting as the area most in need of new investment.

“It’s time for insurance companies to get serious about technology, especially underwriting technology,” John Del Santo, managing director of Accenture’s Insurance practice in North America, told Insurance Networking News. “There are a variety of fragmented point solutions to help automate underwriting, but when you think about how broad the P&C industry is, and how complicated it is to do underwriting, I don’t know if the technology has been appropriately applied. Some companies have done a good job with it but it hasn’t been enough to affect the bad pricing in the market.” 

Del Santo says that while many carriers have embraced advanced underwriting techniques at departmental levels, few leverage the technologies across the enterprise. “Implementing an enterprisewide underwriting technology benefits start to compound because you are making decisions consistently, and you have better data to run multi-variant models,” he says.

Indeed, carriers that fail to push these new technologies out of silos and across lines of business will lack agility, Del Santo says. “Everybody saw this market softening a few years, but not everybody did a good job adjusting to it.”

Sources: ISO, Accenture

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