The insurance industry has experienced turbulent times over the last 18 months and, as the economy slowly moves back into recovery, insurers are under increasing strain to return their income to sustainable levels. Director of RK Harrison Insurance Services, Stuart Rootham, comments on the market.
As the economy moves into a more stable position, insurers are experiencing increased pressure to deliver acceptable returns on capital.
The dramatic impact on their investment returns; continuing claims inflation in personal injury; an increasing incidence of fraudulent claims in times of recession; and an empty barrel in terms of past reserves will surely mean that they will look to increase prices over the next 12-24 months.
There was talk from some of the major insurers in early 2009 about the need to increase rates but in most cases that has generally not occurred.
Moreover, as the economy starts to show fragile signs of recovery, there is increasing talk of mergers and acquisitions amongst insurers. Any significant acquisitions would potentially reduce competition and capacity within the market, increasing the likelihood of premiums rising.
For the moment though, there are still many deals to be had. Directors’ and officers’ cover is still reasonable at a time when it’s needed most.
Commercial Combined cover – the principal insurance purchase for most businesses – is experiencing static rates, with the few examples of increases being no more than 5%.
However, if a business has a poor claims record or is deemed ‘high hazard’, the resultant reduced competition to win that business means there is a greater risk of more significant rating increases.
If rates do begin to harden, the well-run businesses with good claims history and a robust risk management programme in place should have less to fear. So now is the time for all firms to consider whether their risk management procedures are as robust as they could be.
Insolvency fears abide
The number of manufacturers facing ‘significant’ or ‘critical’ financial problems rose 12% to 6,820 in the first quarter of 2010, according to the latest Red Flag update from insolvency firm Begbies Traynor.
‘Significant problems’ refers to court action and very poor insolvent or out date accounts. ‘Critical problems’ include County Court Judgements totalling £5,000 or more or Wind-Up Petition related actions.
Around the country, companies were worst affected in the South West (up 46%), West Midlands (up 16%), the North West (up 12%) and the North East (up 12%).
Costs take gloss off orders
Orders are picking up both at home and abroad, according to the Confederation of British Industry’s latest Industrial Trends Survey, but profits are threatened by cost pressures.
For the three months to April, 34% of 439 UK manufacturers said total orders rose, while 23% said they fell. A rounded balance of +12% is the first growth in this area since January 2008. Exports are leading this resurgence with a balance of +20% – the best since 1995 – although a balance of +5% for domestic orders means this area finally appears to be picking up too. It’s the first growth balance for home orders since October 2007.
However, average unit costs were up for a balance of +20 per cent of companies, putting a strain on the bottom line.
Manufacturers report that they will raise their prices over the next
three months to as a result.