Competition still rules as the cycle turns up
The confirmation from NIBA’s latest market conditions survey that the commercial market is turning up was hardly a surprise. Leading insurers have been saying for more than six months that things had to change. Some found it hard to hide their discomfort as their premiums stayed low in line with their competitors. One or two tightened up their underwriting, anyway, and lost business as a result.
The soft market’s days were numbered several months ago when at least one senior QBE manager stated that things had to change. QBE’s December missive announcing premium rises of up to 10% was merely a confirmation.
Competition in the Australian commercial market has been unusually intense for several years, and despite continuing consolidation little has changed. Market conditions dictate the course of premiums, and until the market was hurting sufficiently, nothing much was going to change.
Very few brokers believe the prices they were quoted in the December renewals by individual insurers are not rational. Last June two major commercial insurers were cited as “irrational” in their pricing – by which brokers meant the insurers wanted to charge what they, rather than the market, could bear.
Now the game has changed, but not by that much. The fact that the premium rises are, for the most part, in the range of 10% indicates that competition is still a major consideration. Market insiders say the rises will probably continue over the next couple of years at least, and then moderate as the economy recovers.
As NIBA CEO Noel Pettersen pointed out today, this isn’t like 2001, where capital vanished and insurers scrambled to raise premiums and rid themselves of unwanted business in a short space of time. The result then was a crackdown on liability premiums – and a virtual abandonment of public liability insurance – that resulted in tort reforms to relieve the situation.
The insurance industry normally runs counter-cyclical to the overall economy, presumably because it can. Put simply, when things are economically rosy the insurers compete for market share with low premiums, because they can rely on their investment returns to keep shareholders happy. When competition is intense and investment income is falling, premiums have to rise. Reserves are used as a profit buffer, but when they run low – and in a couple of cases they have – a rise is inevitable.
There are some notable differences in the way the insurers will deal with this market correction compared with previous upturns. Technology has given them more market and individual class information than they’ve ever had before, which means they will apply the most pressure in those classes where it’s most needed. The liability classes, for example.
QBE CEO Frank O’Halloran noted at the NIBA Convention a couple of years ago that technology will probably result in an insurance cycle of shorter duration, with gentler peaks and troughs. Time will tell.
The result this time will – hopefully – be a gentle series of premium rises that clients can sustain, and a return to stronger underwriting returns. Then it can begin all over again.
The NIBA market conditions survey details are:
In commercial lines, 87% of brokers nominated market hardness on a scale of 1 to 10 at between 4 and 7. (2% said 1, 1% said 2, 4% 3, 17% 4, 27% 5, 26% 6, 17% 7, 6% 8.)
In personal lines, 74% of the survey respondents put market hardness at between 5 and 7 out of 10, with another 13% putting it at 8. (1% 3, 8% 4, 17% 5, 27% 6, 30% 7, 13% 8, 4% 9).
Individual classes:
This year 54% of brokers recorded rises in premiums (June 26%), 37% (June 50%) suggested there was no change and 9% (June 23%) said they experienced decreases. Some 4% (18%) said insurers were continuing to cut rates to achieve market share, but 67% (June 43%) said the rises they had recorded were “reasonable”.
Specific classes of business were as follows:
Public liability: premium increases of 1-30% were recorded by 66% of the NIBA respondents; no change, 28%; premium decreases up to 9%, 4%; 10-19%, 2%.
Business interruption: premium increases of 1-30% were recorded by 61% (June 33%) of respondents; no change, 35% (June 51%); premium decreases up to 9%, 2% (June 14%); 20-30%, 2%.
Directors’ and officers’ liability: premium increases of 1-30% were recorded by 28% (June 16%) of respondents; no change, 60% (June 44%); premium decreases up to 9%, 9% (June) 28%; 10-19%, 3% (June 9%); 20-30%, nil% (June 4%).
Professional indemnity: premium increases of 1-30% were recorded by 31% (June 19%) of the respondents; no change, 55% (June 41%); premium decreases up to 9%, 9% (June 23%); 10-19%, 3% (June 12%); 20-30%, 2% (June 5%).
Business pack: premium decreases of 10-19% were recorded by 1% of respondents; reductions of 1-9% 3%; no change 20%; increases of 1-9% 60%; 10-30% 16%.
Property: premium decreases of 20-30% were recorded by 1%; 1-9% 5%; no change 20%; increases of 1-9% 60%; 10-30% 14%.
Commercial motor: no change was recorded by 12%; premium increases of 1-9% 43%; 10-30% 41%; 31-50% 2%; 51-70% 2%.
Product liability: premium decreases of 10-19% were recorded by 1%; 1-9% 4%; no change 35%; increases of 1-9% 47%; 10-30% 12%; 31-50% 1%.
In personal lines classes, premium increases of 1-30% were recorded by 86% (June 70%) of the survey respondents, (53% said 1-9% and 33% (June 20%) 10-30%); no change, 11% June 27%); premium decreases up to 9%.
