Speak to any insurance broker at the moment and they will tell you that they are witnessing the softest insurance market in a lifetime. So what is the soft market and what does it mean for the insurance buyer?
In simple terms, insurance market pricing trends are dictated by loss experience and availability of capacity.
Although disasters, natural and accidental, occur on a regular basis, the frequency of major insured losses has been relatively low over the past four or five years with prudent underwriters recording healthy profits. This has attracted the attention of capital investors who, against a combined background of recession, volatile currency markets and record low interest rates, see insurance as a safe haven for the investment of funds.
Armed with this injection of additional capital investment, key insurers have greater capacity; but to maximise profitability they need to increase their market share by writing more business. As with any retailer trading in a competitive market place, insurers have to be prepared to underwrite risks at lower prices in order to attract the additional custom. As insurance brokers respond to insurers demanding the opportunity of writing their clients’ insurance programmes, inevitably prices are driven downwards as brokers play leading insurers against each other to secure the best prices for their clients. It is unlikely that any broker worth their salt will settle for a reduction which doesn’t reflect the perceived market trend.
This is the soft market. And so long as loss experiences remain stable and capacity plentiful, the soft market is set to continue.
Surely, as an insurance buyer, I’m benefiting already from the soft market?
Yes, you are benefiting from the soft market and able to deliver savings to your Finance Director. But can you be sure that reduction you secured at the last renewal was the best that could be achieved from the insurance market as a whole?
If you renewed with your existing lead insurer there is a fair chance that you obtained no more than the perceived “going rate”. Whilst insurers will always fight to retain their core business, there is a limit to which an incumbent lead underwriter will be prepared to go in order to retain business. In terms of reductions, an existing insurer is highly unlikely to agree a price as low as an acquisitive insurer who has no existing relationship with your insurance programme.
Exactly the point! My organisation prides itself on loyalty to their existing insurers.
Loyalty is an admirable quality but any insurance buyer should be aware of the cost of maintaining that loyalty.
Many insurance buyers will tell you your product is a specially tailored programme with bespoke wordings, but consider this. If you were planning to have a suit made by your usual tailor and found that instead of the tailor’s 12.5% loyalty discount you could purchase an identical suit elsewhere for with a 15% discount you may not feel it worth the bother of changing tailors. But what if that discount was above 30%? And what if the suit was of better material and the tailor provided a better service?
In the current economic climate with a low oil price and capital expenditure plans reduced can your company afford to ignore these savings?
So what should I do?
Challenge your broker. Tell them you know about the soft market and want to obtain the best possible terms for your next renewal.
See how they react. Be wary of platitudes and speeches about loyalty. Of course, your broker will promise to push your insurers for the best possible price – but you should be checking to see if they intend to engage with the wider market.
What other options are open to me?
If you are less than convinced by your broker response or suspect they are showing signs of complacency perhaps it is time to consider a tender for broker services. Many of INDECS’ clients periodically tender their insurance programmes; not only to validate their pricing structure and test their broker’s performance, but also to adhere to internal compliance procedure.
Brokers thrive on competition and nothing brings the best out in them more than a competitive tender. The threat of lost business will ensure that your broker will perform at their best, whilst the promise of winning new business will attract the sharp attention of competing brokers. All will be keen to demonstrate their reading of the current market and where the best deals are to be obtained.
In the current soft market there is no reason why your current wording will not be accepted by new insurers and you may surprised (and delighted) to achieve wording enhancements.
Can INDECS assist?
Yes! We would be delighted to assist you in getting the best out of the current soft market!
INDECS manage several broker tenders a year, achieving considerable premium reductions for their clients in the process.
To be successful a tender has to be carefully planned and managed. This ensures the optimum result for clients whilst being totally fair to participating brokers. Every client has their unique requirements and INDECS are happy to design a tender to suit these specific needs.
For further details please contact either Paul King or Ian Saunders at INDECS.