Signs of softening market in mixed bag results of broker schemes earnings

While Insurance Times’ previous analysis of data provided by schemes software provider SchemeServe in November 2023 identified signs of a profitable hard market, the most recent data shows that the insurance cycle may – in fact – be softening. 

When the market hardens, insurer profits rise as a result of less competition around premium rates, among other factors. This cycle is reflected for brokers too, with a hard market generally equating to more premium and commission earned.  

A soft market represents the opposite, with premiums and commissions earned generally falling. 

SchemeServe chief executive Adam Bishop told Insurance Times: ”Over half of all the schemes on [SchemeServe’s] platform recorded a fall in total commission compared to the previous six month period.” 

So, does this represent a softening in the market? Compared to the previous six month period, the most recent data from October 2023 to April 2024 showed that lines such as household saw a negative growth of 10.3% period-on-period. 

The other worst performing schemes in terms of commission change were caravan and trailer, which saw a 23.3% drop, and pubs and clubs, which saw a 22.1% fall. 

However, on a year-on-year basis, household schemes actually saw the largest increase in terms of commission percentage – rising by 41.9%. 

Commission for caravan and trailer schemes also rose by 10.3% year-on-year, while pubs and clubs schemes’ commission rose by 19.5%. 

So, while over half of all schemes on SchemesServe’s platform saw commission earnings fall in the last six months, year-on-year figures were much better, with only marine cargo, personal accident and public liability falling year-on-year. 

When compared to the prior six month period, this period’s figures do show evidence of the beginning of a market softening – but brokers may need to wait and see how this trend continues to develop. 

Cyber focus

Looking at cyber schemes is indicative when discussing what may be the beginning of market softening. 

Year-on-year, cyber liability schemes saw the fourth highest growth in commission percentage of all scheme types, with commissions rising by 23.1%. 

However, comparing the most recent data to the previous six month period shows that cyber scheme commissions fell by 4.9%. 

Bishop commented: ”Cyber is the highest riser in commission income over a two-year period – rising 161% – but [it] has fallen back in the last six months. Does this reflect softening rates in cyber?

”Interestingly, renewals income is still showing an increase of 30%, indicating that retained business has performed well and outstripped the rest of the market – despite overall commissions earnings decreasing.” 

Cyber schemes’ growth in renewal commission income came alongside a 49.6% increase in the amount of renewed policies compared to the previous six month period on SchemeServe’s platform, while the amount of new policies fell by 31%.

Top performers

In terms of which schemes performed best on SchemeServe’s platform when compared to the previous six month period, commercial property owners (19%), contractors all risks (18%) and commercial combined (15.2%) took the podium spots for percentage growth in commissions earned. 

Taking a longer year-on-year view, however, saw household (41.9%), commercial combined (30.5%) and specialist combined (28%) schemes experience the biggest rises in commission. 

Bishop picked out contractors all risks as a strong option for brokers exploring their scheme options. He said: ”This scheme has showed steady growth in recent years, with a 7% increase on two years ago and 13% on one year ago.

”Commercial combined also tells an interesting story across a two-year period, rising 15% in the last six months but 31% year-on-year and 60% compared to the same period two years ago.

“The 15% increase in the last six months is made up of renewal commission income of 5.5% and the rest from new business, indicating that new business is performing better than renewals on this product.” 

Household schemes’ performance year-on-year was supported by a 51% increase in premium earned over the same period, with Bishop noting the impact that widely reported inflation and claims costs have had in this line.