Its getting softer

Commercial insurance rates are already starting to soften and the trend is predicted to continue well into next year.

Insurance rates for commercial, personal and corporate books of business have hardened over the last three years.

The report of commercial ‘softening’ is one of the earliest indications that market conditions may be changing across some lines of business.

First Link CEO, Keith Young notes: “In commercial lines, the soft market-cycle has already begun. Significant rate cuts are being reported by our field staff. Softer rates will be evident well into 2005.”

A prediction for 2005 is that competition around rates will intensify strongly. However, competition faced by brokers from direct insurers may soon plateau, according to First Link’s strategic industry overview.

Young points out: “The direct channel is relevant for certain market segments, but we do not foresee significant losses. We estimate that direct insurers currently hold 10 to 15% of personal lines business, but we don’t anticipate much growth beyond 20%.

“Significantly, Auto & General, a leading direct player, has now refocused its strategy to pursue broker-driven growth.

“Our research indicates that the broker model is well able to compete.”

Young predicts: “Continuing cosolidation will take various forms – acquisitions, mergers, partnerships and alliances.

“In 2005, FAIS enters its first full year. The new legislation is itself an important driver of consolidation.”

Young, however, does not foresee a FAIS-triggered staff shake-out in 2005. It will be 2006/07 before the impact of training requirements and resultant accreditation hits home.

Industry members have two years to achieve the credits necessary for personal lines compliance and three years for commercial lines compliance.