Cut in fleet numbers affects premium costs; they must go up to safeguard profits, say underwriters

Nine out of ten underwriters predict rising commercial motor rates in the coming months as insurers struggle to remain profitable.

Research from Aon reveals that 91% believe rates will have to rise for the third quarter. As the economic downturn deepens, companies have cut back on their motor fleets. Underwriters say that they then spend less on insurance, forcing rates up so that insurers remain profitable.

Their prediction of a rise contrasts starkly with earlier this year, when they all said there would be no change in rates for commercial cover.

Steve Redgwell, head of broking for Aon’s mid to large-sized companies, said: “Insurers continue to tell us that they need to see an increase in rates soon in order to return to a sustainable level of profits. But while their reserves are running low, the overcapacity in some areas – fuelled by new market entrants and the competition amongst insurers for income – is keeping rates down.”

Aon’s Market Pulse research also shows that 40% of underwriters believe rates will rise for casualty and liability insurance, while 35% believe there will be a lift in property insurance.

However, companies with weaker risk management can expect their insurance costs to increase as insurers try to limit claim payouts. Overall, rate rises are expected to be modest.

Redgwell said: “Aon maintains that, overall, we will see little change for property and casualty, though it is expected that rates will rise for these categories in Q4. There is a strong consensus amongst insurers that motor rates will continue to increase slowly through Q3 and Q4, as current losses are simply unsustainable.

“There is definitely an opportunity for businesses to secure good rates in Q3, so long as they have strong risk management practices in place.”

Graeme Trudgill, technical services director, Biba:

“There is a need for rates to rise. Unfortunately they have not so far, so we’ll have to wait and see.

“The things that go against it are competition and capacity. Insurers want to put their rates up, but then there’s someone else wanting their market share.

“Brokers will always do what they can in finding the best deal for their clients.”

Naeem Ali, consultant, EMB:

“There has been a strong view in the market for about six months that rates had to go up.

“That did not materialise to the degree that everyone would have liked in fleet. It’s about time they hardened because competitive pressures have been quite healthy.”

Patrick Smith, chairman, Swinton:

“Commercial motor premiums are suffering from the same inflationary costs in personal lines, and need to rise.

“When and whether that will be is for insurers to work out – but not together, as that would be collusion. They have to come to the conclusion separately but agree later, otherwise rises will not be effective.”