There is an uplift in very competitive offers being presented to policyholders ahead of their policy renewal promising reduced premium spend. In this article we set out some of the tactics of insurers and intermediaries in the current market and how policyholders may best navigate them.
What is a soft market and what does it mean for a buyer of insurance?
A “soft insurance market” is described as a “buyer’s market” for policyholders. That should be great news for policyholders. It generally means a lower “cost” of “broader” insurance. Unfortunately, this is not always the case, and in this existing market there are questionable tactics from insurers and intermediaries that are likely to cause real issues for policyholders in both the long and short term.
Insurers’ tactics during current soft market symptoms
Ordinarily during soft market conditions there is more capacity (an increase in the number of insurers and capital they may deploy), coverage broadens (policy terms and conditions become more favourable for policyholders), and the cost of insurance (premiums and excess) reduce.
Ostensibly insurers are competing for market share with the surplus capacity they have at hand. There are many reasons as to why they have more capacity, but there are two main drivers: The investment environment for insurers is favourable; and there is or has been a benign claims environment.
Presently soft market symptoms exist in Australia across most product classes. In some instances, and on some product classes, insurers are still treading carefully. Our most recent market update traverses the particulars.
In this current soft market, we have observed some insurers “attacking” competitors as they seek an increased market share (and a greater premium pool for investment), particularly on long-tail classes of insurance.
The strategy is to attack the existing insurers by offering cheaper premiums, but the reality is that this generally means far more limited cover. It is of more concern that the “attacking” insurers require minimal disclosures from policyholders about their risk before a policy of insurance is issued which will inevitably lead to more declined claims. See our article here regarding the perils of non-disclosure.
Intermediaries’ tactics during current “soft” market symptoms
Intermediaries will ordinarily ramp up their business development teams during “soft” market conditions. Policyholders are likely to receive cold calls and emails offering discounts on renewal premiums: it should be noted that generally, the person making this contact has very little knowledge of the policyholder, its risk profile, or particulars about their insurance history. Notwithstanding the individual in question will make representations to a prospective policyholder about “significant savings” available to them.
In “hard” market conditions business development teams struggle to lure new clients based on pricing. Ordinarily, technical advisors have far more success onboarding clients.
In the context of the current “soft market”, insurance intermediaries (and more so traditional insurance “brokers”) are taking the opportunity to partner with “attacking” insurers to achieve their targets. Many intermediaries are remunerated commensurate to premium, and as premiums reduce, so do their earnings. They must therefore onboard new clients to meet budgets. For these intermediaries, there is little regard to technical acumen and client onboarding: the value proposition is purely one based on price. Cover, insurer appropriateness and efficacy of the insurance contract (i.e. the issues of non-disclosure) are likely to compromise the policyholder’s coverage.
A first warning sign to be aware of is an unsolicited call received from someone who knows little of your risk profile, current insurance placement, risk appetite, claims experience or servicing needs and offers a substantial discount on your insurance programme.
When receiving unsolicited calls or emails, policyholders should ask some questions. For example, how has the telemarketer calculated the available savings? What information do they have on your current policy coverage and insurers? What will the firm do if they don’t achieve the “guaranteed” savings offered via call or email?
What can my business do to ensure we take advantage of, but are not exposed, to the current market conditions?
1. Markets change!
Experienced purchasers of insurance understand market cycles and the importance of insurer loyalty when the market turns. See our article here. When capacity reduces and insurers leave the market (often the same insurers who drive down price will exit the space when that pricing proves unsustainable) policyholders who have shown loyalty will experience less volatility in their pricing and coverage. We expect this current cycle to be significantly shorter than the previous soft market cycle, and if this is to occur and capacity does exit the market, many policyholders will be looking for new insurance providers – again driving up prices.
2. Stay loyal to your insurer where possible
It is important to note that your current insurers are aware of market conditions and will do what is feasible to meet market conditions, most likely with more adequate or improved terms and conditions, and sustainable, yet reduced pricing.
3. Consider your medium and long-term insurance strategy
Policyholders should consider the following questions:
- What are your business goals for the short, medium and longer term?
- Do you want to make the most of premium reductions available? Or
- Are you seeking to enhance your policy coverage, so that you can trade more confidently knowing you have insurance protection to do so.
This enables policyholders to potentially trade with insurers on the cover offered rather than simply price.
4. Consider long term agreements
Insurers will often look to provide policyholders with improved terms over a longer period. Long-term agreements with insurers will provide both parties with stability on pricing and coverage. Such agreements will often include conditions around claims and other “break clauses,” however, they do provide policyholders with longer term stability and reduce the administrative burden associated with preparation of underwriting information annually.
5. Appoint an intermediary you trust
It is strongly discouraged to have more than one intermediary representing your business in the insurance market at any time. It is essential to engage an intermediary that is accountable to review coverage and provide objective advice to your business.
Bellrock’s risk advisory and advocacy services enable those it acts for to truly understand risk, identify their own risk maturity and in doing so understand efficient risk transfer via insurance. The insurance programmes we arrange focus on adequacy (compliance) appropriateness (capability and philosophy of insurer) and competitiveness (at the best available price commensurate to adequacy and appropriateness).
Further information on this topic can be found via the articles below:
