Soft markets and the rate reductions available for good risks have been with us for several years. Currently, we almost take it for granted that insurance must get cheaper every year, but there are signs this phase of the cycle might be coming to its end.
Although that doesn’t mean there will be rate increases in most classes anytime soon, there is definitely a flattening out of the downward curve in a number of sectors.
Normal loss exposures with average risks are unlikely to see any hardening of rates this year. The distressed risks will start facing some challenges.
However, we have already seen some international markets tightening up and new risks coming to London as a result.
Pressure on rates
Every client would be wise to start preparing themselves for some upward pressure on rates as we head towards 2018.
Claims are in the pipeline – not catastrophes but still significant enough to start impacting rates as underwriters no longer have any margin to help them absorb losses.
Only recently we have seen insurers withdrawing from sectors and Lloyd’s of London is increasing its focus on poor performing sectors.
Due to Cyclone Debbie, Australia experienced some major claims and there were several significant tornadoes in the US in the first quarter of this year, which continue to build strain into the market.
Even in the UK the sudden change to the Ogden rate caught the market by surprise. Of the many insurers who had factored in some change no one had expected it to be as big.
Now it is already forcing motor insurance rates up and will also feed through to employers’ liability and personal accident covers.
Living with a soft market
The one challenge we all face as these pressures combine to force the market to turn is that we have lived with a soft market for so long that firms don’t have a corporate memory of insurance rates rising.
Having early sight of underlying risks and any changes in the risk profile will be key in ensuring the right results are delivered for clients and relationships are maintained with underwriters and this is where the strong, long-term relationships will be important.
Uncertainty of Brexit on insurance market
Expertise around Brexit is another topic of concern for clients; they want to retain access to the London market, its intellectual capacity, experience and breadth of coverage.
Current threats are the additional regulation and tariffs making London uncompetitive for EU risks.
Ongoing uncertainties around Brexit mean we are working on a range of contingencies around possible Brexit journeys and scenarios.
Valuable access to the London market for our clients is one of our main objectives.
Extra uncertainty has contributed to a calming down of the merger and acquisition (M&A) activity in the insurance market. Recently, there has been lot of private equity in the insurance sector so we haven’t seen the end of M&A in the market, but it looks like it’s staying subdued until the end of this year.
For further information, please contract Paul Knowles, CEO of JLT Specialty on +44 20 7528 4044 or email firstname.lastname@example.org