Insurers are beating down the door to get into this ‘safe haven’, but as the competition rises, rates may be forced to go the same way

Property insurance

Mitsui Sumitomo at Lloyd’s celebrated snapping up a former AXA property owners team this October. The move is an example of the increased competition among insurers in the property owners’ market, which is translating into generous commissions for brokers.

But, even as the five-strong ex-AXA team gets to work leading Mitsui Sumitomo’s first foray into this market, it illustrates a paradox at the heart of property owners’ insurance. This is that while the market continues to attract new insurers – which see an opportunity to make profit – the more new entrants that come in, the more competition increases and hence the ability for insurers to make profits diminishes. And in the long term, this is a worry for brokers as well insurers.

Here we look at exactly how the market works and whether rate rises could be on the cards.


Property owners’ insurance, also called real estate insurance, is business insurance for property owners and landlords. So the properties covered range from single apartments and houses to blocks of flats, shops and offices, and even large shopping centres and skyscrapers.

Who’s competing?

All the national brokers operate in the property owners market. But the likes of Aon, JLT, Marsh and Willis are also up against a raft of London and regional niche players. Commercial underwriter APC, for example, which specialises in property owners’ insurance, deals with some 11,000 brokers.

The capacity

On the insurer side, new entrants to the market are flooding in. APC underwriting director Ian Russell says: “We have been in business for 20 years and over the last three we have never seen such a serious amount of new competition coming in.”

Besides Mitsui Sumitomo, other big names to have entered the market in the past three years include Brit, Ecclesiastical and QBE.

You quickly know what a claim will be, so it’s a nice, predictable business line to have on your books.”

Mike Philips, Mitsui Sumitomo

So what’s the appeal? Mike Philips, who is leading the new team imported from AXA at Mitsui Sumitomo says: “The market is diversified; performance in the UK over the long term has been stable; and as the market depends simply on the existence of properties, it will always be there. We are affected by weather events, of course, but if underwritten correctly, this market is essentially a safe haven.”

A further benefit is that very little property owners’ business is long tail. Lockton director of real estate Mark Rose says: “You quickly know what a claim will be, so it’s a nice, predictable business line to have on your books.”

Despite the economic downturn, there is some growth too. Arc Legal, a specialist provider of legal expenses insurance, is on course for net premium income from landlord insurance to increase 15% in 2011 to more than £1m.

Arc director Richard Finan says this is partly because ‘accidental landlords’ are on the rise. “People in negative equity are finding that they can’t afford to sell their property so they are forced to rent it out – they are frequently couples that own a property each and have moved in together.” He adds that landlords that previously considered themselves “amateurs” are now “growing more confident and switching from buying insurance from their letting agent to using a broker”.

State of the market

While all this is attracting insurers, premiums have been soft for a decade and new entrants are exacerbating this. Rose says: “The new entrants see opportunities to make profits and hopefully they will, but the more capacity there is in the market, the greater the pressure keeping premiums down. As a broker, our job is to make sure premiums stay low, of course, but the insurers are now struggling to make money, which is a problem for everyone in the industry.”

Loss-making ratios clearly can’t continue, so for insurers it will quickly become a case of either raise rates or exit the market.”

Ian Russell, APC

Insurers are being further squeezed by a global rise in floods and the spate of catastrophes in recent months, including tornadoes in the USA and floods and earthquakes in Australia, Japan and New Zealand. In the UK, fraudulent claims on the rise due to the downturn are being seen in this market as in others and the double freeze last winter has put even more pressure on margins. Russell says: “Now, the big fear is that this winter will be just as tough.”

Meanwhile, as the competition continues to rage among insurers, brokers are enjoying higher levels of commission. Russell says: “Some brokers are getting as much 50%.”

The future

Without rate rises to support these commissions, though, high levels cannot be sustained. Russell says: “Loss-making ratios clearly can’t continue, so for insurers it will quickly become a case of either raise rates or exit the market.”

Russell is optimistic that many will opt to raise rates – above all because “insurers’ capital providers want to see investment returns”.

Lockton managing director of real estate and construction Steve Bracey says rates could well go up in 2012: “Lots of the large insurers, including Allianz and RSA, have their reinsurance renewals due in January and this will dictate next year’s rates.” He adds that one more large catastrophe would tip the scales, “guaranteeing” a rate rise. It remains to be seen what this so-called ‘predictable’ market will do next.