Fresh capacity may be keeping rates flat in traditional lines but broker profitability is still causing concerns

The future development of premium prices is a major concern for Swedish risk managers and insurance buyers.

Henrik Rydén, managing director of JLT Risk Solutions in Scandinavia, said, in traditional lines at least, buyers don’t have much to worry about. He predicted that fresh capacity, attracted by the benign risk environment in Sweden, would keep rates flat in traditional insurance lines like property and casualty.

This view was reinforced by Lennart Edström, vice president of group risk management for home appliance manufacturer Electrolux, who said: ‘There has been a lot of noise from insurers that they would like to raise premiums but we haven’t seen that yet.’

Swedish risk managers are concerned that the financial crisis will provide the trigger for insurers to raise premiums across the board. The economic turmoil has already affected specialty lines like Directors & Officers (D&O) insurance. The credit insurance market, like elsewhere, is also in turmoil.

“The benign environment is encouraging capacity to enter the market.

Edström said that he hopes when the market does turn insurers will give sufficient credit to companies with good risk management and loss prevention practices. ‘Insurers should be selective and reward those companies with good risk management,’ he said. ‘There should be a benefit for being active in loss prevention. If it doesn’t pay off, how do I convince my company to spend money on it?’

Buyers are also concerned about the stability of their insurance partners, particularly when it comes to placing long tail risks with them. After recent problems with several large insurers and reinsurers, like AIG, XL and Swiss Re, buyers are not convinced that their insurers will be around when the claims come in. Claims on long tail risks tend to come around only after a long gestation period, sometimes decades.

Buyers and insurers are also concerned about the profitability of large global brokers. The ‘big three’ brokers, who tend to proide risk management services to multinational companies, have been hit by falling profitability as a result of the financial crisis. Since the beginning of October 2008 Aon, Marsh and Willis have all seen significant slides in their share prices (-7%, -35%, -28% respectively).

Their poor performance is a concern for risk managers, who are worried that service levels will suffer.

“There should be a benefit for being active in loss prevention.

Lennart Edstrom

Staff salaries are one of the biggest expenses for brokers. As a result, they are bleeding staff in an effort to cut costs.

Charlotte Barnekow, chairwoman of the Swedish risk management assocation (SWERMA) and head of insurance and risk management for Ericsson, criticised the brokers for their business models. ‘Brokers are suffering,’ she said. ‘They need to look at their business models. Why can’t they get their costs and income right?’

In Sweden the problem has been an unhealthy twist in staff salaries, she said. Professional brokers tend to move between firms a lot and each time they move their remuneration goes up.

‘Brokers need to look for new blood rather than hiring from each other. That could have a positive impact on the whole industry,’ suggested Barnekow.