With all the current misery surrounding volatile financial markets, reducing and/or disappearing lines of credit and the diminishing value of the pound, the last thing anyone wants to hear is that insurance rates may be set to rise in 2009.
Well perhaps, understandably, given the considerable challenges that both individuals and businesses alike are currently facing, insurers have not exactly been shouting this from the rooftops. Not to the customer at least! However, talk to any broker and they will all admit to having been approached by a number of major insurers to discuss their requirement for rate growth.
It is almost certain that a hard market is looming. The insurance industry has enjoyed softening rates for a number of years but conditions are now starting to feel different. The insurance market is cyclical and generally 'turns' every seven years.
Rates have been in freefall for two or three years but insurers are now beginning to see claims inflation running much higher than they might have anticipated, resulting in many of them returning operating losses in excess of 100%. Add to this the fact that reinsurance rates have risen globally by as much as 8% (UK rises were slightly less) and you can appreciate that something has to change.
Interestingly, while the current financial crisis has affected pricing, it has not been as significant as it might have been due to the effective risk and capital management practices that many prudent policyholders have put in place.
What level of increase should you expect to see?
In short, insurers who have commented thus far are looking for single digit increases across the main classes of business i.e. Property, Liability and Motor. (This is somewhat different to the huge spikes we saw in 2002/3.)
However, they are at pains to emphasise that they will be “intelligent” about this and, providing they can see the level of growth they require across the entire portfolio, they will look at each risk on its merits and not just apply a blanket increase.
However, beware. This rarely happens in practice, particularly when insurers have to 'play catch up' as the year progresses.
So, what can you do to lessen the impact on your business following this change in attitude in the market?
Do not panic and reach for the telephone. Remember, we still live in a competitive marketplace. There is no doubt that the number of insurers has diminished over the years but there are still a healthy number of financially strong and hungry carriers out there. Capacity still seems to be in abundance and underwriters' new business targets are as challenging as ever, so there is no doubt there is still a deal to be done.
