Each year brings with it new challenges. We speak with some of the industry’s key players to get the inside track on the year ahead.
Premiums to keep increasing
One of the most common expectations was that premiums would continue to rise. Peter Grant, Chief Executive Officer with Affinity Brokers, says there is a lot of competition and capacity in the market.
“However, I feel rates will generally rise by single digit figures over the next 12 months,” he says. “There is more pressure for increases in personal lines than in commercial at present.”
Commercial and General Insurance Brokers Account Manager, Tamika Skeates, agrees there will be a general increase across the board in all classes of insurance – especially among business lines.
“We have seen a small number of underwriters decrease prices to pick up market share but I believe this will end next year and prices will rise,” she says.
“I’m also seeing hard-to-place insurances, such as Backpackers and Hotel Insurance, becoming even more difficult to place. The guidelines are becoming stricter and I’m being knocked back for what I feel are quite reasonable risks.”
Kerrianne Dalton, Broker Development Manager for Axis Underwriting Services, says the past 12 month’s rates for commercial insurance have been a rollercoaster ride, especially for particular industry sectors.
“We have seen major players in the insurance market pull out of certain facilities as well as reduce the amount of business they may write for certain classes of business,” she says. “Some of the reasons have been due to large losses or lots of small recurring losses. For example, the hospitality industry has had a shake-up with facilities being shuffled around, which has created rate increases.”
The Chief General Manager Broker & Agency with Allianz, Jonathan Poole, says commercial premiums are increasing in line with claims inflation and in response to a number of severe weather events in Australia over the past 12 months.
“We expect this to continue, with the extent of price increases also being subject to the premiums imposed by the major reinsurers based on their loss experience over this period,” Poole says.
Underwriting market opens up
One emerging trend is in regard to underwriting agencies. Axis’s Dalton says underwriting agencies are becoming more apparent in the insurance market as major underwriting companies become reluctant to write the higher hazard risks.
“This shift has really opened up the market space and is allowing small agencies, normally backed by Lloyds of London, to show off their underwriting skills and knowledge for their particular niche,” she says.
But she says this trend could also be a threat to the underwriting agency market, as the pressure to write the risks that big companies don’t want could lead to overcapitalising on the higher risks and potentially larger claims that could be detrimental to their portfolio and the ability to renew their binder with their securities.
“Another issue could be that they use their available capacity too quickly, leaving them unable to write new business until they renew their binder with their current underwriting facility,” she says.
Meanwhile, Affinity’s Grant believes there will be more consolidation in the broking industry as well as accelerated clustering within the next 12 months.
“With the market hardening there is a good opportunity for larger groups to purchase portfolios and benefit from increased rates and commissions,” he says. “Cluster groups are also keen to secure and expand increased premium volumes and drive volume-based income. There is still good space for smaller independent brokers. However, consolidation will continue for willing buyers and sellers.”
Whether these are one-off events or If thIs Is the Way clImate Is headIng Is dIffIcult to say. so WhIle It Is a trend We are aWare of, It’s more a long-term one than a short-term one.
Climate change will have major impact
All brokers we spoke to believe climate change will continue to have an impact on the industry over the next year. Troy Mansell, Chief Executive Officer with Austbrokers Phillips, says there is a lot of volatility around weather patterns and where he is based in Victoria they’ve had hailstorms, fires and floods, which affect insurers.
“Whether these are one-off events or if this is the way climate is heading is difficult to say,” he says. “So while it is a trend we are aware of, it is more a long-term one than a short-term one."
Skeates believes climate change will have a massive impact on the industry. “We are seeing more hurricanes, floods and fires and they are predicting it will only get worse,” she says. “The industry is directly affected by this because it will lead to premium increases, and this is not a good thing given the economic downturn as fewer people will be able to afford to take out insurance.
”Grant agrees climate change is a major global issue. “The problem for insurers is that their rates and coverage are based on previous trends and averages and historically based probabilities that relate tothe past, not the future,” he says. “Climate change that results from global warming makes predictions difficult and poses a threat to the industry.”
Mixed views on technology
There are definitely pros and cons to emerging technologies and brokers have mixed feelings about the trends in this area. Grant of Affinity says a lot of insurers are trying to drive the distribution path by making online products easier to use for brokers.
“Investment in online product development is expensive so the push by the insurers is a good thing for brokers,” Grant says. “This use of technology is an important step forward and will play a major role in the industry over the next five years, as it will streamline administration functions and direct premium flow to underwriters.
”He adds social networking tools are changing the way the industry communicates and interacts and it’s the same with customers. “Find them where they are as it gives you unprecedented opportunity to interact with your potential market,” he says. “We need to embrace this to find new ways to communicate, network and promote our businesses.
”But Mansell is sceptical about social media and its role in business-to-business selling. “I don’t think it’s that relevant,” he says. “I still feel insurers need to focus on face-to-face selling. There are opportunities with social media but I feel that a lot of bigger insurers who have tried using it to sell have not been successful.
”Suncorp Commercial Insurance Chief Executive, Anthony Day, says for technology innovations to be successful, Suncorp knows it needs to maintain and improve the relationships it has established with brokers.
“Pricing engines are another key technological advancement, helping insurers generate consistency in pricing between similar risks and exposures, introducing a level of equity to the market,” he says.
He adds this consistency in pricing will make premiums more sustainable and could reduce the volatility of the cycle by charging the right premium for the right risk.
Effect of rising interest rates
The rise in interest rates has had a direct impact on the broking industry. Skeates of Commercial and General Insurance Brokers says people are suffering as a result of increases and she is seeing this reflected in sales.
“People are now cutting out certain types of insurance – such as business interruption – or stopping buying insurance altogether, as they can’t afford it,” she says.
“Because some don’t view insurance as a necessity, it is the first thing to go when they are trying to save money. Rates will continue to rise and I don’t think the situation will get any better. We are in a crisisnow and I’ve watched a number of businesses go into liquidation because of it.
”Dalton believes one of the areas in the insurance industry that will see a difference from the recent interest rate increases are claims departments as there potentially could be increases in the numbers of businesses going into liquidation or insolvency due to not being able to meet mortgage repayments.
“There could be an increase in business interruption claims as a company’s suppliers have ceased business and alternative suppliers have to be sourced,” she says. “Another issue we face is the potential likelihood of clients exposing their business or personal assets to be underinsured because they can’t afford the premium. Fraudulent claims could also arise as companies, sole traders or domestic clients are under threat financially or pressured into bankruptcy.
”But on a positive note, Dalton says the high value of the Australian dollar against the greenback should show a significant increase in companies’ purchasing power and other facets of their businesses. “This should contribute to a reduction in claims settlement costs on a local level,” she says.
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