Insurance forum: Market conditions favourable, but claims remain a concern to risk managers

Insurance Forum: Market conditions still favour the buyer... but reservation of rights on the increase

Market conditions still favour buyers, the four panellists at the conference insurance forum agreed, although there are variations depending on class of business and territory. With plenty of capital still available, there is no obvious reason why there should be any fundamental marketwide change in the near future.

Dominic Burke, Group CEO of Jardine Lloyds Thompson Group, described the market as firm but not hard and “pretty competitive in favour of the client”. “It’s not a pretty picture for most carriers,” agreed Carsten Scheffel, London CEO of Allianz Global Corporate & Specialty.

The forum chair Anthony Hilton, Financial Editor of the London Evening Standard, began by raising the question of Solvency II and its effect on rates. The consensus was that, although this regulation was a considerable preoccupation for insurers, it was just one piece of the jig saw.

Rob Schimek, President and CEO of EMEA for Chartis pointed out that, for many companies, the ratings agencies are more important in determining capital requirements than Solvency 2. “That will in my view be a bigger driver,” he said, though adding that Solvency 2 had promoted a more scientific, more sustainable approach to underwriting.

David Ross, CEO of Gallagher Heath observed that the recession had also influenced underwriting, with low investment returns forcing insurers to return to basic underwriting. Looking further ahead, however, Scheffel speculated as to what will happen to rates as insurers run out of reserves – a development he described as “a matter of time”.

The panel acknowledged claims to be a cause of concern for buyers, with both brokers seeing an increase in the use of Reservation of Rights, an area where Airmic is calling for action.

“My observation is that carriers have moved much more towards reservation of rights,” said Ross of Gallagher Heath. “There’s a greater usage of Reservation of Rights, a much greater deployment of forensic experts. It’s not a healthy situation,” agreed Burke of JLT, adding that it would be unfair brand the whole market.

Schimek of Chartis said his company had worked hard to reduce the practice, but grey areas are inevitable. Such situations require people to be reasonable, he said. He urged buyers to get to know their insurers’ claims teams early on, before they had any losses to report.

When the conversation turned to transparency the two brokers on the panel called for a move to ‘net net’ terms of trading so that buyers could see exactly what they were paying for, but said it was up to insurers to push for them.

There’s a greater usage of Reservation of Rights, a much greater deployment of forensic experts. It’s not a healthy situation
Dominic Burke