Is the market set for a rating boost?
The insurance market is currently characterised by falling rates and increasing claims costs, but there are some crumbs of comfort for beleaguered underwriters.
There is no escaping that the motor, liability and property markets are currently tough arenas for insurers. Rates have been slashed in the motor insurance sector, partly due to the abundance of price comparison websites, which make switching insurers a doddle for customers. As AM Best points out in its newly published non-life insurance market review, comparison websites are making it extremely difficult for motor insurers to retain customers.
The ratings agency has also predicted tough times ahead for liability insurers, with increased competition driving down rates. Meanwhile, commercial property rates have remained weak, and though some insurers have been able to increase household insurance rates, the price hikes have been “relatively modest” according to AM Best.
But let’s look on the bright side. Though it will take some time before the extent of liability insurers’ exposure to errors and omissions and directors and officers claims arising from the subprime crisis is fully realised, the level of UK claims is expected to be modest. Though subprime-related class action lawsuits have been common in the US, there is not the same appetite for litigation in the UK. That said, we should not rule out the possibility of an upsurge in liability claims relating to the property market downturn.
Meanwhile, in the motor market, underwriters have been buoyed by the fact that, though rates are being cut for new business, rates for renewals have actually increased. And the good news for property underwriters is that losses in 2008 are expected to be significantly lower than in 2007, when insurers took a massive hit as a result of the floods during June and July of that year.
In another boost for the industry, its returns on investment in 2008 may not be as low as first feared. UK insurers’ exposure to subprime assets “appears to be limited”, according to AM Best. In addition, while the collapse of Lehman Brothers will adversely affect some companies investment return, it is not expected to be significant.
