After 10 straight quarters of pricing drops, a leading pricing index has shown that pricing decreases are slowing but is an end of pricing drops on the horizon?
The Bizcover Insurance SME Index has found that lower premium rates continue to affect the market thanks to an “abundance of supply and healthy competition” within the market as professional indemnity prices took a 4% hit over the previous quarter.
However, the Index highlighted that pricing across other product groups showed signs of slowing in terms of pricing reductions as stabilisation could be on the horizon, Bizcover and Mega Capital managing director, Michael Gottlieb said.
“The Bizcover Insurance SME Index is an excellent indicator of premiums trends,” Gottlieb
told Insurance Business
“While pricing continues to fall, the rate of reduction has slowed markedly and is more concentrated, pointing to a stabilisation in rates over the next few quarters.”
Pricing in combined PI and PL crept up 1% over the quarter, according to the Index, as public liability business packs are also levelling out.
Gottlieb noted that, without a major market shock, prices will not trend upwards as excess capital continues to flood the market.
“Given the huge amount of excess capacity in our industry it is unlikely that without a shock to the industry, premiums will trend upwards for quite some time. However, there are segments in the market where premiums have reduced dramatically and insurers are starting to resist further reductions,” Gottlieb continued.
“This is predominately in the micro segment of commercial insurance. In the medium size risk where there are relatively large premiums, we still expect the premiums to trend down but at a slower rate.”
Gottlieb, who’s business finished second in the latest Insurance Business Top 10 brokerage rankings
, stressed that the nature of the insurance cycle is not changing as the market continues to develop but the length of the current soft cycle could show a growing trend.
“We definitely do not expect a return to a hard market anytime soon and with the huge amounts of capacity, the soft market will be here for a while. However, in my view insurance cycles are no different to any other cycle and there will likely be an event at some time which markedly and abruptly reduces capacity.
“When this happens we will once again see a hard market. So it is likely that the normal peaks and troughs we experience will continue into the future.
“It will just feel like a very long trough!”
Gottlieb gave his advice to brokers working in the current market as preparing for the worst remains the safest option.
“My advice to brokers is to build a value proposition and business model that assumes a soft market indefinitely. Then when the hard market does eventually appear, you will be well positioned to benefit from the conditions.”
To read more about the Index, click here