Battle for growth to spur further UK market improvement through 2023

The commercial insurance market continues to stabilise for UK buyers with softening now evident across key lines, and even property cover, which has been less impacted by difficult reinsurance renewals than many expected, is relatively benign.

Insurance brokers have told Commercial Risk Europe that they expect this trend to continue for the remainder of 2023 and into year-end renewals amid strong competition between insurers battling for growth.

Insurance buyers have said during recent interviews that although the market remains dislocated, they are seeing this first real signs of market softening during summer renewals. And this is backed up by brokers.

Catherine French, placement leader for risk management accounts at Marsh, said much of the UK market has stabilised amid new capacity and heavy competition as insurers push for growth. There is softening in some lines, such as D&O, and things are even fairly stable in property, which has been less heavily impacted by hardening in the reinsurance market than many feared, she added.

The UK continues to be an easier market for buyers than some other parts of the world, such as the US, with rate reductions now possible, said French.

“Casualty and motor have stabilised. Financial lines are definitely still trending down. And even for UK property, unless you have very significant cat exposure in the US where rates are rising, insurers are pushing for rate but, in reality, things are pretty much stabilising,” she said.

“There is so much competition. Every insurer we speak to is in growth mode and we are oversubscribed on most of our placements. If the risk comes to the market early, is well managed, and you are able to get market engagement going, there is interest from carriers and rates are reacting,” added the broker.

French said Everest, Sompo, Scor, Berkshire Hathaway and Swiss Re Corporate Solutions have either recently entered the UK market or reignited their interest. In addition, Marsh’s quota share Fast Track facility is adding further capacity and putting pressure on insurers to come to the table. FastTrack covers all products lines and geographies, offering automatically pre-arranged capacity at 5% of line size.

Mark Rubidge, director of Gallagher’s major risks practice, said UK market appetite varies depending on line of business, industry sector, risk profile and the insured’s approach to risk. But, overall, he said there are signs of improvement for buyers, with insurers seeking “modest” rate increases.

Rubidge said new entrants are entering the market across various lines, with overall capacity “stable”.

Miller said the UK commercial market is split, with less willingness to write risks that are not well managed or have adverse claims experiences. Matthew Nagle, who is responsible for property and casualty among UK corporates at the broker, said on average small rate increases of up to 5% are being applied.

Joshua Webb, head of property, UK retail at Aon Commercial Risk Solutions, said that the UK property market “continues to stabilise” despite pressure from reinsurance.

“There remains a broad average single-digit price increase, with capacity being sufficient to meet most clients’ needs,” he said.

Webb said property price increases tend to remain between 1% and 10% for the majority of UK clients but said there have been results above and below this band.

He said difficult treaty reinsurance renewals have had some impact on the market, “but perhaps less than expected thus far in 2023”. There is evidence of more pressure for pricing correction on excess capacity, said Webb.

“Broadly, a split market for pricing is emerging. Key factors driving these varied outcomes are occupancy, insurer results, insurer growth targets, risk quality and information levels, and the level of competition,” he continued.

Aon expects the property market to remain “broadly stable” for the rest of this year. “The development of almost a split market is expected to continue. Where growing competition and new entrants dominate, results are likely to outperform the market average. However, delayed impact of treaty results, nat cat exposure, excess layer pricing and heavier occupancies are challenges that we expect to remain,” said Webb.

Gallagher’s Rubidge agreed that property damage and business interruption insurers are generally seeking single-digit increases. Insureds with nat cat exposures are likely to face bigger rises and higher deductibles as insurers pass on the impact of reinsurance renewals, he said.

Insurers “remain cautious” about deploying property damage capacity, continued the broker. However, line sizes are stable in general, he said. Insurers are reviewing capacity for property risks with significant US exposure and in some cases reducing what they offer at renewal, he continued. But in most cases, capacity is available from other carriers, although this sometimes incurs small increases in premium, said Rubidge.

Nagle said UK property insurers are more selective on new risks and in some cases are reducing capacity at renewal. “Capacity continues to be a challenge on heavier non-target trades,” he said. There is less capacity for property risks that face increased risk of fire, for example from cladding issues, added Nagle.

He said rate increases of between 2.5% and 5% are typical for general liability and employers liability in the UK, with flat renewals achievable on good risks. “There is strong appetite among insurers to write well-managed risks,” said Nagle.

