Daily briefing: Wednesday - A long wait for a hard market

This morning, Brit Insurance chief executive Dane Douetil added fresh fuel to the perennial debate over rates by predicting that the UK market is unlikely to harden until nearer to 2013.

Douetil’s gloomy prognosis follows a series of more optimistic forecasts over the past few months. Beazley announced in its first half of 2011 results last week that it is making financial provision to take advantage of a potential hardening of the market. Earlier this month, THB added its voice to the ranks of the hope merchants with a statement that “indicators point to a hard market”.

And, earlier this year, Zurich commercial broker chief Dave Smith told Insurance Times that he saw similarities between the current market and that of the early Noughties when the market last turned.

So why the discrepancy between what Douetil thinks and these other market sentiments?

Differing viewpoints

Beazley and THB are both talking about the international market, which has seen a succession of massive catastrophes in the year so far.

Smith’s optimism was grounded in improvements in the fleet motor rates in the first quarter, which have tended to track those in the wider motor market.

However, the latest Towers Watson/Confused.com index of motor rates showed that the second quarter of 2011 saw the smallest increase for nearly two years .

Following the breakneck expansion of last year, fuelled by the explosion in claims inflation, this points to a slowing in the one chunk of the market to have seen a hardening recently.

Douetil agrees with Smith that the signs are encouraging on commercial motor fleet, but elsewhere he sees few signs of optimism. The last hardening of UK rates followed 9/11, which in turn came after what commentators regarded as an exceptionally soft market.

And it is hard to see where a hardening of rates is going to come from domestically. The UK appears to have entered a hopefully temporary period of 'stagflation': little or no economic growth coupled with high inflation.

Against a backdrop of falling standards of living and an uncertain economic outlook, it will be increasingly tough to persuade cash-strapped businesses and consumers to pay more for what even industry insiders acknowledge is a grudge purchase.

Fraud on the rise

Today also saw the publication of Experians latest quarterly fraud snapshot . The figures for the first quarter of 2011 are scant but worrying: a 43% increase year-on-year compared with the same period in 2010.

The rise in the number of claims and applications found to be fraudulent may point to greater vigilance on the part of the industry in its efforts to tackle fraud.

But the biggest chunk of the increase must be down to actual increases in fraudulent activity.

The ABI’s own consumer surveys on attitudes to fraud show that a worryingly high proportion of the population think that defrauding insurance companies is borderline acceptable behaviour.

A heated debate at a recent Insurance Times claims clinic on fraud, which I chaired, showed that practitioners believe the issue is far from being resolved.