UK buyers report further market improvements as carriers become more aggressive

UK commercial insurance buyers report that the market continues to improve as softening spreads to more lines, with advisors confident that clients can expect concessions at upcoming renewals and insurers increasingly hungry for growth.

A new survey of Airmic members released at the association’s conference this week finds that only 22% now describe the insurance market as hard, compared with 62% just 18 months ago.

The move towards a softer market filled many discussions that we conducted in and around Airmic’s conference in Edinburgh this week.

James Straker-Nesbit, senior insurance manager at Virgin, said the UK market is still operating at a different pace across lines of business. But in general, it is either softening or less difficult than in the recent past as competition mounts, he added.

“There’s a bit of a drive from insurers to get additional market share, which makes them a lot more aggressive,” he said.

“My general understanding is there are areas of the market that are softening significantly, and there are areas that are less hard than 12 months or two years ago. So the rate of change, or the rate of increases, is probably going to be lower on things like casualty, property and the commercial lines. Financial lines, we’re seeing some softening, and that appears to be driven by capacity, it’s driven by appetite,” he said.

And the better position for buyers is translating into both improving pricing and coverage, continued the insurance buyer. “We’re also seeing changes to coverage. We’ve seen some broadening of cover as well. So insurers might be holding firm on their rate, but they’re prepared to discuss how they can extend cover to improve the value proposition of the policy. Which is a positive,” said Straker-Nesbit.

Kate Loades, global insurance director at Arcadis, said the market is much more settled after many, many tough quarters, and hopes to see overall softening this year.

“You can see the market settling down in all the big broker reports. And I see it flattening. Every month, the overall increases are getting smaller and smaller and I would hope this year we may even start to see some overall softening. That’s where I see it playing out unless something big happens to cause losses, like a large hurricane,” she said.

Loades is seeing “exciting” new market entrants that seem serious about long-term relationships and adding to the growing competition.

“So I think competition is beginning to hot up across the board. This needs to be sensible capacity. You don’t want people coming in and then they’re not around in two years’ time. So those serious players that have a long-term strategic view are particularly valuable,” she said.

Airmic’s CEO Julia Graham said that the market is “definitely better than it was” for her members. “You can see insurers are producing pretty good and more consistent results,” she said.

But while Graham and leading insurance managers foresee a much brighter outlook, they don’t expect the market to swing strongly from hard, or harsh, to soft.

“I am not sure we will ever go back to the fluctuations between hard and soft markets, but as we expect to go into an era of lower interest rates and higher returns on investments, that places an onus on the quality of the underwriting,” she said.

Jonathan Turner, CEO at Gallagher Specialty, told Commercial Risk that the UK commercial and specialty insurance market continues to shift, with most P&C lines now experiencing rising competition.

“In aggregate, there has been a levelling off of rates and we are at a stage where we are starting to see pricing come off. That is new,” he said.

“We have had pockets of the market – notably directors and officers (D&O) and cyber – where there has been an extended period of competition and rate decreases,” he continued. “But today there are more and more lines of business where carriers and capacity providers are hungry. There are very few segments where pricing is going up, including catastrophe-exposed North American property, where we are seeing more willingness to accept exposures that carriers would not touch 12 months ago. Over the last two months this has become more obvious,” Turner explained. “If there are no shock catastrophe events, I can’t see competition slowing down.”

The supply-demand dynamic is shifting but insurers remain disciplined, according to the broker. “We have seen reasonable discipline from underwriters. They know there is theoretical margin in the rates they charge, so they can live with being challenged on pricing. But so far, it has been disciplined, and how long that lasts we will have to wait and see,” he said.

Mounting competition puts corporate insurance buyers in a much stronger position to leverage their business to gain concessions from insurers, and not just on price, according to Turner. In the current market, buyers can look to buy more limit, lower deductibles and/or push for improved terms and conditions, he said.

“There is a real opportunity for risk managers and corporate buyers. So don’t rule anything out and be prepared to kick the tires on what the market is prepared to offer. There is a lot more appetite than there has been for some time,” said Turner.

“The landscape has shifted, so things that weren’t possible to achieve over the last couple of years now are,” he continued.

Turner said carriers are “flexing their muscles” and offering bigger line sizes, and bigger discounts to get on new business. “That is across the board, and more apparent,” he said. “At current attractive pricing levels, carriers are now looking to fill their boots at the right point in the cycle.”

Insurers also told Commercial Risk that the market is increasingly competitive as they chase growth.

Frank Streidl, head of UK commercial at Zurich, summed this up well. “We are seeing an increased risk appetite from existing players within the market that are looking to increase their line sizes in some areas. The market is hungry. So are we,” he said.

He added that there is rate pressure in selective parts of the market, but not everywhere, with coverages broadly stable.