The arrival of new insurers has stirred up brokers, but the established insurance companies do not seem too perturbed...
News that there could be a dozen or so new general insurers in the UK market has provoked a storm of reaction.
Last week Insurance Times exclusively revealed that Japanese giant Mitsui Marine and Fire would be the first of perhaps 13 new general insurers operating in the UK within 18 months.
The massive boon to the sector has been met with delirium by most brokers and intermediaries. But it has raised more questions than it has provided answers. Who are these new entrants, what business are they seeking to underwrite, where do they all come from, and what will be the consequences for premium levels?
Tony Baker, ex-ABI deputy director general and now a consultant, says: "This is what I foresaw happening last year: once Y2K was out of the way, particularly on commercial lines business, that companies would become committed to establishing themselves in the UK."
But Baker believes the news is not necessarily good for brokers. He says: "Companies are going to come in on commercial lines, but particularly as direct businesses. Some will operate with brokers, but the fact that brokers have got 80% of commercial lines, is there to be reduced."
IIB director general, Andrew Paddick believes that some of the new arrivals will be virtual insurers. Already in America there are 12 companies that trade purely over the internet. They have exceptionally low cost bases and are very competitive – and it seems inevitable that the same practice will start in the UK.
Paddick says: "There are going to be virtual insurers running from a computer box – a server – it is going to shake the industry. They are going to be a big challenge to the traditional players. Norwich Union and CGU will have a lot of baggage when they merge, but new players will come along with just a computer box. It will result in brokers using these virtual insurers and benefiting from lower costs."
But there are some serious concerns about the arrival of new players because of the additional capacity they will bring to the market, and the possibility of renewed rate attrition.
Independent Insurance marketing director, Graeme Sutton offers a qualified welcome to the new arrivals.
He says: "Any experienced underwriting company that is looking for underwriting profit and uses reasonable pricing, will be very welcome in this market."
The implication is that, as they seek to compete, the new arrivals will cause insurance premiums to come down.
But Biba's general insurance regional chairman, Pauline Quayle does not fear a softening in the market, saying: "The big issue is that when interest rates were higher, insurers could write lower premiums, now interest rates are low, they are finally being forced to underwrite for profit as well. I don't see the arrival of new players changing that.
"I think it's fantastic news. The level of consolidation has been disturbing to be honest. When I read about CGNU I thought: 'oh no, what next'."
A natural progression
One man who should know a thing or two about start-up insurers is The Underwriter chief executive, Keith Rutter. He too does not see new arrivals as a big problem.
He says: "Is it a threat? No. Additional insurance carriers is not a threat to us. As a company, we only equal a medium sized branch of RSA and we are not going to cause rates to come down.
"To be honest, this is a natural part of the insurance cycle, consolidation at the top means there will be a natural emergence of niche players at the bottom trying to take advantage of the fall out."
Another issue is that many of the companies that have applied for licences may have difficulty getting them. This is because one of the requisites for a licence is that one third of the new insurer's board must possess at least five years' experience at board level with a UK insurance company. Are there 30 or 40 experienced board members currently kicking their heels at the moment? Time will tell.