Death of The Pricing Cycle?

Death of The Pricing Cycle?

The medieval nursery rhyme, ring a ring o’ roses, depicting the ravages of the black plague, could well represent a metaphor for the property and casualty insurance industry’s past erratic pricing behaviour. Now, with a record level of excess capital awash in the global marketplace, has the historical pricing cycle been broken forevermore?

The current excess capital glut within the global property and casualty insurance industry, mainly concentrated in the reinsurance sector, has combined with almost negative investment income growth due to low interest rates to drive the present “soft market” across commercial and personal lines. Many industry experts expect this will continue unabated for the foreseeable future.

This high tide of unemployed capital has introduced a new pricing dynamic that, short of a megacatastrophic event resulting in a multi-billion-dollar insured loss, signals the traditional underwriting pricing cycle is something of the past.

Intensified competition in Canada’s p&c insurance marketplace has led to a more prolonged “soft market” than past industry cycles, observes Martin Thompson, President and Interim CEO of RSA Canada. 

Although Thompson does not see anything on a global scale that is going to change market conditions, he notes that the downward pressure on pricing in Canada has been more “targeted,” affecting certain lines and products compared with other international markets.

He further suggests current market conditions are producing a gap in terms of profitability between larger “top performers” — which have embraced new technologies to reduce claim costs and operating expenses — and companies operating on the lower end of the scale.

Read more in Canadian Underwriter.