Lloyd’s Director Worldwide Markets Julian James has warned insurers around the world to heed one of the most prudent – and often ignored – precepts of insurance: don’t write for market share but focus relentlessly on a gross underwriting profit.

Speaking at a conference in Seattle, Mr James said terms and conditions are just as important as price, insurers should stick to the business they know, and they must understand how to price.

Despite advances by the insurance industry over the past four years, it is in grave danger of eroding the progress made, he said.

“I will contend that, although we are now out of the financial intensive care ward, what we do right now will determine whether we are out for good or whether we go straight back in.”

Mr James says the global insurance sector is performing better than it has for a long time, but the long-term industry performance is not pretty.

“Consider that the US property and casualty industry has achieved an underwriting profit in only three years – 1977, 1978 and 2004 – over the last three decades. Let’s not delude ourselves that we have an impressive history – not yet, anyway.”

He says the US industry is experiencing weak premium growth, at just 2.9% in the first half of this year. “Rates in most non-catastrophe areas are creeping downwards – almost across the board in commercial and personal lines.”

Mr James asks what a rational response might be to an environment in which growth is predicted to slow, the cost of the product is predicted to rise and competition is expected to increase.

“People start off with plenty of capital, rates go down, coverage extends, companies step outside of their core business. Price per unit of coverage is exponentially lower. Losses then occur. Big companies become smaller companies. Everyone returns to the basics. And off we go again.”