Buy Now – Sale Ends Monday! – As we all know, the question is which Monday? In the risk arena I find myself asking when our “Monday” come and will we run out of stock when it does?
At this point in time it seems that rates are almost in freefall. At each review the rates get lower, with insurers looking to acquire new business that is new to them rather than new to the market. Perhaps more worryingly, clients are expecting lower rates simply because this is what they have become used to at each renewal.
When was the last time you said to a client the long-forgotten words “the rate for your scheme has increased”? For my part, across group life, death in service pension, group income protection insurance and critical illness, I can only think of 3 occasions in the previous 2 years and all 3 of those were due to a specific set of circumstances, namely ill and injured employees in group life schemes.
Clients are benefiting from lower rates and head count/salary roll reductions, and existing benefit levels are being maintained at their current levels, provided that is that the client is still in business. In the current climate low rates are good for clients but are they sustainable going forward?
Many insurers are falling over themselves to “low-ball” the next insurer with lower rates to win or retain schemes. But at the same time headcount, payroll and sums assured are also reducing, creating a “double whammy” which in turn leads to lower premiums for insurers.
All of this is taking place in a stagnant market with little growth in genuine new to market schemes. It will be interesting to see the Swiss Re
annual report on the group risk industry and I am sure it will make uncomfortable reading for some with significant reductions in API and potentially market share. For others it may not be so bad due to Aegon’s departure last year. But this was a one- off event and it is unlikely to be repeated in 2010. Or is it?
Although the market is stagnant, it is still seen as an opportunity by insurers as evidenced by new entrants such as Zurich and Ellipse, and those others who are looking to enter the market. So I do think we will not run out of “stock” – we won’t run out of insurers.
Many insurers are falling over themselves to “low-ball” the next insurer with lower rates to win or retain schemes. But at the same time headcount, payroll and sums assured are also reducing, creating a “double whammy” which in turn leads to lower premiums for insurers
But insurers are facing a conundrum. Do they price for profit or price in line with market forces? If they price for profit it is likely in the current climate that their rates will be out of kilter with the rest of the market and whilst this may not be an issue for them with business they are trying to acquire. If not, it is an issue for schemes that they already hold.
If insurers want to maintain their existing book of business then they have to price for it accordingly and this means in line with the market
rates, not in line with their own financial expectations. They run a great risk of a scheme being moved to another insurer and once it has moved it will be “lost” for at least 2 years in most cases and they may never get the scheme back.
I am not saying that holding insurers should be happy about pricing to lose money if a risk does not meet their financial profile, but they have
to bear in mind we are in a “sale” period.
Other insurers are looking to acquire new business, that is new to them not new to market, to build their API and market share, and are pricing accordingly to achieve this.
It will be interesting to see what happens to rates going forward. Many thought they would start to harden in 2010, but so far there appears to be
no evidence of this. The remainder of 2010 and 2011 will, I think, remain challenging for UK Plc with continued pressure on costs and cost control by employers. Coupled with a stagnant market it will leave very little room for any hardening of rates, unless of course the whole market
moves rates together and we all know that this will never happen – as market forces rule.
Maybe in some way insurers “blame” intermediaries and brokers for taking advantage of the current soft market conditions and rebroking schemes before the end of the rate guarantee period. But surely they all understand that what intermediaries and brokers are doing is taking advantage of the sale, and why wouldn’t we, as there will probably, famous last words, never be a cheaper time for our clients to buy.