Journey to maturity
Maturity can be applied to many things – even the insurance market. Are we witnessing the market growing up as it enters a new phase in its development?
After successive years of insured catastrophes totalling USD 219 billion, insurers have taken control of their destiny. Acknowledging accountability for many of the factors that contributed to a general under-pricing of risk, insurers have with increased solidarity, raised insurance rates and set about cleaning up their own house.
Having received a measured response from reinsurers during early-year treaty renewals, the continued availability of capital and early suspension of interest rate rises, reinforced the frailty of relying on others. Insurers have aimed to technically reposition many lines of business to produce an acceptable return for the exposure assumed.
Here, a targeted yet controlled approach to improving rate-adequacy helped by assertive business remediation processes at Lloyd’s, have sought to address historic underperformance.
The factors that drive market behaviour vary and, as a result, markets develop at different speeds. Recognising the industry’s high level of capitalisation, growing strength of overseas insurance hubs and past experience, insurers have in the main, avoided raising prices too aggressively. Short-term, erratic reactions have been substituted with more measured differentiation between clients based on risk profile, loss history and past behaviour.
Beyond the headlines of rate, experienced market practitioners recognise we have not yet witnessed the wholesale withdrawal of capacity, sufficient to prevent deals being finalised. Despite rising premiums, the symphony of issues that characterised ‘hard’ markets of the past, have not yet been realised. It remains to be seen whether current market conditions reflect broader industry change or are instead, the prelude to a more challenging climate as global markets synchronise.
The transition from adolescence requires a sensible and level-headed approach. Insurers must recognise their responsibility to maintain professionalism as they address the past and articulate the need to be paid appropriately for their capital. Those that do in a manner that improves underwriting profitability while retaining the client loyalty they worked so hard to win over, will mark a real sign of adulthood.
Head of Broking, GB
+44 203 124 6338