Rates are easing for manufacturing SMEs, but rising sums insured are absorbing much of the benefit before clients see a lower renewal premium. Tony Buckingham (pictured), managing director of Buckingham Insurance Consultants, part of the Hedron network, said reductions are smaller than headline figures suggest, while inflation is partly driving the increase in sums insured.
For clients with a good claims record and well-managed risks, Buckingham said the bigger insurers have plenty of appetite to retain and win the business. The result is a genuine easing on rates, “but probably not as big as the headline percentages that people are talking about.”
From what his firm is seeing, rate reductions of 5% to 10% are realistic. Insurers will go much further when a risk is marketed, he said, with some “looking to just blow risks out of the water” to win the business. That puts its own pressure on brokers, whose income falls with the premium. His firm has cushioned that by winning new business, but he noted that not every broker has been as fortunate.
He also questioned how long insurers can keep cutting. Falling premiums push up expense ratios, and that is a hard conversation to have with shareholders. “I’m not quite sure how long this lasts until shareholders say, hang on a minute, enough’s enough,” he said.
The bigger factor for his clients is what is happening to sums insured. With inflation pushing values up again, “stock values, rebuild costs, turnovers and wages – they’re all increasing, which is knocking the edge off of the rating reductions,” Buckingham said.
Rebuild cost assessments are also exposing shortfalls, with his firm finding clients 25% to 30% underinsured, particularly on buildings.. That echoes recent industry findings on the scale of UK building underinsurance. Correcting those gaps generates extra premium that, in his view, probably wipes out any reduction. For businesses whose values have barely moved, the picture is a mild softening, generally with no added conditions and driven purely by the market.
That leaves clients paying close to what they paid before at a time when other costs are rising. Buckingham said some of his clients have seen steep increases in National Insurance following the rise in employer contributions, on top of the wider rise in government-driven costs already squeezing UK SMEs.
Leaving clients underinsured to fit a budget not something his firm will entertain. “We aren’t having that conversation at all. That’s a red flag for us, to be honest with you,” he said. The firm would rather walk away than advise a client to insure improperly. That is partly because it isn’t in the client’s interest. Where budgets are genuinely tight, the firm looks for other ways to bring premium down, such as higher excesses for clients with few claims.
The reason he holds that line is the loss that brokers and clients tend to underestimate. “It’s not total losses that are the problem, it’s partial losses,” he said. When cash is tight, an underinsured business can’t fund the shortfall itself, and brokers need to give clear advice on getting cover right, because a failure there can sink a business.
He sees the same gap in digital risk, with many businesses not understanding how vulnerable they are. Too few are looking at cyber cover, and many small firms don’t have adequate IT security. The conversation is made harder because “there’s a lot of discomfort in the broking market about asking clients tech questions that the clients don’t understand either”, which adds to the uphill sale brokers already face on SME cyber.
In a market where rates are falling and insured values are rising, the renewal percentage is the easy part of the conversation. The advice that protects manufacturing clients is about what they are insured for, not how much less they are paying.
