Insurance Times picks out the best and worst performing lines from data provided by schemes software provider SchemeServe
The evidence is insurmountable – the insurance market is experiencing a hard market cycle.
Indeed, earlier in summer (21 June 2023), international broker Gallagher said that while the hard market began in 2020 following a series of severe natural catastrophe events, the industry had already reached its peak and predicted the beginning of a transition towards a softer market cycle.
When the market hardens, insurer profits rise as a result of less competition around premium rates, among other factors.
This cycle is reflected for brokers too, with a hard market generally equating to more premium and commission earned.
In the most recent Insurance Times Schemes Index, which covers the period between April and October 2023, all schemes types bar three saw consistent rises in the total amount of commission earned by brokers, providing evidence of the hard market conditions seen during that period.
Adam Bishop, chief executive of SchemeServe, explained: “The impact of inflation and a prolonged hard market has been clear to see.
“Premiums have been rising across most lines and, as a result, commission earnings are up.
The most recent set of data showed that the highest percentage increases in commission, when compared to the previous six month period, came from schemes focused on household (59%), pubs and clubs (53%), caravan and trailer (44%) and cyber (37%).
However, when comparing to the period encompassing April to October in 2022, the schemes that saw the largest percentage increase in commission were cyber (99%), specialist combined (46%), household (42%) and professional indemnity (30%).
Produced in association with software provider SchemeServe, the latest biannual Schemes Index provides a snapshot of the most profitable schemes businesses for brokers via analysis of the business conducted on SchemeServe’s platform.
This version of the Insurance Times Schemes Index compares data from the period between April and October 2023 with the data from the preceding six months (October 2022 to April 2023), as well as with the data from the equivalent period last year (April 2022 to October 2022).
As might be expected, those schemes that saw the largest period-to-period percentage growth in commissions were not necessarily the same schemes that saw the largest growth in total value of commissions, since percentage growth is easier to achieve at smaller total values.
The scheme that grew the most by total commission earned, in comparison to the previous six month period, were SME package, pubs and clubs and household.
Schemes serving the household insurance market performed very well in most recent period of analysis, showing up in podium positions for both growth in commission percentage and total commission growth, when compared to the previous six month period.
Bishop noted that the performance of this scheme type had grown “dramatically over the last six months, fuelled also by rising claims costs”.
The 59% increase in commissions earned for this type of scheme was equivalent to an increase of £477,134 on the previous six months – total premiums collected also increased by 61%, equalling a total increase of £2.7m.
When compared to the equivalent six month period in 2022, household schemes saw commissions earned increase by 42%. Premiums also rose by 52%, totalling a growth of £2.5m.
Bishop said that this line was “perhaps the most surprising of all schemes”, having taken the prize for least profitable scheme back in 2019. In the last twelve months, however, this story has flipped.
Household schemes also outpaced the median average growth of 18% significantly.
This was evidenced by the growth in the amount of household policies managed on SchemeServe’s platform, with 2,154 more policies in effect during the most recent period compared to the same period last year.
When comparing the most recent period to data from the preceding six months, this scheme’s increased popularity was even more stark – there was a 55% increase in the amount of policies in effect, equivalent to an extra 5,672 policyholders.
One of the most inconsistently performing schemes of recent years has been cyber, with its performance swinging notably from one period to the next.
Insurance Times has reported on the low penetration of cyber insurance into the economy and it is no surprise to see a still-developing insurance line go through fluctuations as customers become more familiar with the product.
Bishop explained: ”In previous indices, cyber has been one of the best performing schemes since the start of the pandemic, outpacing many other schemes and growing in volume by nearly 500% since the start of the pandemic.”
However, despite this strong growth, last year’s Insurance Times Schemes Index showed that cyber commisions fell by 28% on the previous six month period, representing the biggest fall of any scheme.
And in the most recent previous Insurance Times Schemes Index prior to this analysis, total commission earned via cyber schemes fell 31% – the second largest decrease in the index and equivalent to a fall in total commission earned of £111,711.
As Bishop noted, “with every set of data, cyber appears to be the standout scheme, swinging dramatically between being the highest earner one year to the subsequently showing the biggest fall”.
While cyber was not quite the highest earner this year, Bishop was correct to note the inconsistency. In the most recent data, commissions earned from cyber schemes grew by 37% when compared to the previous six month period.
This was equivalent to a growth in total commission of £135,542. Cyber schemes also saw a 34% growth in total premiums equivalent to £626,840.
But it was in the policy volume growth that cyber schemes really threw down the gauntlet. Compared to the most recent period, the total amount of cyber policies in effect grew by 120% – equivalent to an extra 1,903.
Winners and losers
Outside of the standout household and cyber schemes, the Insurance Times Schemes Index tells a number of stories.
While household, pubs and clubs, caravan and cyber schemes have all performed well in terms of commission growth, the lowest performing three schemes all actually saw total commissions fall period-on-period.
Commissions from marine cargo schemes saw the biggest decrease when compared to the previous six month period, falling by 18% for a total figure of £119,259.
Marine cargo schemes, however, also saw the second highest percentage growth of new policies growth on the previous six months. The volume of policies grew by 138%, equalling 292 more policyholders in the most recent period.
Public liability schemes and contractors all risks schemes also saw commission amounts fall by 14% and 4% respectively, although the total value of these drops was smaller. Public liability schemes also saw the largest drop in new policy volume, equivalent to a 41% reduction in the amount of policyholders.
Renewal policy volume increased for public liability schemes however, equating to a total 7.5% increase in the volume of policyholders.
In terms of opportunities for brokers, the best performing schemes for commission growth on new policies were household, legal expenses and pubs and clubs.
Legal expenses came in middle of the pack for many other metrics, but pubs and clubs was the second highest riser for commissions when compared to the previous six month period.
When comparing the most recent period of analysis to the equivalent period last year, pubs and clubs schemes also saw commission percentage growth of 22%, potentially indicating strong long term performance.
Bishop noted that these schemes had been sliding since the pandemic, but had clearly experienced an uptick in recent times.
With a particular focus on regulation, geopolitical and systemic risks and conflict, he has covered the insurance implications of the Ukraine war, riots in France and the commissions scandal for multioccupancy buildings insurance.View full Profile