Brokers are being urged to ensure their business model is robust enough to handle a continuing soft market following news that SME insurance premium rates have dropped back two points.
The Quarterly BizCover Small Business Insurance Price Index has found a decline in rates in sectors where there is an abundance of capacity and strong distribution channels, predominantly around trades and services. The drop comes after insurance rates experienced growth for the first time in 10 quarters last quarter.
However in the retail sector, insurers have managed to hold the major rates increases from last quarter.
“The reality of pricing is that there is still so much capacity around in the market, which is keeping premiums low and putting further downward pressure on rates,” BizCover Managing Director Michael Gottlieb told Broker Buzz.
The most important thing for brokers to take from this quarter’s index is that the market is unlikely to turn anytime soon – unless there is an unforeseeable event, added Gottlieb.
“Brokers need to be ensuring their business model is robust for a soft market, because even if rates increase it is unlikely we will see a hard market in the medium term,” he said. “Therefore they really need to focus on a business model that means prices will be lower for longer.”
Gottlieb believes brokers need to consider if they are providing a value added service around advice and advocacy, or a transactional service – and whether there’s a capacity to do both.
“It is important in today’s time to have a brokerage that is omni-channel and offers clients the option of a traditional or online experience,” he says.
Looking ahead, Gottlieb expects the busy June renewal season to be characterised by insurers looking for growth and willing to do deals.
“I think once again you’re going to see the level of competition increase, and that’s again because of the capacity in the market. We will see insurers compete aggressively, which may put short term pressure on rates,” Gottlieb said.
“While the bottom may be closer than it has been in the previous couple of years, there is no immediate pressure that will see rates increase in the short term.
“There will be specific segments that have deteriorating loss ratios and lower competition where insurers will be able to increase rates but generally I expect to see a soft to stable June renewal season.”