A sustainable approach to pricing

Pricing has been a much analysed and discussed topic in 2021, and the debate is likely to continue long into the new year. With levels now back to those last seen 20 years ago across some classes, there may be an expectation in some quarters to see a return to the softening pricing cycle says Nic Brown, Director – Broker Business, Markel.

However, focusing on rate and price is not the way for the market to operate. Reductions in commissions and forced cost savings for providers reducing cover and service renders the customer worse off.

Under pressure, markets have moved to tighten terms and conditions. In the construction market, for instance, insurers are reducing limits, changing the basis of cover and applying endorsements. We are expecting this trend to continue throughout 2022, which is likely to leave brokers in ever more challenging positions, having to manage their clients’ expectations against pricing and cover restrictions by much of the market.

We’re not expecting a softening of rates at Markel, but we are hoping to see a positive shift towards a more sustainable approach to pricing in the upcoming year and beyond – something we  have already put into practice across our speciality lines.

As an industry, we need a longer-term approach to pricing that will be positive for the insurance sector and its customers.

Looking to the wider issues the industry is taking into the New Year, the questions around how to deal with silent cyber is still challenging placements and customer buying, and this will continue throughout 2022.

Regulators are all too aware of the need for clarity over cyber cover and the industry is under pressure to take action. Ransomware, GDPR risks and widespread IT vulnerabilities/outages are showing no signs of abating and have the potential to trigger a variety of policies, if left silent.

However, exposure management around silent cyber is driving insurers to apply new approaches or wordings and the market, and its customers, should have greater coverage clarity at the end of 2022.

Current market conditions are inevitably leading to trade-offs when selecting the preferred cover, limit and pricing and we’re likely to see more restrictions on large placements in the next 12 months with some SME risks seeing product-level changes.

Brokers are having to manage client expectations with insurers increasing the pressure on sustainability and exposure management, but the key will be to explain the context and help clients focus on their risk priorities.

Communication will be important for the market in 2022. Insurers need to be clear and transparent in their approaches and risk appetite. Doing so will provide brokers with the necessary information to better manage the expectations of clients which have been wracked with uncertainty over the past 24 months.

Insurers do have challenges in the year ahead as claims inflation, which is expected to impact all classes. However, we need to focus on what we can do for our clients rather then what they may do for us in terms of market share.

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