British brokers say soft market is coming

More than half of brokers surveyed in a recent poll say the market is showing signs of softening, and an even greater number say growth in the coming year will come from increased marketshare rather than rates. The survey, published by accounting firm Mazars and the British Insurance Brokers Association (BIBA) finds 53% of respondents pointing to signs of softening and 64% saying their firm’s growth will come from marketshare rather than rates. At the same time, limited capacity to place business has dropped in importance, cited by just 19% of brokers as a problem.
“This seems to indicate that the recent trend of shorter hard markets, with consequentially longer soft markets, is continuing,” the survey report notes. But the coming soft market is troubling news for a fragile insurance industry, particularly in the U.K. where broker face the financial and workload burden of new regulation from the Financial Services Authority. “. If underwriters are to finish rebuilding their balance sheets after the last downturn in the cycle and the events of September 11, they need to maintain their underwriting discipline whereas, in order to meet additional regulatory cost pressures, brokers require profits to remain high in the short term,” the report goes on to say.
Regulation is, in fact, the top concern for brokers surveyed. They cite the workload associated with FSA compliance as too onerous (67%), with 85% saying compliance will have a negative impact on 2004 profits. However, 46% think regulation will have an overall positive effect on the industry.
Viewing the market over the next year or so, almost all brokers foresee their numbers declining, fueled by the potential for high exit values on the back of the hard market. Nonetheless brokers show little interest in mergers or joining networks.