Insurers are likely to retain pricing discipline as they focus on profitability and improving margins, Steadfast COO Nigel Fitzgerald has told an investor day.

Real inflation is continuing above 5%, a lack of tort reform is driving social inflation, risk-free rates need to be taken into account, and the return on capital expectation for an insurer is probably about 15%, he says. 

“That’s probably needing to drive results of no more than 90% on a combined ratio basis. So, to think that insurers are done with their journey of looking for margin within their business I think is a fallacy.”  

Capital considerations, shareholder expectations, regulatory changes and the increased sophistication of businesses will underpin pricing discipline, he says. 

“While the competitive nature of an insurance market will always exist, you’re going to find that the insurers are very quick to recognise where they are and aren’t making money,” he told analysts. 

Mr Fitzgerald says regulatory requirements and complexity in business policies, which are “still 120 pages long and can take you up to three hours to read”, are helping intermediaries take market share off the direct channel. 

Demand for broker services is also increasing the relevance of underwriting agencies, also known as managing general agents (MGAs), which have clear risk appetites. 

“What we’ve seen is inflows to MGAs do nothing but increase, and in our own portfolio we still see a trend of insurer business moving more towards MGAs,” he said. 

“That’s not to suggest the insurers aren’t critical to the ecosystem. I think it’s just showing that they’re getting more and more comfortable with the relationship that they have with MGAs and therefore business models like ours.” 

EGM Nick Cook, who is taking up an expanded regional networks role, says there has been a distribution evolution with the growth in authorised representatives. In the Steadfast network their numbers have increased from fewer than 1000 about six years ago to about 3500 now. 

“The level of support, services and how we can make them be the most professional intermediary they can be are critical to our ongoing success,” he said. 

Mr Cook highlighted positive outcomes from the Quality of Advice Review and the government decision to continue with broker commissions. 

“They have agreed to this because they see the value that a broker brings,” he said.” Our role, [at] Steadfast is to ensure our brokers are best equipped to deliver on that vote of faith.” 

Mr Cook says a lack of service by insurers post-covid and narrowing risk appetites have seen brokers turn to underwriting agencies. 

“MGAs have filled that space because they provide service, they do the basics well, indeed their risk appetite has grown and, really importantly, they can articulate their risk appetite,” he said. “MGAs have really grown in respect to their viability and their suitability for brokers.” 

Underwriting agencies now represent 45.5% of the Steadfast portfolio, with insurers accounting for 53.4%. 

Group CEO Robert Kelly says the company is often told “prices are falling” but that is not Steadfast’s experience, and the group is well placed whether strong or weak conditions prevail. 

“If you look at volume during hard markets, volume goes up very little, it goes up in small percentiles,” he said. “When the market eases and competition comes back into the market, you sell more business.” 

Steadfast held investor days in Sydney on Monday and in Melbourne on Tuesday.

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