All talk, no action?

When some of the UK’s largest insurers announced rate increases in their commercial portfolios late last year, hopes were raised that it would signal the end of the soft market that has dogged the industry for the past few years.

But three-and-a-half months into 2008 and there appears to be little sign that other firms have followed their lead, nor that the commercial market as a whole is recovering.

Some brokers are saying that insurers are simply talking up rates, without following through with action.

Last year, Norwich Union (NU) and AXA said rates would increase from 1 November. NU said it was looking for an average increase of 5% across many of its commercial lines, while AXA was aiming for between 5% and 10%. Allianz said it too was looking to raise its rates and was in discussions with brokers to gauge their reaction.

Alex Alway, group chief executive of Jelf Group, says that rate increases in commecial lines have been patchy. “Some sectors and lines are starting to show small increases, others are going backwards,” he says.

He adds that the increases tend to be on a case-by-case basis and are linked to the size of the account. “There has been no overall move [in the market]. We are at a tipping point. The market has stopped going backwards. All insurers are trying to do it [increase rates]. The market accepts that rates have to go up.”

He predicts that the market will not begin to harden overall until the end of the year or next year.

Other brokers are less charitable. Stuart Stead, broking manager at Romero Insurance Brokers in Leeds, says rate increases are more talk than action.

He says some insurers like NU, AXA and NIG are increasing rates on fleet business. But others are still prepared to take gambles [in terms of cutting rates] on big business.

On commercial combined policies, he says some insurers would like to get 5% on rates if they can. Others are afraid to lose market share and buckle under pressure from brokers. Stead continues: “On renewal business, insurers want to retain business and will offer expiring terms or discounts to do it. On new business you can get reductions. Brokers are being more aggressive on new business.”

Another senior broker for a large regional broking firm agrees: “Insurers want to talk the market up, but we are not seeing it. You can still get what you want [in terms of premium rate]. We are quite aggressive.”

Yet insurers like NU are adamant that they are achieving rating increases – and maintaining business volumes to boot. They say that success in achieving the necessary rate increases will depend on co-operation from brokers.

“On renewal business, insurers want to retain business and will offer expiring terms or discounts to do it.

Stuart Stead, Romero

John Kitson, NU sales and marketing director, says the company is not just talking the rates up, and that it is putting through rate hikes. He says the level of increase depends on the size of the business. For smaller risks, with premium of less than £10,000, rates have increased between 3% and 5%. The increase is less on larger risks. “Between £10,000 and £100,000 in premium we’re going for 5% and getting 1% to 2%. Over £100,000 it is harder, we are trying to get 0.5%.”

Kitson admits that it has been a challenge. “Under £10,000 in premium the support is significant, but for larger business it is harder, and support is more fragmented. We tell them that it needs to be done for the good of the market.”

He says that NU is prepared to walk away from business if it does not get the increases it wants. “But our retention rate is holding and year-on-year our commercial book is up, so we are doing reasonably well, but it is not at any price.”

Kitson says NU will take action this year. “In the second quarter we will look to go further and we will be talking to brokers about what that means. This could include things such as increasing excesses or adding endorsements. It is working [increasing rates] but we could always ask for more. We want rates up.”

Chris Hanks, general manager of Allianz Commercial, says that his company also has achieved rate increases and will look to achieve more this year.

“We started last year, in March/April. By the end of 2007, commercial motor is up 3.5%, and year-on-year up 5%. On other accounts we have seen an increase in rating strength. Property is up between 1% and 2%, casualty is up 3% and package business is up 3% to 5%.”

Hanks adds: “Our renewal book has held, but we are not writing quite as much new business where rates are lower.”

He accepts that Allianz is prepared to cut rates. “We will offer expiring terms or reductions in some cases, but across the book as a whole, rates are going up.

“We want to keep good quality business but I am interested in overall rate strength – it is not about increasing rates on everything. Big cases are still getting reductions if it is good business, but we want something in return [that is, increases on other cases].”

He says that Allianz will look to obtain further increases this year. “I would be pleased with an extra one or two points on motor. In other lines, five, six, or seven points would be good news.

“Brokers are supportive of us trying to improve rating strength but no one is happy with rate increases.”