First signs of a firming market

Changing attitudes in the insurance market appear to be creating a climate in which rates are hardening, ending the premium increase holiday that many corporations and midsized companies have enjoyed.

Neels Kornelius, head of business development and risk management at Willis Towers Watson, says corporate and commercial insurance rates have been soft.

“To win business, given the fact that competition is so fierce, insurers are often forced to make a commercial decision and offering prices to brokers substantially below what they view as the correct technical rating and this situation has persisted for about five years.

“Cost is an issue in this tough economic climate and organisations have benefited from the low rates but now we are seeing the first signs of the insurance market hardening,” Kornelius says.

He says the attitudinal shift has probably been sparked by two fairly large claims over the past two months — a massive warehouse fire in Durban and an office fire in Johannesburg.

“The shift is not a sharp correction as you would get post a major international loss event such as hurricane Katrina. We are seeing a trend of determined resistance from insurers against any further rate reductions. Insurers are saying if companies want to continue at these lower rates, they have to take their risk management programmes seriously.”

He says there is a different dynamic in the lower end of the commercial market. It is a lot more of a grudge purchase and it is often less part of a well thought out risk management programme and there is a much greater focus on cost.

“Companies in this segment will not necessarily let go of their cover, but they will often jump from insurer to insurer, buying on price.”

Turning to personal lines, he says innovation is driving the market. For example, the advent of direct insurers led to a disintermediated market.

“There is another innovation from companies that leverage off vehicle tracking devices to monitor driver behaviour and reward good driver behaviour with lower premiums.”

He says the current wave of innovation is data and analytics driven, enabled by the players’ investments in technology. This allows them to take full advantage of the data they collect, providing them with the ability to continuously refine their pricing models by analysing the information.