Hardly a week goes by without an article about hardening fleet rates or a statement from an insurer about their desire to achieve a loss ratio below 100%.
So is all this activity just rhetoric to “talk the market up” or are rates really hardening?
As an active retail broker my view is that attempts are definitely being made to increase rates both at individual case level and “across the board” but from experience such attempts are generally unsuccessful. As an example, a large niche broker recently told me their preferred insurer had been trying to increase rates by 5% across the board for months but to date this had not been achieved.
Justification
Service and added value aside motor fleet insurance is predominantly price driven so faced with a premium increase whether justified or not a customer goes out to tender inviting various brokers to quote and once that button is pressed all bets are off!
Competition amongst brokers is frenetic with in some cases an almost anything goes approach is evident which can include desk quoting, miss-stating current prices (to influence target price for a new insurer) and what I can only describe as careful re-engineering of the facts.
Although such practices are more widespread than you might think the vast majority of tender exercises are conducted properly and in an effort to retain the customer a broker will now widely market most fleet business directly and via wholesalers to find the lowest price.
Discounting
Insurers looking for income or MGAs with new capacity are competitively securing business especially niche sectors and in an effort to retain market share existing insurers are frequently discounting rates.
Larger brokers who collectively control significant market share greatly influence prices and will understandably use their buying power and relationships to maximise discounts.
In many cases such brokers may have a binder or some level of delegated authority but most will enjoy preferred status.
The latter is a constant concern to many small/medium sized brokers as such preferred parties will get generally improved rates, terms and commissions or in some cases the preferred broker insurer will accommodate under-performing business but decline another broker approaching them on an open market basis. Preferred arrangements are a fact of life but are they allowing volume to be written at the expense of profit or the blatant creation of an un-level playing field?
Again in all honesty, I believe the answer is yes and in many cases I am seeing an increasing amount of volume discounting and constant accommodation of risk rather than just the odd favour. In some cases, it appears that brokers dictate or heavily influence the price.
Enterprise
With the collapse of Enterprise Insurance which supported various large brokers and a niche MGA you could be forgiven for thinking that this might have at least been a chance for rate hardening on that book. My sources say sadly not and in the case of the MGA, two very well-known insurers have apparently agreed to not only to match the original terms but in many cases are discounting where required to help the MGA brokers retain business.
So the $64000 question – who is at fault insurers or brokers and can things be changed?
We will all have an opinion and I could write pages more on this but I sometimes genuinely wonder if the boards of certain motor insurers know or understand what is really happening on the trading floor? I also wonder if the balance of power now rests with certain brokers rather than any one insurer – something to ponder on a sleepless night.
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