Commercial lines ‘on road to recovery’

The words that all broker and insurers have been so desperate to hear have finally been spoken. LV=’s boss John O’Roarke yesterday declared that the UK commercial lines insurance market is on the early road to recovery. It may be in small steps, but the market is showing signs of rate hardening, he says, and this should be enough to buoy even the most pessimistic of chief executives.

But this can only happen if other insurers sing from the same song sheet. They all want rates to go up, but until someone breaks ranks and declares multiple digit rate rises, it is a game of cat and mouse.

Over-capacity in the commercial market is a big reason why rates have remained low. Insurers are frightened to increase rates because of the serious threat that they will lose a significant chunk of premium to a player who is willing to take on that business at a lower price.

Unless a major event occurs, the market will only see gradual increases over the next year, said one broker boss. He predicted that the market will enter a transition phase by the end of the year whereby the largest commercial insurers will collectively have no choice but to increase their rates, allowing others to take advantage. This isn’t a good period for brokers as it creates a gap in the market which ultimately causes uncertainty. “There’s always someone out there who thinks they can make money out of this,” he said.

O’Roarke said commercial rates could rise as much as 8% to 10% this year. That’s quite a significant jump considering the market has been stuck in a soft cycle for around eight to nine years.

Next week we’ll find out if the other big commercial players in the market agree with him.