Grant Ellis reflects on an enjoyable Biba conference and says that, even for the older heads in the industry, today’s market is a most unusual one
This year’s Biba conference was one of the best. Lots of brokers were there (not always the case in recent years) and much more time was given to networking.
I spent most of my time meeting people. Biba is a great place to meet old friends, make new ones and to pick up on the market mood.
Everybody appeared to have made a little more effort: the stands seemed bigger, the displays more expensive, the promotion more expansive. Some of it was, of course, the same as ever, including the ‘dolly birds’ in skimpy outfits (I remember them, but instantly forget who they represent, which I suspect defeats the object). The larger insurers’ stands were particularly memorable. However, my personal favourite was the stand, which appeared to be unmanned, promoting an online jobs site – it featured just a laptop computer! Still, if it’s an online business ...
Why had everybody gone to so much trouble, I wonder? Well, it seems that increasing one’s SME book is high on every agenda, and what better place to promote your aspiration than the biggest gathering of brokers?
If you want proof of this appetite, thumb through the past few issues of Insurance Times. In each there is a report from one insurer or another reiterating their aim to be a top five insurer of UK SMEs. To a man, they predict at least 25% growth in a market which is at best static and more likely to shrink rather than grow in the short to medium term. Clearly, they cannot all succeed.
I’m long enough in the tooth to have seen several market cycles, and up to now they have appeared depressingly similar. Insurers make good profits when there is insufficient capital in the market (demand outstrips supply.) However, this profitability encourages more capital to be deployed, which eventually produces overcapacity (supply outstripping demand), which in turn drives down prices and ultimately reduces profitability. Capital then leaves, and profitability returns ... and so it goes on. I suspect I may be preaching to the converted.
Insurer profitability has been in the doldrums for a few years. More often than not, it has been made respectable by reserve releases, so in theory we should be seeing capital exiting and rates rising. This has happened on every previous occasion, so why not now? While there seems to be some movement of capital out of personal lines and motor fleet, it isn’t exiting the market, but appears to be moving into SME commercial where returns have been much better (and there aren’t too many options in this climate).
This is, however, exacerbating the softness of SME and driving prices down, which will hit future prospects. There will be winners and losers in this fight for market share. Some will grow but at the expense of competitors, and what will be the price of winning if business is acquired below cost? Stakeholders, please note! It will be the most efficient insurers with the lowest cost base that will have fewest scars.
Who will be the winners and, perhaps more importantly, the losers? In just over a week, the World Cup begins, and we’ll be trying to guess who lifts the trophy. Such predictions are usually a bit of fun, as we’ll have little riding on the outcome other than bragging rights. For brokers, the decision over which insurers are going to win in the latest SME battle has much more riding on it.
My prediction? Come on Enger-land! This time we’re definitely going to win. You heard it here first! IT
Grant Ellis is chairman of Broker Network Group