State of the market: The end of the hard market cycle is in sight

The Acturis index provides a helpful summary of movements although there is a considerable lag. Q3 data demonstrated a mixed picture with rate increases slowing in most lines. There were exceptions for property owners and across motor where rises continued. In both lines there are some localised issues at play. For property, this includes increasing flood frequency and severity, as well as the well published issues around the use of RAAC concrete. In motor, we have seen the impact of the FCA ban on dual pricing in addition to rising cost of repairs, driven by labour/part shortages as well as the inflated costs of parts.

These issues are likely to persist throughout 2024, however these dynamics are localised and the wider market is showing signs of rates flattening. In a more recent report published by Marsh for Q4 rates, it’s clear that at an overall level, rates are now minimal or flat with some softening continuing in financial and professional lines with D&O the driver. These reports do not provide a like for like comparison however the overall trend is evident, we are at a tipping point in the market cycle.

Considering the matter from a different viewpoint, we are about to enter earnings season for many insurers and keeping an eye on their financial results will be a helpful yardstick.  It should be recognised that interest rates are an important contributing factor to insurer performance and the benefit of recent rises should be starting to feed through into insurers bottom line results in 2023, as well as the compounding impact of the harder rates that have been applied in recent years. I expect the market as a whole to be in a more resilient place and with this, insurers should move slightly towards competition for growth.

Now, this cheery outlook doesn’t account for the volatile nature of global politics currently, such as, the seemingly long-term nature of the war in Ukraine, the dangers of crossing the Red Sea and subsequent impact on the cost / time of shipping. These situations will see supply side inflation continue to persist which is an important consideration because it means that although rates are on the cusp of reducing, premiums are still likely to increase as a result of inflation.

On the horizon we also have a super cycle year in elections across the world which will have unpredictable consequences and the increasing frequency of natural catastrophes which do not conform to the time parameters of an insurance market cycle. These are key factors to be aware of and keep a close eye on how they impact the reinsurance sector which is a key lead indictor for the retail market.

Importantly, the ability to comment on these factors and explain the impacts of the world around us on the insurance market is an important skill set of an insurance broker and essential to offering relevant advice. The client conversations required will continue to develop as the world around us changes and keeping up to date with influential factors is vital for being considered as a trusted advisor. These broader discussions allow brokers to move past the transaction of a renewal and elevate their importance and also the reputation of our industry. As employers or managers, we also have a responsibility to share our outlook and support our teams in managing clients through this transitioning marketplace.

Sources:

IA-Acturis-Indices-2023-Q3_3_MainArticle.pdf

UK Insurance Rates | Global Insurance Market Index | Marsh