Relationships with clients have suffered over the tough stance on risk management, so investment must be rewarded and trust restored, says Toby Foster
At Marsh's State of the Market address, we offered our clients good news and bad news. The good news was that commercial property premiums are reaching a plateau, with distinct signs that the hard market will not be as protracted as we thought last year.
The bad news is that casualty premiums are still climbing.
Evidence from first quarter renewal period suggests that, in the absence of any unforeseen major market event, commercial property rates will soften this year.
However, the past 18 months have seen a structural shift in the pricing of cover.
The floor has been permanently raised on insurance pricing and we will not see a return to the purely competition-driven rating strategies that we saw from the market in the 1990s.
One reason for this is the severely contracted employers'liability (EL) market. 1998 showed about 20 players willing to write cover with relatively few exclusions.
Now, supported by only half a dozen insurers, some might question the legitimacy of the EL market at all.
But as Zurich London chief executive Martin South pointed out at our address: while the insurers are paying out £1.47 in EL claims for every £1.00 of premium collected, they are hardly going to be clamouring for a slice of the action.
Marsh's advice to the government during its recent EL consultation process was to extract disease risk from commercial policies into a Pool Re style reinsurance vehicle.
Indications are that such an arrangement would help to ease premium rises and restore competition. Existing early intervention healthcare techniques could also be applied much more vigorously to reduce claims levels.
In other words, we need to see more robust and relevant risk management procedures.
The hard market has brought risk transfer into the boardroom where it belongs. But in the process the tripartite relationship between client, broker and insurer has sustained damage.
Trust and stability need to be restored. Buyers must be prepared to invest in rigorous risk management structures and insurers are advised to recognise and reward such investment with informed, business-driven premium and cover decisions.
Relationships bind our industry together - we all need to work hard to maintain those that are long-standing and to restore those that have been buffeted over recent months.
Toby Foster is Marsh chief executive, UK retail
