AXA Commercial’s executive managing director says hardening rates and the challenge of unoccupied properties is impacting claims costs in the commercial property arena
Jon Walker, executive managing director at AXA Commercial, part of multinational insurer AXA, predicts big changes in the commercial property market for 2020, as factors such as hardening rates and claims inflation will lead to a spike in premium prices.
“There’s been very little evidence of premium increases in that space over recent years – if anything, [a] negative and downwards [trend],” he explained. “We’re already seeing signs of that changing.”
For Walker, claims inflation is being influenced by the more expensive building materials being used for commercial and residential properties, as well as traditional fire risks. Additionally, he noted that unoccupied properties are also posing a challenge, due to unwelcome third parties gaining access and causing “damage at significant expense”.
The property market is, therefore, seeing “a degree of rates hardening”, in particular for larger, more complex commercial cases, as a result of these influences.
He said: “Insurers that perhaps would have taken 100% of the risk 12 months ago now have less appetite to do so. More of that business [is] moving to a panel approach.
“The property market is going to need more risk management and intervention to help prevent and manage claims costs.”
However, a fluctuating property insurance market is not Walker’s only concern for the commercial sector.
“There are too many UK businesses that are underinsured,” he said. “Insurers and brokers will need to continue to focus on that and do a better job of educating UK businesses, ensuring that underinsurance is not an issue – of course, it only becomes an issue at point of claim and at that point, it’s too late. We can all work harder at reducing underinsurance.
“Some brokers and insurers are very active in that space, but generally I still think there’s a lot of work to be done”
Also impacting Walker’s workload is claims inflation in the motor sector, again influenced by the rising costs of more technologically advanced parts; dual pricing moving from the consumer to commercial arena; the attraction and retention of talent; as well as growing, market-wide broker consolidation.
“We can expect to see further broker acquisitions take place,” he added. “I don’t think there are any signs that anything other than [consolidation] is viewed by private equity and others as a good route to follow.”
A regulation ‘re-focus’
Alongside this, Walker observed that “an evolving regulatory landscape with an increasing focus on customer outcomes” is also becoming a central theme across insurers. This includes, for example, insurers clearly demonstrating the value of their distribution chain, satisfying both themselves and the FCA that their products are hitting the mark for customers.
He explained: “There’s a very clear direction of travel from the regulator in terms of valuing the distribution chains. How are insurers satisfying themselves that the products they are manufacturing ultimately deliver the expected value to the end client, right the way through the chain? How are you satisfying yourselves that the cost of that distribution is also adding value?”
From AXA’s perspective, it’s important to “take brokers on that journey”.
Walker added: “Our intention is to work with brokers to help them through that because it’s in our mutual benefit to do so.
“One of the things that is going to be really important is good quality, accessible risk management capability and brokers and insurers working together collaboratively, in a tripartite way with customers, to make sure that the end [business’s risks] are ultimately mitigated as far as is possible through improved risk management.”
Lastly, Walker emphasised that regulation around insurer distribution chains has not increased, but “there’ll be a re-focus in some areas that is definitely going to be occupying insurers’ minds in 2020.”
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