Competition is keeping rate rises tentative
Any brokers listening to the public pronouncements from the big insurers could be forgiven for thinking the market is in for a sharp correction over the June renewals season.
Back in February, Duncan West had barely got his seat warm as CGU CEO before he was “wholeheartedly” endorsing the insurer’s “targeted rate increases focused on underperforming short-tail commercial and personal lines portfolios”.
Then Suncorp Group Executive Commercial Insurance Mark Milliner weighed into the debate, saying the market had already started to turn.
And even the famously guarded QBE is committed to eschewing deep discounting, publicly at least, emphasising in its annual report its “unwillingness to write business at premium rates that do not meet our profit targets”.
But, while underwriters might talk the talk on rate hikes, are they willing to walk the walk and resist the temptation to clobber rivals with a discount here, a sweetener there? It appears fierce competition is acting as a brake against severe upswings.
And if QBE ever wants to return to the IAG table with a firm offer, it is likely to continue to play hardball on rates where it can rationally do so.
As brokers negotiate the best deals for their clients over the June renewals season, the evidence is the market is turning more gradually than expected – and certainly more incrementally than the sharp upturns so common in the past.
The Head of KPMG’s Insurance Group, Brian Greig, says the market “is splitting between personal and commercial”.
In personal lines, he says climate change is forcing insurers to reassess their pricing models. “There’s a push from all insurers in increasing personal lines rates on the back of weather-related losses – between 5% and 10% generally,” Mr Greig told insuranceNEWS.com.au. “And they would appear to be sticking.”
Credit Suisse analyst Arjan van Veen agrees. “Personal lines rates are going up by high single digits across the board.”
Back at the broking coalface, some intermediaries are seeing increased competition in personal lines resulting from “a lot of pushing into the domestic market by direct underwriters,” says Victorian broker Keith Roderick.
In commercial lines, Mr Greig isn’t convinced the market has finally reached its lowest point. “As to whether or not it’s actually bottomed, it’s hard to say.”
He reckons short-tail commercial lines such as property “are still unsustainably low and that’s where you’ll see the first signs of recovery”.
OAMPS says competition and quality risk management are combining to keep rates down and capacity healthy, with the exception of motor and sandwich panel property risks.
“Rates are relatively unchanged with softness still evident in liability classes, good quality property risks and marine insurance,” an OAMPS spokesman said.
Mr van Veen, on the other hand, is seeing evidence of rate increases across the board. “All classes bar WA workers’ compensation are seeing rates going up,” he said.
But analysts are agreed about the elephant in the room. “QBE is central to which way the rates will go,” Mr van Veen said. “It’s been holding the market down to some extent from our perspective.”
“It needs the main player to come to the party and push up rates,” Mr Greig said. “And I’m not convinced the biggest player is committed to pushing up rates.”
Mr van Veen says the lack of a catastrophic catalyst such as the HIH collapse or World Trade Centre attacks is helping policyholders avoid a major correction.
“Normally when markets turn, it’s because of a specific event,” he said. “This time around that’s not happening – it’s more rational behaviour driving rates up. The insurers are singing from the same hymn sheet.”
And flattening global prices are also acting as a brake on any aspirations by Australian insurers to hike rates substantially at the top end of the commercial market. “Global pricing is still falling so you’re not going to get rates going up significantly in Australia,” Mr van Veen said.
While so much attention is paid to the big insurer beasts – QBE, Suncorp and IAG – the influence of the smaller specialist players should not be underestimated.
“Niche players are focused on getting market share and they can be a catalyst in driving down rates,” Mr Greig said.
This is particularly the case in top-end commercial lines, says Mr van Veen, who believes insurers need long-term commitment in the SME market “so it’s more difficult for overseas players to come in and drive down rates”.
“But at the top end of the market it’s much more global and competitive.”
There is another silver lining – Australia’s appalling underinsurance levels are likely to benefit from the upturn in rates.
