Commercial rates will plummet 15%, insurers say

Competition in the global market is driving rates down by as much as 15%, according to some senior industry players.

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Competition in the global insurance market is driving commercial rates down by as much as 15%, according to some senior insurance industry players, as some look to new products such as cyber insurance to boost revenues.

Low yields in major markets have encouraged a move away from traditional insurance and towards insurance-linked securities such as catastrophe bonds, which offer a high return.

According to a Reuters report, some hedge funds have also started offering reinsurance to share the insurance burden of hurricanes and other costly natural disasters, and their aggressive approach has stolen business from traditional players.

A lack of natural disasters in recent years has also reduced global demand for insurance to protect property – although those suffering bone-chilling temperatures in the American Midwest and snowed under in Buffalo, N.Y. would beg to differ.

“This is a soft rate environment, with an average 10-15% decrease across the board,” Dominic Burke, chief executive of broker Jardine Lloyd Thompson told a UK conference. “It’s a good time to be a buyer of insurance.”

Unusually cold temperatures have swept across the continental US, with temperatures in Wyoming plunging as much as 30 to 50 degrees below normal. In Buffalo, more snow is expected, with accumulations reaching over eight feet – the equivalent of a year’s worth of snow.

North of the border, Canada experienced unusually high hail damage claims and flooding through the prairie provinces – and insurers are still dealing with claims from the 2013 summer floods in Calgary, Alta. and Toronto, Ont.

However, from a global perspective, Burke said even the aviation insurance market has seen price increases of only around 13% during the current renewal round, despite significant losses this year such as the downing of a Malaysian Airlines plane over Ukraine.

Darren Redhead, chief executive of specialist insurance fund manager Kinesis Capital Management, said alternative insurance products had sliced 15% to 20% from the profits of traditional players.
But other speakers at the conference said they saw a smaller decrease in insurance rates.

In the hunt for new business, underwriters in the specialist Lloyd’s of London market, where anything from rockets to body parts might be insured, have started to focus on protecting companies from the effects of cyber crime.
“Cyber risk is going to be one of the major preoccupations of managers in all companies,” Martin Bride, finance director of Beazley, told Reuters.
 

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