UK needs underwriting discipline

Predicting rate changes is not an easy business, but it appears the current soft market is here to stay for some time.

One example is insurer Amlin experiencing a 2% decline in UK commercial rates, which includes motor and property, for the first four months of the year, despite rates rising in the large majority of its other classes.

With the double whammy of the soft market and greater Financial Services Authority regulation, many brokers are struggling to increase profits.

The challenges of growth were summed up by Ron Brewis, chairman of Newcastle-based Bishop Skinner Insurance Brokers who said in last month's Broking Success (PB, May, p19): "Any growth is welcome because of the soft market."

My report into the small to medium-sized enterprise property sector (see p36) reveals there is an underwriting consensus that we have reached the "bottom" in this class of business.

However, rates are not expected to rise until the second half of next year at the earliest. Also in these pages, Matthew Donaldson, group director at Budget, has called for motor rates to rise.

Meanwhile, Allianz Cornhill's chief executive Andrew Torrance has been calling for Norwich Union and the Royal Bank of Scotland to lift their rates. This is a fair comment, especially considering one of the supposed advantages of a consolidating market was having greater control over the market cycle.

Are underwriters being seduced by benign weather and good recent underwriting results? Competition is also playing a significant role - how often do we hear insurers saying "despite competitive market conditions"? Reinsurance rates are also contributing, and insurers are surely factoring in a good renewal season, hoping rates harden again. However, hope is not enough - it needs firm action.

The market needs to keep its underwriting discipline to ensure underwriting profits are maintained, and most of all to keep customers satisfied.