Time for a change – preparing for a hardening market

The soft market causes many problems and can be blamed for many things: cheap prices, wider cover for nothing extra, insurers playing tough with claims (exposing brokers to potential E&O claims), many brokers unable to focus on anything but price, and so on …

It’s all too easy for insurers to generalise that brokers can only sell on price. There are some brokers who are guilty of this. But there are still plenty who want to make sure they understand their client’s requirements and provide the right product to meet those needs. If only the clients will listen! When required, these brokers can advise on risk management or provide contract reviews services. And, when required, they have the skills to explain to a client why a premium or excess goes up or cover is restricted.

On the flip side, what about those insurers who are just chasing a price? They simply feed the brokers who can only sell on price.

The soft market creates many problems. But the biggest of these will be the arrival of the hard market, if ever that happens again for any meaningful length of time. It’s only then that the true test of quality will stand out.

Those insurers who have truly managed the cycle will still be around. A key feature of a harder market is less capacity. Those underwriters and MGAs who have destroyed capital won’t find it easy to reload; it could be an existential problem for some.

Signs of change are appearing

Right now, it feels like we are bumping along the bottom of the soft market. We’re all looking for signs of a harder market; increasingly, early signs are appearing. Last year’s natural catastrophes didn’t trigger any real hardening, but some insurers have re-engineered their books of business. The PRA is looking closely at insurer performance and how they are developing business. So is Lloyd’s of London, which is looking at the weakest performing syndicates and poorest performing sectors; this time the signs are that it means business.

Whether a firmer market arrives next week or next year, there is one reality. Few underwriters have the skillset to deal with a changed market. It’s not been easy to get a premium increase. Will they know how? The few who have experienced tougher times will remember it’s not as easy as it sounds. There are plenty of seasoned insurance people who may never have had that experience.

Do brokers have the skills?

How many brokers have the skills to explain and educate a client as to why their premium is going up but the cover is reducing despite their not having had any claims? Customers have become used to seeing their premiums reduce and have brokers fighting for their business with cheaper and cheaper premiums.

At times it feels as though a small increase of even £100 leads to brokers marketing a risk because they fear a client will leave them. So the underwriter pulls back from any increase at all, regardless of whether it is warranted.

Perhaps we all need to take a moment. The market can’t continue like this and will have to change. Should we be preparing now? We could make some small changes and dust off those almost forgotten skills!

richard.webb@manchesterunderwriting.com