Brokers battle with insurers over ‘ritualistic’ 25% price hikes

Brokers battle with insurers over ‘ritualistic’ 25% price hikes

Brokers battle with insurers over ‘ritualistic’ 25% price hikes The current renewal season has brought to the fore the issue of insurers issuing heavily discounted premiums to attract new business but increasing premiums by as much as 25% when the policies are to be renewed.

Brokers told Insurance Business they are battling with this during the current renewal season – but add it demonstrates the necessary role of the broker to navigate the client through it.
John Elliott, director of Elliott Insurance Brokers, said offering cheap premiums but higher renewals is a “ritualistic pattern” for some insurers.

“The BDM does whatever he can to get the deal but come renewal season, the terms come with an increase in premiums.
“We are not talking about small premium increases – a broker can absorb a 10% increase quite comfortably, these increases can be as much as 25% even if the client has a good claim history.”

Elliott said it is not always the same insurers that adopt this tactic and that an insurer that raises prices during one period, may not adopt the same approach during another.  He said insurers that adopt this tactic will do so whether market conditions are hard or soft.

However, when an insurer offers a questionably low price, it is almost certain that the same insurer will increase the premium at renewal. Elliott said the broker can warn the client that it is likely their insurance policy will be more expensive come renewal season but most of the time the client will opt for the cheaper policy. When it comes to renewing the policy, oblivious clients may think it is the broker adding on additional fees.

But he added this issue emphasises the importance of using a broker. “It if was easy and if these issues did not crop up, a client could go direct and get insurance themselves. It is because insurance can be complicated and doesn’t always make sense that brokers are needed to give valuable advice and guide the client through these situations.”

When looking for the best deal for its client, Elliott explained: “we look at those insurers that offer the best policy coverage at the best rate, that we have established good relationships with and go the extra mile.”

David Coe, managing director of Northwest Insurance, added that several industries adopt the same approach to premiums.

“That style of campaign is adopted by a lot of industries. Banks do it as well, [customers are offered] honey moon interest rates for the first 12 months. [They] get the client in the door now [and] deal with issues later, including rate increase in 12 months.”

Andrew Faber, manager at MGA Insurance Brokers, told Insurance Business he had not witnessed insurers increasing premiums in the last few months because of the soft market.
“Insurers cannot afford to hike up prices because they know another player will undercut them. The market is particularly soft in liability and property lines.

 “I have known insurers that do provide discounted insurance premiums but increase them at renewal season then you remarket the risk. Ideally, you don’t want to remarket the risk every 12 months. You get a feel for those type of insurers that likely to increase prices. Looking at some of the prices out there right now, it would not surprise me of we see premium rises in the next 12 months.”
 
What has your experience been during renewal season? Leave your thoughts below.
 
 
 
7 Comments
  • Jack 25/06/2014 10:12:10 AM
    Youve got to love it! They buy the business one year and then jack it up. But when it comes to their Direct arm, they buy the business and then less than 5% increases. If the direct client then rings them, they discount it more again!
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  • Leigh-Anne Byrom 25/06/2014 11:19:06 AM
    Firstly & foremost is policy coverage… premiums may be cheaper but there is almost always a reason for that…
    Yes the market is extremely soft at the moment & everyone is after the same business, but I think the most import thing is consistency from insurers, nobody wants to see a risk written at an irresponsible premium & no broker wants to have to remarket every 12 months because of this…
    Why are we driving our own market down?
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  • J 26/06/2014 10:29:05 AM
    The comments in the article appear to be localised and not indicative of all areas of the market - Just taking Financial Lines as an example and looking at NCPD data just released - every year since 2004 has seen a significant decrease in average premium taking it to a cumulative reduction of 54% over the last 10 years. Its hard to see how this is a systemic issue, looks to be more localised to perhaps one or two underwriters in certain lines - or perhaps account/industry specific.

    Although one factor which shoudl also be considered is the increasing cost of acquisition for underwriters with many brokers now requesting 30% commission (or higher for the larger brokers), whereas 10 years ago this was 15% (or net). This additional expense has to be factored in to the premium calculations.

    If brokers are asking for 15% more commission (doubled in 10 years) it is basic economics for underwriters to be requiring a premium increase just to maintain their expiring position on a net basis.
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