Tasmanian broker Chris Baker says underwriters are encouraging brokers and clients to “ revise sums insured to full value”. And that can only be a good thing.
Back in February, Duncan West had barely got his seat warm as CGU CEO before he was “wholeheartedly” endorsing the insurer’s “targeted rate increases focused on underperforming short-tail commercial and personal lines portfolios”.
Then Suncorp Group Executive Commercial Insurance Mark Milliner weighed into the debate, saying the market had already started to turn.
And even the famously guarded QBE is committed to eschewing deep discounting, publicly at least, emphasising in its annual report its “unwillingness to write business at premium rates that do not meet our profit targets”.
But, while underwriters might talk the talk on rate hikes, are they willing to walk the walk and resist the temptation to clobber rivals with a discount here, a sweetener there? It appears fierce competition is acting as a brake against severe upswings.
And if QBE ever wants to return to the IAG table with a firm offer, it is likely to continue to play hardball on rates where it can rationally do so.
As brokers negotiate the best deals for their clients over the June renewals season, the evidence is the market is turning more gradually than expected – and certainly more incrementally than the sharp upturns so common in the past.
The Head of KPMG’s Insurance Group, Brian Greig, says the market “is splitting between personal and commercial”.
In personal lines, he says climate change is forcing insurers to reassess their pricing models. “There’s a push from all insurers in increasing personal lines rates on the back of weather-related losses – between 5% and 10% generally,” Mr Greig told insuranceNEWS.com.au. “And they would appear to be sticking.”
Credit Suisse analyst Arjan van Veen agrees. “Personal lines rates are going up by high single digits across the board.”
Back at the broking coalface, some intermediaries are seeing increased competition in personal lines resulting from “a lot of pushing into the domestic market by direct underwriters,” says Victorian broker Keith Roderick.
In commercial lines, Mr Greig isn’t convinced the market has finally reached its lowest point. “As to whether or not it’s actually bottomed, it’s hard to say.”
He reckons short-tail commercial lines such as property “are still unsustainably low and that’s where you’ll see the first signs of recovery”.
OAMPS says competition and quality risk management are combining to keep rates down and capacity healthy, with the exception of motor and sandwich panel property risks.
“Rates are relatively unchanged with softness still evident in liability classes, good quality property risks and marine insurance,” an OAMPS spokesman said.
Mr van Veen, on the other hand, is seeing evidence of rate increases across the board. “All classes bar WA workers’ compensation are seeing rates going up,” he said.
But analysts are agreed about the elephant in the room. “QBE is central to which way the rates will go,” Mr van Veen said. “It’s been holding the market down to some extent from our perspective.”
“It needs the main player to come to the party and push up rates,” Mr Greig said. “And I’m not convinced the biggest player is committed to pushing up rates.”
Mr van Veen says the lack of a catastrophic catalyst such as the HIH collapse or World Trade Centre attacks is helping policyholders avoid a major correction.
“Normally when markets turn, it’s because of a specific event,” he said. “This time around that’s not happening – it’s more rational behaviour driving rates up. The insurers are singing from the same hymn sheet.”
And flattening global prices are also acting as a brake on any aspirations by Australian insurers to hike rates substantially at the top end of the commercial market. “Global pricing is still falling so you’re not going to get rates going up significantly in Australia,” Mr van Veen said.
While so much attention is paid to the big insurer beasts – QBE, Suncorp and IAG – the influence of the smaller specialist players should not be underestimated.
“Niche players are focused on getting market share and they can be a catalyst in driving down rates,” Mr Greig said.
This is particularly the case in top-end commercial lines, says Mr van Veen, who believes insurers need long-term commitment in the SME market “so it’s more difficult for overseas players to come in and drive down rates”.
“But at the top end of the market it’s much more global and competitive.”
There is another silver lining – Australia’s appalling underinsurance levels are likely to benefit from the upturn in rates.
Tasmanian broker Chris Baker says underwriters are encouraging brokers and clients to “ revise sums insured to full value”. And that can only be a good thing.