With a future turn in the market no longer a guarantee, the industry is in uncharted waters. You need to make it work for you
Insurance is a particularly tough sector to be involved in right now. UK plc continues to feel the pinch following the financial crisis and the corollary of this for the insurance sector is a prolonged soft market. Premiums are in decline not just because insurers are charging less in order to try to retain a healthy client base, but because turnover continues to fall, wages are coming down and clients are reducing their cover in order to trim expenses.
Whatever the government says, UK plc is still in distress and will be for quite some time. Last year, we saw SMEs suffering, and they continue to bear the brunt. This soft market in SME businesses is creeping up towards larger corporates – a trend that has really been felt in the second half of 2010.
We are seeing big reductions in premiums for larger business. Across the industry, larger clients that tended to keep their policies in place, perhaps at a reduced rate, are now cancelling covers and changing insurers as well as brokers with as much willingness as the SME market has done over the last year. Companies of all sizes are keeping an eagle eye on their spending and trimming costs wherever possible. And this is affecting brokers quite substantially.
The outlook for 2011 is relatively bleak and we do not envisage rates going up; indeed we anticipate rates continuing to fall in some areas, although a hardening market is possible in a few sectors, notably private motor insurance where we are seeing hikes as big as 30%.
Rates in the insurance market have always been somewhat cyclical – they go up, they go down – and this has been the case for hundreds of years. However, there are serious discussions going on in the market at present that we may have seen a paradigm shift, and that this is no longer the case. It could be that we sit here and wait with bated breath for rates to harden but never see it actually happen.
With the economy as it is and cuts continuing to be made, as seen in last week’s comprehensive spending review, macro-economic factors are placing a ceiling on rates.
If and when the ceiling is removed remains to be seen. I believe rates will eventually rise, but people are speculating that this could be a long way off and that we are therefore entering uncharted territory.
Obviously, large losses will ensure some hardening, but until those happen – whether it is a natural disaster, notable business failure or another substantial loss – we are likely to remain in this suspended state for some time.
But we cannot just sit and wait for rates to harden. We have to re-engineer our offering to be fit for this market now, a market we may be faced with for some time. People will have to look outside of rating, whether that is through acquisition activity, sales campaigns or reshaping their businesses, to be fit for purpose and therefore more profitable.
We have to look at different forms of profit-making activity. As a whole, insurance at the moment is extremely underpriced and will remain so for some time to come.
There are no easy wins out there at the moment, and looking back to the old cyclical world is a mistake. To win, one has to look beyond the pricing, concentrate on service and give the clients what they want, rather than what we have historically offered.
With increased FSA costs and commission transparency being just two issues that will be featuring over the next few years, a business that stands still now will be a dead one later.
Stuart Reid is chief executive of Bluefin.