Need for profitability will harden rates
Talk of a hardening of rates across all classes of the insurance market has been out there for quite some time – at least six months.
But it still hasn’t happened. The market continues to be patchy, just as it was in late March when insuranceNEWS.com last applied the microscope.
Marsh Australia tells us in its latest supplementary client briefing there’s plenty of capacity and competition at the big business end of the market in property and public liability. Therefore don’t expect rate rises any time soon.
As Aon Australia puts it in its first-quarter renewal analysis, the Australian market is now in an “adjustment phase” of the pricing cycle.
“Insurers are seeking rate increases in most classes, although on the whole these have yet to materialise.”
Marsh says harder rates in directors’ and officers’ cover for big business are an exception, thanks to teams of disgruntled shareholders shaping up for litigation in the global financial crisis.
Small and medium enterprises (SMEs) have seen some minor rises in property rates.
In South-east Queensland, Lea Insurance Brokers CEO Dennis Keating says he’s experiencing increases of 5-15% for SMEs, with accounts beyond $10-12,000 in premium remaining fairly flat or even discounted.
Mr Keating expects further rises for smaller clients in the next 12 months, with standard business packs set to increase 10-15% after three years of reductions.
“The car portfolio has been blown away by the rains and in some cases there are increases of 20%,” he told insuranceNEWS.com.au. “Mums and dads with a house and car have had a bit of a hiding.”
Marsh’s GM Placement Services Scott Leney says the insurers know only too well the need to raise rates. That’s why there has been some amount of “talking up” happening – albeit unsuccessfully.
Margins, already impacted by asset base erosion, increased costs of reinsurance and claims can remain so tight for only so long. Rates will have to go up to increase margins.
But when? Mr Leney says that’s really up to the investment community which holds a substantial stake in the local insurance industry.
“There has to be sufficient pressure from stakeholders like the investment community, who will say ‘we’ve had enough, you either turn the margin around or we’ll put our money somewhere else’,” he told insuranceNEWS.com.au.
With across-the-board rate rises therefore seemingly inevitable – and we realise you’ve heard that song before – it will be interesting to see which insurer blinks first. No one is yet so desperate they’ll raise rates to their competitive detriment.
“There is definitely a first-mover disadvantage because we will, as brokers, go and seek alternatives for our clients and make sure we have explored the market fully on their behalf,” Mr Leney said.
Short of something on the scale of the HIH collapse and September 11 happening to soak up capacity, Marsh sees some deterioration for clients toward the end of the year as insurers gauge their progress against year-end results and see a more compelling need for blanket premium increases.
Without wishing to delight in the pain of insurers, there is a positive spin to this situation.
In the midst of a global financial crisis this country has an insurance industry that is well capitalised and competitive.
It’s not as profitable as it needs to be right now, but then other industries could rightfully claim that too.
Far from being a cartel, it ultimately marches to the beat of market forces.
But it still hasn’t happened. The market continues to be patchy, just as it was in late March when insuranceNEWS.com last applied the microscope.
Marsh Australia tells us in its latest supplementary client briefing there’s plenty of capacity and competition at the big business end of the market in property and public liability. Therefore don’t expect rate rises any time soon.
As Aon Australia puts it in its first-quarter renewal analysis, the Australian market is now in an “adjustment phase” of the pricing cycle.
“Insurers are seeking rate increases in most classes, although on the whole these have yet to materialise.”
Marsh says harder rates in directors’ and officers’ cover for big business are an exception, thanks to teams of disgruntled shareholders shaping up for litigation in the global financial crisis.
Small and medium enterprises (SMEs) have seen some minor rises in property rates.
In South-east Queensland, Lea Insurance Brokers CEO Dennis Keating says he’s experiencing increases of 5-15% for SMEs, with accounts beyond $10-12,000 in premium remaining fairly flat or even discounted.
Mr Keating expects further rises for smaller clients in the next 12 months, with standard business packs set to increase 10-15% after three years of reductions.
“The car portfolio has been blown away by the rains and in some cases there are increases of 20%,” he told insuranceNEWS.com.au. “Mums and dads with a house and car have had a bit of a hiding.”
Marsh’s GM Placement Services Scott Leney says the insurers know only too well the need to raise rates. That’s why there has been some amount of “talking up” happening – albeit unsuccessfully.
Margins, already impacted by asset base erosion, increased costs of reinsurance and claims can remain so tight for only so long. Rates will have to go up to increase margins.
But when? Mr Leney says that’s really up to the investment community which holds a substantial stake in the local insurance industry.
“There has to be sufficient pressure from stakeholders like the investment community, who will say ‘we’ve had enough, you either turn the margin around or we’ll put our money somewhere else’,” he told insuranceNEWS.com.au.
With across-the-board rate rises therefore seemingly inevitable – and we realise you’ve heard that song before – it will be interesting to see which insurer blinks first. No one is yet so desperate they’ll raise rates to their competitive detriment.
“There is definitely a first-mover disadvantage because we will, as brokers, go and seek alternatives for our clients and make sure we have explored the market fully on their behalf,” Mr Leney said.
Short of something on the scale of the HIH collapse and September 11 happening to soak up capacity, Marsh sees some deterioration for clients toward the end of the year as insurers gauge their progress against year-end results and see a more compelling need for blanket premium increases.
Without wishing to delight in the pain of insurers, there is a positive spin to this situation.
In the midst of a global financial crisis this country has an insurance industry that is well capitalised and competitive.
It’s not as profitable as it needs to be right now, but then other industries could rightfully claim that too.
Far from being a cartel, it ultimately marches to the beat of market forces.