Although commercial rates are starting to ease, areas that are particularly affected by claims – such as cyber – could still see ‘strong increases’, noted delegates

Broker CEO Forum 2021: Insurance analysts believe the UK insurance industry has been experiencing a “unique hard market” in recent years, which has led to “fun and games” in commercial lines – for example a 20 percentage point year-on-year increase in professional indemnity insurance.

Discussed at this year’s Broker CEO Forum, held on 21 October 2021 at Pennyhill Park Hotel and Spa in Bagshot, event speakers noted that globally, the insurance sector has had “a unique hard market” that “has lasted longer than you would normally expect” – particularly when it comes to commercial covers, which attendees said was “the interesting area” here.

The hard market initially came into fruition thanks to “large losses that the world insurance market” saw back in 2017. This was swiftly followed by “reserve strengthening in liability in 2019” and then the Covid-19 pandemic in 2020. Rate increases linked to this activity “frightened management at a lot of companies”, noted one delegate.

However, “things have now started to ease” within the commercial lines market, according to some Broker CEO Forum attendees, meaning that “the rate of increase in the reinsurance market is coming down”, which will in turn “feed through to primary insurers”.

“Commercial rates will start easing slowly, unless it’s claims affected areas such as cyber, which could still see strong increases,” explained one speaker.

Presenting a different perspective, another guest noted that “it’s a very hard market” still within commercial lines, driven by the global insurance market. They said: “It feels to me that we’re probably in the foothills of a hard market in the UK in commercial lines.”

Eggs in profitable baskets

The “fun and games” of the commercial market’s rates are clearly juxtaposed with the UK motor insurance arena at the moment, where “rates [are] clearly falling”.

Describing this contrast in the hard market, one commentator explained: “[The hard market is] unusual in that the range of experience is huge at the moment between the commercial markets globally, [where we are] still seeing double digit increases.

“Then you’ve got the UK motor market – traditionally a lead in the character of pricing – seeing quite sharp decreases and that can’t continue.

“Clearly, if it were to continue – [which it won’t] – then reinsurers are going to put all their eggs in the profitable basket and withdraw support for the unprofitable basket.”

Another delegate agreed that the “UK motor [market] is soft [and] rates are still weak – largely as a result of Covid [and] the lack of [claims] frequency”.

“So, motor insurance is soft but the FCA pricing review could have a positive effect on the motor market from Q1 next year,” they added, referencing the regulator’s general insurance pricing reform, which comes into full effect from 1 January 2022.

Meanwhile, household rates in the UK were described as “stable” and “flat” by attendees.

“They’ve been flat for the past 30 odd years, give or take, both in buildings and contents,” one guest noted.

‘Re-regulation’ post-Brexit

Broker leaders also discussed the ramifications following Brexit, which saw a formal trade and cooperation agreement between the European Union (EU) and the UK come into force from May 2021.

One analyst noted that many within the insurance industry thought that once the UK was outside of the EU’s jurisdiction, it would have more flexibility around regulation, which could be used to make the UK a more attractive location to conduct business. However, the attendee said that most of the action they have witnessed post-Brexit has been around “re-regulation” rather than “de-regulation”.

Some delegates observed that the majority of “friction” resulting from the Brexit deal was in the traded goods sector and supply chain rather than hitting the insurance sector.

One guest added that the Brexit “boat has sailed” and it was now simply a case of making the final agreement work.

Another prominent discussion point during the session surrounded the role of brokers versus customers going direct to insurers – attendees noted that customer service is “massive” and very often “underplayed”. For example, delegates said they did not mind paying extra for service quality, however this very often wasn’t obtained when going direct.

Guests emphasised that insurance is an intermediated service, therefore there were no fears that the intermediated market would shrink, despite insurers increasing direct propositions.