Tom Broughton comments on the impact of the credit crunch on insurers.
“The incidence of fraud increases when times get tough and we are currently monitoring a year on year increase in arson claims on our property account,” Groupama chief executive Francois-Xavier Boisseau says this week. Boisseau explains it is a first sign of the impact of the economic downturn. “It is early days but this appears to be a sign of things to come and another reason why premiums need to move up.” Groupama is not alone, AXA said just last week that its fraud detection rates are up by 80% as the credit crunch take its grip. And the Home Office has indicated that it expects an increase in burglary and acquisitive crime. The insurance sector can cope with opportunistic fraud and has chosen to focus on targeting criminal gangs and using sophisticated detection techniques. But increasing levels of fraud is an additional pressure on insurers who are currently trying to cope with poor investment returns, shrinking global capital markets and a potential threat to the smaller carriers. “I think that the second half of the year will remain very challenging. We expect rates to remain under pressure - especially in commercial lines where there is an urgent need for rating increases”, adds Boisseau. And the message is the same from other insurer chiefs and particularly those in the midst of the current round of negotiations with consolidators. So given this context, the cold reality of broker negotiations at the sharp end have come even clearer into focus for insurers. But the pressure is not all one way. Watch out too for a new reality emerging amongst the consolidators. They will be entering into regular discussions wth financiers to renegotiate their debt and to fund their increasingly expensive models, and it won’t be as cheap as the money that has been given away in the last few years. The balance of power can quickly change and the counter attack from insurers will not go away. The gigantic empires of consolidators will need careful control, policing and integration. So what better time for independent brokers to capitalise on their traditions and track records of professionalism in an effort to secure sensible returns? After all, it takes a different skill set to steer a steady integration path and achieve organic growth through the bad times than it does to keep on growing by acquisition when the sun is shining. And achieving such organic growth will be the big test through any recession for consolidators and insurers alike. IT