Discount rate cuts, regulation changes, FCA warnings and failing unrated providers were among the hot topics we quizzed brokers on in the latest Sentiment Survey.
Brokers upbeat despite discount rate discontent
Six months have come and gone since our last sentiment survey, which means it’s once again time for Insurance Age to find out what brokers are feeling about the major issues affecting the market.
The sector has experienced an eventful winter and spring to say the least, with the discount rate change, failed unrated insurers and a number of regulatory changes either already impacting business or set to kick in.
As per usual, the first question posed to brokers was what they expect to happen to premium rates in the next six months.
In commercial lines brokers were split down the middle with 48% stating the market will harden, while 42% believe it will stay the same and the rest say they expect it to soften.
However, personal lines brokers had a different view with the biggest ever majority – a whopping 83% – answering that the market will harden. In comparison only 5% believe it will soften and the remaining respondents expect it to stay the same as now. This paints a much more positive picture than six months ago when 40% of personal lines brokers predicted that rates would harden, while 41% believed the market would remain the same.
Do you care that the discount rate, also known as the Ogden rate, has been cut to -0.75%, why?
“Yes, if it pushes up premiums like insurers say it will, it will become even harder for brokers to compete in the personal lines arena.”
“This will have a big impact on motor rates coupled with further rises in IPT – the industry then suffers as the general public consider they are being ‘ripped off’.”
“This will lead to hardening rates and potential withdrawal of some insurers from the market. However, it cannot be disputed that a change was necessary following the reduction in investment earnings available since the rate was originally set.”
“Yes, too much, too soon. It’s the right thing to do but over time.”
“It is worrying as the government does not understand or respect insurance. IPT is seen as a cash cow and brokers are seen as adding no value.”
The industry has recently seen a number of regulatory changes being pushed through in personal lines, including the rules about publishing last year’s premium and shop around renewal wordings. An overwhelming majority of brokers (62%) did not agree that these changes were beneficial.
When asked whether the same changes will be pushed into the commercial lines market as well, a majority of brokers expected that they will, with 40% saying it will start at a micro SME level and almost a fifth (18%) believing the changes to the rules will cover all SME business.
However at the other end of the scale the remaining respondents predicted that it would be too complicated to give a fair comparison and stated that they did not expect these changes to reach the commercial lines market.
Speaking of regulation, we also wanted to know how often brokers check for warnings from the Financial Conduct Authority. A majority of brokers answered that they check the regulator’s website either daily, at least once a week or occasionally, while 22% said they waited to be notified.
Brokers were once again asked to vote for their favourite insurer when it comes to underwriting service and claims service in both personal and commercial lines (see box). Aviva came out on top in three of the categories, however Ageas grabbed the number one spot in personal lines underwriting service just like it did in November last year. A notable climber this time was Hiscox which is now represented in all four categories. Allianz, Axa and Chubb continue to be well backed in the poll.
The collapses of Gibraltar-based insurer Enterprise Insurance and Liechtenstein-headquartered Gable Insurance have spurred debate since last summer, bringing the discussion about whether or not to use capacity from unrated insurers back into focus. At the time Enterprise was declared insolvent, brokers described the situation as a significant concern, especially for the motor market. But we wanted to know whether the situation had led to any changes in the market now that more than six months have passed since the two insurers stopped writing new business.
While 61% of brokers noted they have never used foreign domiciled unrated insurers and a further 14% added that they have in the past but stopped, it is clear that some brokers still decide to place their business with them.
Nearly one fifth (17%) said that they still do business with this type of insurer. However, they also noted that recent events had encouraged them to do more due diligence on the businesses they work with. A small minority said the collapse of the insurers had not made any change to where they place their business.
Another hot topic for brokers at the moment is succession planning. We asked whether firms had a plan in place for when ownership has to change. Over half of firms (56%) said that they already have a plan, while 15% were in the process of drafting one up. In contrast, 29% said they did not have a plan at all. See the box below for more broker views on succession planning.
What brokers said about the best succession planning options
“Selling to a member of staff who gets the company values.”
“To be able to place the right people into the right positions at the right time. To enable the company to have people that are continually being trained and earmarked for the right positions. A sensible and effective recruitment process.”
“We are working through ours at the moment with family members taking on more responsibility.”
“There is no one best plan. It will depend on the nature of the business concerned and whether the succession is planned or forced due to circumstance. Always best however not to overlook the interests of one’s clientele.”
“Sell out to a broker with similar values.”
“For a small brokerage where the principal is considering retirement either sale or merger is the best option. For larger enterprises, either management buyout or development of key staff together with robust recruitment policies may serve.”
We also asked brokers whether call centres could work in the broking sector. Two thirds (66%) of respondents took the balanced view that call centres have a place, but at the same time highlighted that in the end broking is about relationships. Meanwhile a quarter of brokers expressed the view that such centres will always fail. Only a small minority (9%) stated that they can be successful.
A lot of other changes and developments are going on in the insurance sector. When asked whether they think an increasing number of managing general agents (MGA) are being set up, exactly half of the brokers taking part said that this was the case. Only 13% said they did not believe more MGAs were being set up now than before, while the remaining brokers (37%) stated that they did not know. This is relatively in line with how firms answered this question six months ago, when 54% said they believed an increasing amount of MGAs were being set up.
Personal lines has rarely been out of the headlines recently. LV announced in January this year that it was pulling out of broker distributed home insurance, while Ageas closed its Kwik Fit office in Uddingston. However, most brokers (54%) stated that they were not worried about the future for personal lines brokers, while 28% noted that they did feel concerned.
The survey also addressed the issue of insurance premium tax (IPT) and whether brokers feel it will rise again in 2017. A large majority (68%) stated that we will see further IPT increases this year, while 26% stated that we will not.
Only time will tell what kind of impact political decisions and regulatory changes will have on the broker market. Brokers certainly have issues to be concerned about but Insurance Age is confident that they will continue to have a strong presence in the insurance market and provide valuable advice to customers.
- Thanks to all who took the time to complete this broker only survey. The winners of the £100 John Lewis vouchers were Karen Griffiths of Rees Astley and Neil Hobbs of Sutton Winson.
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