According to industry reports and underwriters, the financial lines market is continuing to soften. The latest Marsh index, released Thursday, showed that financial and professional lines rates have continued to moderate, decreasing by 4% globally in the second quarter. Some of the bigger rate decreases, said the report, are in Australia and Pacific region markets. For local brokers and underwriters this continues months of intensifying competition for clients who are demanding better coverage and risk management offerings.
“With market conditions softening further, quoting activity is rising as clients seek better terms — increasing pressure on both underwriters and brokers,” said Louise Soutter (pictured).
Soutter - financial lines underwriting manager for Pen Underwriting - and other industry stakeholders say, more and more, the price of cover is the decisive factor in placement with less focus on appropriate coverage, continuity of cover and security. “We’re seeing a clear trend of clients seeking broader and more competitive terms, and there is more negotiation on terms being offered,” she said.
Soutter said, in this environment, underwriting discipline remains key to sustaining long-term profitability.
One of Soutter’s concerns is the extra workload the soft market is creating for her brokers. “There is more competition, more work required and renewals may be harder to retain,” she said. “As a result, insurers, underwriting agencies and brokers need to consider the mental health of their teams.”
Soutter said this demanding workload can result in another issue. “With increased pressure to quickly quote on a growing number of requests and without the opportunity to ask for additional information that might be requested in a hard market, there is potential for simple mistakes to be made regarding guidelines and coverage,” she said.
Soutter said underwriters and brokers need to work diligently to prevent this.
Another impact for brokers can be time management challenges from an increasing number of client meetings. “Across all lines of business there will be requests for more face-to-face meetings as competition ramps up, so both underwriters and brokers are going to have to manage their time effectively to ensure they can lean on relationships to get the results they need,” said Soutter.
In this situation, she said, strong underwriter-broker relationships become very important. “In terms of the market, brokers will look more to place policies with insurers on a whole of account basis,” said Soutter.
The underwriter said firms like hers that have a broad range of product offerings and are able to provide multi line solutions for brokers will be in the best position to help them make placements for clients with a smaller number of providers.
However, smaller underwriters like Pen, said Soutter, are faced with what could be a growing challenge. Recent years of the big insurers pulling out of or limiting their insurance offerings in certain markets, including financial lines, could be coming to an end.
“Larger insurers have also broadened their appetite and are pursuing business that would typically be handled by underwriting agencies,” she said. “Agencies will need to remain competitive while ensuring that clients receive appropriate coverage for the premiums paid.”
In the context of financial lines markets around the world, some data and anecdotal evidence suggest that Australia is one of the softest. Soutter said her firm started to notice significant rate decreases locally in about May/June last year.
“In our view, this was due to the aggressive rate increases in various areas of PI since around 2018/2019, which led to improved performance in the Australian PI market,” she said.
However, she said other regions have faced financial lines difficulties that, in recent months, has focused even more global market attention Down Under.
“Regions such as the American and European markets, faced challenges that made them difficult to manage and less attractive,” Soutter said. “As a result, Australia became a key target for international competitors and the influx of new entrants into the PI space further increased competition and is driving rates down.”
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