At a glance
- David Smith, Zurich’s Managing Director of Commercial Broker, gives his market view for brokers going into 2014
- Market hardening in places as New Year approaches
- But overcapacity and low investment returns likely to continue into 2014
After seeing the market bottom out in 2012, insurers this year have been confronted with overcapacity, low investment returns and continued economic uncertainty, but one ray of light has been the relatively benign British weather – despite the recent storms that caused widespread flooding to the east coast of England.
And as David Smith, Zurich’s Managing Director of Commercial Broker, looks ahead to 2014, he believes the weather is likely, albeit inadvertently, to play a prominent role in renewal discussions between brokers and their customers.
“It has been a very difficult market in 2013 for both insurers and brokers, with overcapacity in both capital and broking,” said David. “The positive to the year has been very few catastrophic weather events in the UK – meaning insurers’ results are likely to be better than in previous years.
“But this is dangerously optimistic as we look forward to 2014 – the 2013 results are flattered by the benign weather. The real challenge we all face is dealing with customers who in 2013 have found it fairly tough economically, but have potentially seen some low loss ratios because of the weather, holding expectations of level or falling rates.”
And although the simple view a customer may see will be optimistic, the market is beginning to slowly move through the insurance cycle.
“The market is hardening, but it is not ‘hardening as we remember’ with double-digit rate increases,” said David. “It is a ‘technical hardening’ with rate increases that are just above claims inflation. This will only be sufficient to hold even the strongest insurers’ return on equity at 5%-10% levels, not the 12% that shareholders require from most insurance companies.”
New watchdog flexes muscles
Like the British weather, regulation is another perennial topic for the insurance industry.
In April, the Financial Conduct Authority (FCA) began overseeing the insurance sector, promising a far more hands-on approach than its predecessor – although over six months into its tenure the impact of the new regulator is still far from certain.
“The FCA is finding its feet in the new role,” said David. “There has been a rash of thematic reviews to contend with, particularly in the personal lines and retail end of the market, both for brokers and insurers.”
The FCA is also looking into the practice of dual pricing – where new business is offered at a lower price than renewals as a way to get it on to an insurer’s books.
The real challenge we all face is dealing with customers who in 2013 have found it fairly tough economically, but have potentially seen some low loss ratios because of the weather, holding expectations of level or falling rates
David W Smith, Managing Director of Commercial Broker, Zurich
“All insurers have had to fight particularly hard to win new business, whilst at the same time driving rate increases on their held business to offset falling investment income,” said David. “This tends to lead to dual pricing, which drives the wrong behaviours in both insurers and brokers, and is confusing for customers.”
Zurich’s 2014 plans
Zurich, meanwhile, is in a strong position to help brokers differentiate themselves as the economic recovery returns, especially in SME and the mid-market.
“In 2014, we aim to add even more value in our strong middle market business with new distinctive customer propositions,” noted David. “In SME, we intend to continue to invest and we have seen good growth in 2013 as we begin to deliver. We also have some exciting product launches primed for 2014, including Engineering Combined and Construction.”
Retirements this year, notably Gary Wainwright, Director of Middle Market and Specialties who has worked at the insurer for 42 years, have initiated some internal personnel changes, but their replacements are already helping to steer the ship forward going into 2014.
“Whilst Gary is leaving us, he has developed an excellent talent bench in his team to pick from,” said David.
Roy Standish, previously Head of Real Estate at Zurich, is one to step up, becoming the new Director of Middle Market Management. “I am delighted that Roy is going to be in place to lead forward our regional branches,” added David.
Zurich’s long-term strategic vision also remains unaltered; continue to improve the strong mid-market business, radically transform and grow SME business, and improve service – all with the objective of enabling brokers to shine in front of their customers.
“We want to continually improve our service, stepping this forward year on year,” said David. “That means increasing our visibility and hunger in front of brokers, getting ever more consistent in the basics of service delivery, and investing further in our talented people.”
This consistency of strategy, long-term broker relationships and in the approach to stable pricing all demonstrates that Zurich is very much in it for the long haul.
However, some of the market itself continues to operate in the ‘here and now’ by chasing short-term premium over stability – something that inevitably becomes unstable and produces problems for brokers.
“If I had one wish for 2014, I would like to see brokers working with Zurich to present a long-term stable proposition to the market; with each customer buying protection for their business from valued professionals as opposed to grabbing a short-term transactional price,” he said.