Commercial insurance is the rising star of the industry, with demand outstripping supply. And it's foreign capital that may save the day for brokers. Andy Cook explains
Who'd want to be a non-life insurer? Motor insurance appears to be a business of diminishing returns and now that the Motor Insurance Advisory Board is recommending a new watchdog for the industry to make sure that drivers get a fairer deal, prospects look bleaker than ever.
There's no solace at home. Domestic property insurance is no longer a great business to be in. According to AXA chief executive John O'Neil, claims are soaring. He says that the level of claims is higher now than it was ten years ago. "There has been a major weather event every year for the past five years. Before that it was one in every three years." The recent floods and the New Year freeze emphasise the point.
And it's not just the frequency of the events that is higher. O'Neil points out that with the economic boom and the value of home contents at an all-time high, the value of claims has rocketed.
What about healthcare? Well, it looks like public sector insurance will begin taking an ever increasing slice of the cake (see page 20). But there is one area where prospects look bright for insurers. So bright in fact, that new entrants to the market are beginning to appear.
So what is this area of promise? Commer-cial insurance is the surprising answer. Why surprising? Well for the past few years, commercial insurance has been as tough as all the other markets. Liability payouts have been advancing well ahead of inflation. Independent Insurance joined the market offering keenly-priced policies to buy market share and risk management has been a low priority compared with gearing for growth.
Now the market has shifted. With Independent Insurance gone, a raft of commercial risks with bad reputations have come back on to the market. At the same time, liability claims are continuing to spiral with no prospect of the Personal Injury Advisory Board (PIAB) coming into force to save the day in the foreseeable future. These factors are compounded by the steep increases in premiums charged by reinsurers following the 11 September attack.
With supply of cover restricted, insurers have grasped the opportunity to increase commercial rates by 50% and as much as 200% or more in some cases. Many employers are squealing about the price hikes and some insurers have taken this as a sign that there is money to be made in the commercial market.
One company that has been attracted by the seller's market is Liberty International. Liberty has been writing international business from Dublin for five years now, but opened its doors to domestic commercial business on 4 January.
Liberty's Neil McSherry explains that the market is so ripe at the moment it can afford to be choosy about the cover it is providing and the risks it is taking on.
"We are just looking at casualty at the moment, but we may look at property in the future. Specifically, we are interested in high-end leisure, like good hotels and modern manufacturing businesses," he says.
"We are staying away from the darker side of the leisure business," the former Independent underwriter adds. "We don't want to cover pubs where bar staff might be accused of discrimination against travellers or might be found liable for the actions of their drunken customers," he explains.
As well as being picky with risks, Liberty is being choosy about the brokers it deals with. McSherry says the company will only do business with brokers handling a minimum premium of E12,500 (£7,600).
"Ireland is overbroked. There are 650 brokers in the Irish Brokers' Association (IBA). Cork alone has 83 IBA brokers. We are looking at brokers who can give us sizable accounts with good risk management and in return we will give meaningful discounts," he says.
Despite being so selective, Liberty has been overwhelmed by inquiries. McSherry claims in the first two weeks, Liberty had 123 inquiries. It put out 53 quotes and had three risks on cover. And that's without a big marketing campaign.
It is not only Liberty that is looking to take advantage of the capacity squeeze. It is understood that Catlin and Mitsui have started writing business from the UK into the domestic market for the first time, while another UK company, Primary Group, has opened an office in Dublin.
Bermudan insurer and reinsurer Axis Specialty has applied for authorisation to write business in Dublin. It is understood the start-up, which will be headed by former Ace boss John Charman, will write insurance into the domestic and foreign markets.
The Primary Insurance Company opened its doors in December and has a first year's capacity of E19.7m (£12m), according to group marketing director John Bibby.
"There is a good opportunity to get good rates before capacity rushes back into the market," says Bibby.
"There have been premium rises across all sectors. But some have been too high. We can still make a good margin by offering lower rate rises. In some areas, where firms have put 50% on opportunistically, we could do well with rises of 30%," he adds.
Primary is writing accident, health and property risks and is also writing into the UK from the Dublin office. It plans to increase capacity to E61m (£36m) in 2004.
Existing players in the market, such as St Paul, are also looking at the market. St Paul Ireland general manager Peter Hayden said now that the company has stopped writing new medical malpractice business, it would be looking to bolster existing areas or looking to new avenues in order to utilise the firms resources.
Hayden said it was at an early stage and would not say exactly which areas capacity will be directed to.
|How the commercial market shapes up|
|Class of business||Gross income (Em)|
|Accident and health||98|
|Marine, aviation and transport||15|
|Fire and damage to property (inc domestic)||601|
|Source: Department of Enterprise, Trade and Employment: Insurance Annual Report 2000|