Why have rates increased so much? Zurich says it is not just because of 11 September. Alison Boyle reports
The World Trade Centre tragedy has impacted heavily on the insurance industry, but all too often this event is used to explain why the commercial market is set to experience massive price hikes this year.
This misconception is one reason why Zurich UK Commercial has attempted to set the record straight this week by sending its 10,000 brokers a detailed pack highlighting 15 external factors that have forced the company to increase prices.
Zurich's biggest rise is in the employers' liability (EL) market with prices rising in excess of 50%. They have also announced an average price rise of approximately 25% in property and of up to 10% in motor.
Distribution and marketing manager David Smith says: "The whole insurance industry is aware that commercial premiums have got to rise and that's not something new. What we are trying to do and what the insurance industry has not done properly is give reasons why."
Key factors
The impacting factors include retrospective legislation, claims inflation and industry levies as well as a lower interest rate environment and falling equity levels.
Smith adds: "The rises are market-wide and not just by Zurich.
11 September might have raised awareness about the need for price rises, but there is an over-focus on it. It is a key factor, but only one of 15 and it tends to really affect the property account.
"There is a big variation of knowledge in the market. What we want is for our brokers to be confident in explaining rate increases to customers. We don't mind if the information is used on our risks or someone else's."
Zurich will be looking for broker feedback to assess what further assistance is needed - whether this involves the company sitting down with the broker's clients to explain the rises or placing articles in the trade press of various sectors.
No surprise
Despite what can only be described as a massive price rise in the EL market - the company believes it will not come as a surprise to commercial lines brokers.
UK casualty manager James McNab says: "It is not a brand new increase that is being announced. These increases have been applied during 2001. We just don't want brokers' clients to think we are over-reacting and it is grasping insurers trying to line their pockets again."
In the past five years, Zurich has seen EL prices rise by approximately 100% and McNab says there are no signs of this diminishing. In the same period the industry has seen the average settlement for an EL claim increase by over 100% and claims frequency is increasing due to the recent emergence of new types of claims such as stress and sick building syndrome.
"Brokers need to talk to their clients early to tell them what they need to do now. We are the market leader in EL and have been in the sector for over 100 years and we are in it for the long-term. It is still a sustainable market but it is not something that insurers can dip in and out of," says McNab.
In addition to the premium hike, Zurich recently announced it would be dropping its broker commission on EL to 7.5%, but Smith insists this had nothing to do with the price increases. "The premium rises were not the reason behind commission cuts," says Smith. "A lot of our EL brokers are fee-based, not commission-based. We remain totally committed to the broker market and putting out the support pack reflects our commitment."
He says the company has and will continue to enter into dialogue with the Health & Safety Executive and government about these issues. "But if you don't win the argument you just have to build it into your pricing. Things do tend to be skewed towards the customer, but you can't get emotional about it."
The key message for brokers is to get clients in early to explain the rises so they can budget for them, and also to escalate the debate about active interest in managing risk.
Smith adds: "Once people understand the reasons behind the increases, they are halfway to accepting them."
