Commercially minded

The news that over the next five years, growth in UK commercial lines business will outstrip that of personal lines is not so surprising.

The fact that this development will be spearheaded by the liability sector, however, most certainly is.

The revelation, courtesy of research by Data Monitor, estimates that the compound average growth rate of the commercial lines general insurance market between now and the London Olympics will be 5.3% – half a percent more than the personal lines sector over the same period.

Considering the current state of the market, with growth in personal lines premiums last year standing at just 1.4% (due largely to a GWP fall of 0.9% in the motor market) personal lines insurers will nonetheless be pleased.

Until, that is, you factor in claims inflation.

A 4.1% hike in the total value of motor claims in 2006 may be galling, but it is not the worst.

The household market delivered premium growth of 3.4% – and claims inflation of 5.9% – leading to a virtual halving of underwriting profits to £167m. Following this year’s floods the champagne, for now, will remain on ice.

In the commercial lines arena, pricing has been the bane of all participants, which culminated in a 1.1% fall in the size of the market overall. For this, employer’s liability and fleet were to blame. Despite EL premiums rising by 2.7% in 2005, last year they virtually collapsed, falling by 6.3%.

Fleet rates, meanwhile, fell by 0.9%. The good news is this was down from 1.5% in 2005.

Much more promising was the performance of group accident and health (+3%) and commercial property (+0.5%). According to Data Monitor’s estimates, however, this upward movement will not last.

Instead, liability will be the driver. But it would take a brave man to pinpoint how fast the car will be going.

The question is from which source the liability market will derive its expansion. Rates, say insurers, can only go up.

But caution would be well advised: this September’s solicitor’s PI renewal season proved that unless they are absolute zero, rates in fact, can always go down.

Much more likely to account from premium growth will be the enormous proliferation of evolving liability covers – in particular, D&O.

In this respect, the scares of sub prime may just end up helping insurers. Liability has become a pie into which all parties are looking to stick their fingers.