Insurers that perform a U-turn over rates do themselves, brokers and the customer no favours. It’s time for a return to sanity
I know that we have seen a bit of sun recently (and very welcome it has been too), but when I read in a recent edition of Insurance Times that a number of major insurers were pushing up commission rates for commercial business, I began to wonder if they might have been affected by the heat and whether mid-summer madness might have arrived a couple of months early.
Was I dreaming, or did I see some of the very same insurers make various pronouncements recently about the need to constrain excessive reward for the good of the market and to improve wafer-thin margins? I simply cannot understand this 180° turnaround. My dreams are now in danger of becoming a nightmare.
After all, what has changed? The commercial market is still in dire straits. Rates are soft and competition is extremely fierce. Yet it seems that for all the talk during the results season about the need for prices to rise and for sanity to return, some of the very same insurers have changed their minds and are now blatantly setting out their stall for growth. No wonder brokers are confused – because I certainly am.
Maybe the message about the need to get rates up is not getting through from the top to the front-line. Or even worse perhaps, those in the field are listening but not wanting to hear.
Broker feedback also suggests that there is still little expectation of the much-needed hardening of market conditions. At best, rates might have levelled out in some areas, but in others they are still soft. So there is nothing concrete to confirm that any sanity is returning to the market yet – and this has to be a major concern.
At the same time that some insurers are jostling for position to get their commission up first, the curse of ‘dual pricing’ also remains alive and well. Where is the sense in undercutting renewal rates that are already inadequate to acquire a piece of new business that you might underwrite at a loss? How does this help the broker, who is forced onto the market for an alternative quote or, more to the point, the customer who again gets no reward for loyalty? And if someone can explain to me how it makes sense from an underwriting viewpoint, I would certainly welcome the feedback.
Lower prices coupled with higher expenses mean one thing, and that is underwriting losses and the perpetuation of the soft market conditions that have been prevalent in the UK for far too long.
At Groupama, we think that brokers are in the best place to determine what they need in terms of reward, and we also recognise that this might differ on a case-by-case basis. So we now provide net rates and a variable commission option as part of our online trading model. We receive the correct underwriting rate for the risk, and the broker has the opportunity to flex their reward appropriately.
We understand that, in some instances, brokers might need to earn a bit more for the work that they do on a smaller premium case or, alternatively, they might prefer to take no commission at all and simply charge a fee instead. After all, they know their clients best and we believe that the final decision about what they charge for their service should rest with them.
In the meantime, surely the commercial underwriting market needs to get real and return to the less sexy but more sensible approach of ensuring a consistent bottom-line performance rather than the ‘short termism’, based on the cheapest price, that drives the cycle.
Bluntly, the alternative is unthinkable. And if you don’t believe me, just ask Quinn. IT
Laurent Matras is managing director of Groupama Insurances.