Aon’s Webb said that overall conditions are stable for UK casualty insurance buyers. He said there is competition for the right risks driven by new market entrants, the continuing movement of underwriters between carriers and ambitious insurer growth targets.

Webb explained that casualty rate increases of between 2.5% and 5% are still being sought across the board on the back of the current inflationary environment. However, these are being tempered by the competitive marketplace, he continued. “Risks with US exposures are subject to higher increases, in particular those with large US auto fleets,” said Webb.

He expects the UK casualty market to remain broadly stable in 2023 with single-digit increases being applied. But he thinks things will be more difficult for clients with US or tough exposures. “Competition for the right risk is evident and will continue to rise as new and existing carriers look to meet their growth targets,” said Webb.

And then there is good news for UK D&O and cyber insurance buyers.

Alistair Clarke, UK cyber broking leader at Aon, said there has been positive movement for cyber buyers when it comes to pricing and terms and conditions on the back of more competition.

He said cyber rates online have fallen by as much as 20% in the first half of 2023 compared to the same period last year. Clarke predicts insureds should continue to enjoy improved market conditions throughout the second half of this year.

“They should make the most of the opportunity to look for meaningful cyber rate reductions, which may avail them of the opportunity to increase limits in an increasingly uncertain cyber risk landscape,” he said.

Rubidge said more capacity has entered the cyber market this year, and added that the D&O market is still softening.

D&O buyers that are enjoying rate reductions from 10% all the way up to 45%, according to Aon.

“The market continues to soften. We’re not yet back to 2019 rates, but savings are being achieved routinely. Rate reduction can be significant for some – ie clients with claims-free history, positive risk factors such as significant free cashflow and low debt leverage,” said Emma Ball, head of D&O in Aon’s Global Broking Centre.

She thinks that the softening will continue at least till the end of this year. “Without significant numbers of one-off deals – run-offs, public offerings, de-SPACs and the like – the opportunity for new revenue to insurers will remain limited to new risks and growth from existing risks, which won’t come in this market. They will need to continue to compete to retain business, and fight hard for new opportunities with aggressive rating and sales tools such as long-term agreements, local policy capabilities, service commitments, cross-class capabilities and the like,” said Ball.

Returning to the wider P&C market, Marsh’s French said brokers and buyers have been focusing on price this year rather than improving conditions. But she said wordings are pretty stable and there has been some discussions about adding cover back in. “As long as the stabilisation of rates continues we will now keep pushing coverage because things did get stripped away in the hard market,” said French.

Deductibles have settled down too. “We are not seeing pressure to increase retentions or to put more risk in the captive at this point. But nor are insurers keen to lower them again,” explained French.

She said there is also growing interest in long-term agreements (LTAs) from insurance buyers and carriers.

“We are absolutely seeing more demand and supply of LTAs. The book was closed on LTAs but now many are trying to put them in place. Although we haven’t really seen reductions for LTAs in the second or third year, flat is becoming more common. I would be surprised to recommend at this point a rate increase in year two or three. For stability and expectation management within their own companies, clients are pushing for LTAs and insurers are willing to listen,” she said.

The broker added that the commercial market will be keeping a close eye on 1 July reinsurance treaty renewals but she expects more of the same for UK primary buyers this year because competition for their business will remain fierce.

“I think we are going to see more of the same. I don’t disagree that 1 July will be hard for insurers, and primary markets will continue to push for rates, but I think as long as we have time we will be able to get the better deals. And I simply don’t think insurers have been able to grow at the speed they want to grow at. So the next six months they are going to be focused on achieving that,” said French.

“The 1 July is the next big reinsurance treaty season, with predictions that things will be similar to 1 Jan because we haven’t seen any new capacity to help soften the market. And by 1 July, every insurer will roughly be in the same place and on the higher rates. So we are watching to see if that will change things. But I am still not sure it will because a lot of insurers are talking to us about growth. So even if treaty renewals are difficult, I still think things will be ok for our clients because insurers will be trying to grow,” she added.

Rubidge said Gallagher thinks insurers will maintain a targeted approach at renewal this year. Overall it expects the UK market will “remain challenging, with the percentage increase in rating being variable”, he said.

“Key drivers will be the impact of continued inflation, treaty renewals, the outcome of the main catastrophe season and insurers’ combined operating ratios,” said the broker.

Miller’s Nagle has a generally positive market outlook but believes there is the potential for some further rate increases this year, especially on the property side. “The rate increases are likely to be driven by reinsurance renewals of higher prices and less capacity,” he said.