At this rate, who knows?

Talk is cheap – especially when it comes to rates.

Last week Royal & Sun Alliance chief, Bridget McIntyre, lambasted the market for its lack of action on pursuing rate increases, despite there being no shortage of pledges from senior industry figures.

Her remarks coincide neatly with those of Fortis chief, Barry Smith, who warned that insurers hellbent on pursuing volume could hinder the recovery of commercial rates.

Evidently, there being few signs that the practice of grabbing market share is on the wane, it could be concluded that rates will just have to wait.

Though rates in some lines of business (commercial property and solicitors PI to name but two) continue to verge on the suicidal, the commercial considerations of individual insurers, somewhat unsurprisingly, tend to trump concerns over the long-term profitability of the market.

Whatever the case may be, rates, like all numerical data, can be easily used and abused.

There are a number of important considerations that need to be made before it can be said with any degree of certainty either that sustained rate increases are being effected or that its hallowed cousin, the hard market, is on the way.

First, and as any broker will tell you, what insurers say and what they do are entirely different things. A chief executive's proclamation does not easily translate to the coal face, where underwriters are faced with stern targets – and dwindling comissions.

McIntyre’s swipe at the competition may have credence – R&SA are clearly out on their own when it comes to implementing sustained rate increases this year – but it should be said that its competitors, most significantly AXA and Norwich Union, have implemented rate increases of up to 10% across a variety of commercial lines books earlier this month.

Norwich Union has pledged that further increases in property, fleet and liability of up to seven per cent will follow in 2008, while Zurich and Allianz, among others, have suggested they will be looking to make similar moves.

Second is the fact that different lines of business behave in very different ways. Even R&SA has not yet dared increase its commercial property rates this year. Instead, merely holding steady has cost them precious volume.

On the other hand, there are few insurers who have not increased their private motor rates by at least five percent this year; some of the bigger players in fact have moved by over 15%.

Yet the size of the number does not denote the significance of the move. A five per cent increase for a book of business that is already undercutting the competition by 25% in effect means little.

A third consideration is the fact that rates alone do not tell the whole story. Across a book of business rates will continue to vary considerably depending on a variety of factors, including the size of the insured party, while deals and discounts for business both old and new means that customers can still find a deal where the price ultimately does not reflect the risk.

Until the market takes the drastic step of phasing out – or at the very least drastically reducing – such practices, rating increases may prove to be little more than a smokescreen deployed in the name of underwriting discipline.

Indeed, with so much volume at stake – and so many players actively attacking each other – it can be argued that, for now at least, rate increases are as much wishful thinking as good business practice. As a result, it would not be surprising to see substantial hikes by some insurers of 15-20% as we have seen in the past, as opposed to the more measured 3-4% per quarter.

At any rate, as recent figures show, those insurers that are prepared to take the plunge have gotten burned.

“Royal and sun were massacred on volume in the first six months of this year,” a senior industry figure says, referring to their commercial property and fleet books – the latter of which has shrunk by a fifth year on year.

“We’ve seen insurers withdrawing capacity in order to honour their pledge to underwriting discipline many times before,” adds another.

“What’s interesting is how some of them switch between roles – in some cases, regardless of the market cycle, but based instead on what their competitors are doing.”

Ultimately, few are prepared to dispute that rating increases are coming. Whether it will be a marketwide phenomena is highly unlikely, but it seems as though a critical mass, driven by claims inflation, could be approached sometime next year.

But for now, it remains a guessing game.

“Rate increases will come,” McIntyre concludes.

“When? Who knows.”