Note: Some new categories were added to the list in December (hence no comparison data).
The soft market’s days were numbered several months ago when at least one senior QBE manager stated that things had to change. QBE’s December missive announcing premium rises of up to 10% was merely a confirmation.
Competition in the Australian commercial market has been unusually intense for several years, and despite continuing consolidation little has changed. Market conditions dictate the course of premiums, and until the market was hurting sufficiently, nothing much was going to change.
Very few brokers believe the prices they were quoted in the December renewals by individual insurers are not rational. Last June two major commercial insurers were cited as “irrational” in their pricing – by which brokers meant the insurers wanted to charge what they, rather than the market, could bear.
Now the game has changed, but not by that much. The fact that the premium rises are, for the most part, in the range of 10% indicates that competition is still a major consideration. Market insiders say the rises will probably continue over the next couple of years at least, and then moderate as the economy recovers.
As NIBA CEO Noel Pettersen pointed out today, this isn’t like 2001, where capital vanished and insurers scrambled to raise premiums and rid themselves of unwanted business in a short space of time. The result then was a crackdown on liability premiums – and a virtual abandonment of public liability insurance – that resulted in tort reforms to relieve the situation.
The insurance industry normally runs counter-cyclical to the overall economy, presumably because it can. Put simply, when things are economically rosy the insurers compete for market share with low premiums, because they can rely on their investment returns to keep shareholders happy. When competition is intense and investment income is falling, premiums have to rise. Reserves are used as a profit buffer, but when they run low – and in a couple of cases they have – a rise is inevitable.
There are some notable differences in the way the insurers will deal with this market correction compared with previous upturns. Technology has given them more market and individual class information than they’ve ever had before, which means they will apply the most pressure in those classes where it’s most needed. The liability classes, for example.
QBE CEO Frank O’Halloran noted at the NIBA Convention a couple of years ago that technology will probably result in an insurance cycle of shorter duration, with gentler peaks and troughs. Time will tell.
The result this time will – hopefully – be a gentle series of premium rises that clients can sustain, and a return to stronger underwriting returns. Then it can begin all over again.
The NIBA market conditions survey details are:
In commercial lines, 87% of brokers nominated market hardness on a scale of 1 to 10 at between 4 and 7. (2% said 1, 1% said 2, 4% 3, 17% 4, 27% 5, 26% 6, 17% 7, 6% 8.)
In personal lines, 74% of the survey respondents put market hardness at between 5 and 7 out of 10, with another 13% putting it at 8. (1% 3, 8% 4, 17% 5, 27% 6, 30% 7, 13% 8, 4% 9).
Individual classes:
This year 54% of brokers recorded rises in premiums (June 26%), 37% (June 50%) suggested there was no change and 9% (June 23%) said they experienced decreases. Some 4% (18%) said insurers were continuing to cut rates to achieve market share, but 67% (June 43%) said the rises they had recorded were “reasonable”.
Specific classes of business were as follows:
Public liability: premium increases of 1-30% were recorded by 66% of the NIBA respondents; no change, 28%; premium decreases up to 9%, 4%; 10-19%, 2%.
Business interruption: premium increases of 1-30% were recorded by 61% (June 33%) of respondents; no change, 35% (June 51%); premium decreases up to 9%, 2% (June 14%); 20-30%, 2%.
Directors’ and officers’ liability: premium increases of 1-30% were recorded by 28% (June 16%) of respondents; no change, 60% (June 44%); premium decreases up to 9%, 9% (June) 28%; 10-19%, 3% (June 9%); 20-30%, nil% (June 4%).
Professional indemnity: premium increases of 1-30% were recorded by 31% (June 19%) of the respondents; no change, 55% (June 41%); premium decreases up to 9%, 9% (June 23%); 10-19%, 3% (June 12%); 20-30%, 2% (June 5%).
Business pack: premium decreases of 10-19% were recorded by 1% of respondents; reductions of 1-9% 3%; no change 20%; increases of 1-9% 60%; 10-30% 16%.
Property: premium decreases of 20-30% were recorded by 1%; 1-9% 5%; no change 20%; increases of 1-9% 60%; 10-30% 14%.
Commercial motor: no change was recorded by 12%; premium increases of 1-9% 43%; 10-30% 41%; 31-50% 2%; 51-70% 2%.
Product liability: premium decreases of 10-19% were recorded by 1%; 1-9% 4%; no change 35%; increases of 1-9% 47%; 10-30% 12%; 31-50% 1%.
In personal lines classes, premium increases of 1-30% were recorded by 86% (June 70%) of the survey respondents, (53% said 1-9% and 33% (June 20%) 10-30%); no change, 11% June 27%); premium decreases up to 9%.
Note: Some new categories were added to the list in December (hence no comparison data).