At a glance
- There are things brokers can do this year to weather the economic and legislative turmoil
I don’t think there will be much dispute from any insurer or broker that it’s going to be another tough year. Customers aren’t going to be falling over themselves to fund an increase in insurer/broker profitability, so the tendency is to fall into the short-term game of ‘retention at any cost’.
But any business that’s going to be successful over a longer period needs to keep one eye up, looking over the horizon. And how brokers manage two key insurance industry dynamics will be critical to success.
Prices will rise
It’s not a question of if or when prices will rise, but simply how fast. Sure, there is capacity around, but there are pressures that can’t be held back:
- Accident-year combined operating ratios (CORs) in UK commercial lines are exceeding 100%, even for the major insurers.
- The old paradigm of ‘95% COR = success’ for a property-based account no longer holds. To achieve an insurer’s mark of 12% return on equity with today’s yields and the capital employed, then a COR in the low 90s is required.
- Weather losses are increasing, as is the severity of large losses.
The reality is that rates have been on the up for three years, both in terms of the number of cases attracting an increase (more than 80% within Zurich in 2012), and in quantum. It’s not an explosion, it’s a ratchet, year-on-year, and it will continue.
Transparency is coming
Transparency is on the way – don’t kid yourself otherwise. IMD II will mandate it, along with unbundling of product pricing, but even before this implementation, customer/tenant pressure will build. Wise brokers will make this a soft landing and lead the pack, rather than scramble to comply with regulation (which is simply hygiene) as it bites.
Threat or opportunity
Like any change, an increasingly transparent world with prices rising is either a threat or an opportunity. Never before has there been a time for brokers to live up to their preferred billing of trusted advisers.
Who would you want to deal with your livelihood long term: A sharp guy who switches your supplier every year, with large price swings year-on-year, and doesn’t tell you what he earns from your business? Or an expert who maintains long-term business relationships, manages sustainable pricing movements, and is open about his fee/value to you? There’s a lot for most of us to learn if we want to live up to the latter.
However good you are, you don’t remain an expert unless you continue to learn. It’s the experts with integrity who will win the war, and Zurich will be with you to fight it.