Soft market a cycle or something larger?

The current softness of the market could be more than just part of a cycle and instead be an indicator of something deeper, says the broker chief for a major insurer.

Allianz Broker and Agency Chief General Manager David Hosking says the soft market was presenting significant challenges for insurers and brokers alike but it remained to be seen whether anything could reverse it in the foreseeable future, short of an enormous catastrophe or a credit bubble.

“Cycles are always there in any industry. But if they last a particularly long time they can become defining,” he says.

“Years ago there was an insurance cycle that caused a couple of large insurers to go bust and it changed the industry. Regulation stepped in, and interesting things happened.

“But with this cycle I don’t see that sort of scenario. I can’t see anywhere where you could point to an underwriter in distress going bust. But there will definitely be classes that are almost cut to the bone in terms of rate, and it’s a question of how long can they be sustained at those sort of margins.”

Hosking says increased consolidation seems likely, particularly in the broker space.

He says the declining premium pool will put pressure on everyone in the industry.

“It will force us more than ever to think about what we do,” he says.

“When you’ve got a declining revenue pool and an increasing cost pool, there are going to be challenges with that at some point.

“But we know how we respond to it all. We will still be seeking opportunities, but not at the point of losing our discipline.”