Over the last 12 months we have heard nothing but bad news in the Financial services Sector which has given me a bad bout of Financial Fatigue.
The Press have concentrated on the Banks, Investment Houses, Hedge Funds. We have read reports about the great and good in the Financial markets reporting disastrous results. We have seen footage of staff from Lehmans leaving their offices with no jobs – just a box of memories. Many household names have bitten the dust. Governments have bailed out their banking systems and indeed now some governments need bailed out themselves!!
One sector of the Financial market has been quiet – Insurance. Despite all the gloom the Insurance Companies seem to have ridden out the storm without rate increases. That is all about to change. Over the coming months Insurance Companies will be reporting their 2009 results. Without exception they will not be good. Traditionally Insurers accepted marginal profits but mostly losses on their Underwriting however they made up for it by achieving good Investment results on their Reserves.
Hands up anyone who knows anyone who made reasonable investment returns in 2009.
Therein lies the problem. Despite some efforts by some Insurers to introduce underwriting discipline to the market, competition and a desire to retain market share has resulted in underwriting losses and in many cases under-performing investments.
So what does it mean to use rate increases. Insurance rates increased substantially from 2001 to 2005. Insurance companies built up their reserves during this period waiting for the next 9/11. It did not come. From 2005 they reduced rates to attract more business and retain market share. Underwriting losses were supported by the release of unused reserves. 2008 saw an unprecedented use of reserves. The pot is now empty and the only way to survive is to increase rates. How far have they fallen – Motor Insurance rates in Northern Ireland for example are now at 1997 levels. This level is not sustainable.
January and February renewals have already seen rate increases and we will see these rises continue in 2010 across most classes by 15%-20%.
Now is the time to look at your Insurance programme and consider measures to contain these increases. Higher Excesses, Risk Management or even a programme of self-insurance will help contain these costs.
Don`t wait until renewal time. Engage with your Broker and Insurer. Act now and discuss ways of having your risk looked at as an individual business and not just rated as one in a herd.
Sorry for the bad news but remember:-
Don’t shoot the messenger.
Jack McIlduff
MD
Europa General Underwriters (NI) Ltd
(An RSA Group Company)
Contact Telephone Number: (028) 90320190
The content of this article is provided for information purposes only and does not constitute professional or other advice.
Monday, March 22nd, 2010
