Marsh’s new price index shows that past performance may not be indicative of future results
The revelations from Marsh’s inaugural quarterly global insurance price index should finally hammer home what some industry observers have been banging on about for ages - the cycle is dead, or at least severely broken.
The new quarterly survey revealed that second-quarter 2011 prices were up 1.4% on the same period last year, and that prices had been rising for four consecutive quarters. It noted, however, that the increases were more subdued than in the previous two quarters.
Price increases in loss-affected lines, such as property, are increasing, while this is being offset by decreases in other areas such as financial and professional lines.
What this shows is that while insurers the world over have been used to predictable multi-year cycles of boom and bust, we are now seeing smaller and shorter adjustments that are more tailored to what is happening in individual business lines.
One of the drivers of this is that both news and money travel much faster than they did a few years ago. As soon as some marginal hardening is perceived, new competition piles in, subduing rates quickly. On the global stage, this was seen in the 1 June property reinsurance renewals in Florida.
Closer to home, this has been seen in UK motor. Rarely has there been a line so sorely in need of rate increases. Yet after only a couple of years of sustained rises, UK motor rates are already tailing off.
Some executives have already grasped this. Where rates are stubbornly low, such as UK commercial business, they are sensibly refusing to pin any hopes on rate rises, and are treating the current pricing levels as a ‘new normal’.
But despite the many signs, some executives are still willing to ramp up business in certain lines, regardless of soft rates, because they believe they will increase. Their logic is that rates must go up because they always have before.
Hopefully the new Marsh data will snap the remaining few out of their reveries.