An Insurance Times’ survey of six fleet insurers – Allianz, Aviva, AXA, Groupama, QBE and Zurich – reveals trends in areas including: pricing, demand, policy coverage, and claims for small and large fleets. Michael Faulkner interprets the responses and considers what they mean for the industry

Key findings

  • Premium rates are expected to increase over the next six months for both large and small fleets, continuing the trend seen over the previous half-year.
  • Demand for cover by large fleets is expected to remain stable, with a mixed picture for small fleets.
  • The majority of respondents said the number of claims would remain stable over the coming six months. Some insurers said the number of claims had fallen.
  • The fleet market’s capacity was expected to remain stable, as new entrants balanced the reduced appetite by existing players.
  • Respondents were optimistic about the profitability of the fleet market this year, with half expecting profitability to improve.

Pricing

All respondents predicted that rates would rise for small and large fleets, with the majority forecasting a hike of up to 10%. Some expected the rate of increase to be greater than that seen over the past six months.

One insurer said: “Although there have been small rate increases at the start of 2009, the greater focus on bottom-line results should push through greater increases during the rest of the year, especially due to the lack of investment income and increasing claims inflation and reinsurance costs.”

Another respondent said: “Most companies are looking to shoulder any rate rises at present, but new entrants are keeping rates keen. Greater rate increases are necessary but market capacity may keep them static for the next six months.”

A third insurer added: “There are significant increases coming through already, but the market is unlikely to support levels above 10% in the next six months.”

Some respondents were more optimistic and said rate increases would be more than 10%, particularly for larger fleets. “I suspect rates will increase slightly ahead of the levels seen for small fleets, as cases are written more on their own claims experience,” said one respondent.

Another said: “After four years of reducing or stagnating rates, we expect an uplift to counteract claims inflation and the impact of credit hire.”

Policy coverage

No respondent expected a change to the terms and conditions of fleet covers over the next six months. Some respondents said that cover had widened in the previous six months, however. One-third had seen this happening particularly in relation to large fleets.

One said that this was due to pressure from the national brokers. Another noted that extensions to policies connected with the corporate manslaughter offence had widened cover.

Demand for cover

In the case of large fleets, the majority of respondents expected demand to remain stable over the next six months. Only one respondent said demand would fall.

For small fleets, a mixed picture emerged. An equal proportion of respondents each said demand would remain flat, fall or rise.

Comments focused on two areas: overall demand and new business trends. Some respondents said that the recession was having an impact on demand, as customers went bust or reduced the number of vehicles they ran.

“This reduction in demand started in Q4 2008 and has been accelerating month-on-month through 2009. The timescale for any recovery in demand will mirror improvement in the wider economy,” said a respondent.

One respondent noted that fewer companies operating large fleets had ceased trading compared to those with small fleets.

Other respondents focused on new business. One insurer said there had been less new business than in 2008 owing to the recession and insurers protecting their market share. A respondent said: “As the market hardens and rate increases become more frequent and higher, [we would] expect more businesses to demand broker marketing.”

Other insurers commented that “most risks were marketed” and companies “were prepared to move for small savings”.

Claims

The majority of respondents said the number of claims would remain stable over the next six months. Some insurers said the number of claims had fallen, however. One-third of respondents said there had been a decline in the number of claims over the previous six months in relation to small and large fleets.

One insurer expected this trend to continue for large fleets. This respondent said: “The recession has seen businesses reduce the amount of mileage and make greater use of, for example, teleconferencing. We expect such efficiencies to continue. In addition, the recession has hit the haulage industry hard, leading to less movement of goods.”

Another respondent said: “There is some evidence of a slight reduction in notifications compared to our expectations.”

But another insurer was concerned that claims could rise. “The onset of recession may drive an increase in the number of fraudulent claims, such as fire, theft and third-party injury.”

The respondent added: “Risk management on [large fleet] risks should help contain the volume of claims in the future, and it is now becoming more of a conscious effort from all parties. But in a recession one could argue that claims frequency will increase as insureds look to claim on losses they may well have managed before.”

Capacity

Most respondents said the fleet market’s capacity would remain stable, as new entrants to the sector have balanced the reduced appetite of existing players in the market.

“The motor market is still attractive to new entrants due to the relatively high average premiums,” said one insurer in relation to large-fleet risks.

However, some (one-third of respondents in the case of small fleets and one insurer in the case of large fleets) predicted capacity would decline. “We suspect that capacity in the market will start to fall and align with demand,” said a respondent. Another commented: “Insurers will continue to be attracted to blue-chip risks but market capacity will reduce as [financial] results dwindle further.”

Major issues

Respondents were asked to identify the two biggest issues for the market. Achieving rate increase and claims-related issues featured strongly in the responses for small fleets. On claims, respondents were concerned about the costs of credit hire and personal injury claims inflation.

Unease was also expressed that spending on risk management would reduce as investment programmes are cut. “When investment decisions are being challenged, risk management expenditure may come under pressure despite the excellent ‘pay-back’ it normally generates,” said one respondent.

Profitability

Respondents were optimistic about the profitability of the fleet market this year, with half expecting it to improve. These respondents pointed to the hardening market and stable or declining claims exposure as the driver for improved profitability.

The extent to which profitability improves will depend on how much rates increase, one insurer noted.

But other respondents expected the market’s profitability to decrease this year, because of reduced prior-year reserve releases and reduced investment returns.

Insurance Times’ research department is undertaking a number of research projects. We recently published a report on the commercial property market and are working on the the annual Broker Service Survey, in which brokers are asked to rate the quality of service provided by their insurer partners. To take part in the Broker Service Survey, email: michael.faulkner@instimes.co.uk