Carriers more willing to ‘walk away’ if profits inadequate

After almost two decades of favourable buying conditions, 2017 and 2018 saw a change in the market dynamic whereby rates are increasing, and carriers are now willing to walk away from deals that do not deliver on acceptable levels of profitability, the chief executive of Australia-based broker Honan Insurance Group has claimed.

In a quarterly market update, Honan said that throughout 2018, insurers found themselves in a challenging position, whereby previous strategies to build market share through top line premium growth were replaced with the need to bolster bottom line profitability. “With this approach came a willingness to walk away from business should the underwriting re-calibration not yield acceptable levels of profitability,” it said.

Honan said it predicts challenging buying conditions for insurance in 2019 with key underwriters ceasing to write certain classes of business. It said a number of factors were causing the pressures in the market including the Hayne Australian Royal Commission, the re-submission of Lloyd's business plans, Brexit, economic factors and an overactive merger & acquisition environment.

Andrew Fluitsma, Honan CEO Australia & New Zealand, said: “We are already witnessing global underwriting markets in Lloyds ceasing to write certain classes of business such as Professional Indemnity and Marine – and we expect this to continue.

“Honan also expects a continuation of upward pricing pressures throughout 2019, bringing with it another challenging buying year for businesses. Insurer risk selection and appetite will continue to drive underwriting behaviour leading a growing rating / pricing gulf between low hazard and less desirable occupancies.

“Underwriting profitability remains the key performance metric in the medium term as insurers continue to focus on good performing and risk managed businesses.”

It added that claims pressure from settlements in securities class actions is likely to be a factor for the foreseeable future.

Travis Wendt, Honan’s Head of Broking & Carrier Management, added. “Relationships flexibility still exists in the wider market but only if the right messages are communicated – and communicated early. “Insurer selection, transparency, relationship management and “selling” your individual risk profile to the market is critical to not only help mitigate prevailing market issues but also to assist your company to stand apart during this market correction.

“Honan is proactively driving the renewal process earlier for clients to allow adequate time to address any surprises or consider strategies which may mitigate underwriting volatility.”

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