Jason Hurley, RGA (UK) Reinsurance I see Norwich Union (NU) cutting its rates as a bit of a red he...
Jason Hurley, RGA (UK) Reinsurance
I see Norwich Union (NU) cutting its rates as a bit of a red herring. It was the first company to raise its rates, and now that 15 others have shown their hand, NU is bringing its rates in line with the market.
During the rest of the year, doubts over the solvency of some offices and the continued push for the big to get bigger, will lead to interesting 'price games' between the main players. Insurers may also begin to hold more of the risk themselves and, if so, they will lose some of the benefit of reinsurance and will therefore need to charge higher premiums.
I think reinsurers will continue to reduce capital support leading to higher premiums and foreign reinsurers could use this as an opportunity to enter the UK market which would lead to greater support for guarantees. There are some established reinsurers who, to date, have sold little guaranteed CI and, now that prices are rising and competition is falling, they may decide to take a share. Again, on the back of price rises, some reinsurers might re-enter the market.
Overall, the market size may fall due to rising prices, uncertainty over the housing market and moves away from guaranteed rates. We may also see new products introduced but what is more likely is that insurers will go for the cheap, easy, low-risk option of developing a reviewable rate product if they do not already have one. It will be interesting to see the extent to which the IFA market takes to any new product, including reviewable and renewable products.
Heather Armstrong, Scottish Equitable Protect
It is more likely that we will see prices for guaranteed premiums steadily rising. This is the prevailing trend affecting the market due to moves from the reinsurers prompted by increased detection rates.
A strategy of gradual price rises allows providers to steadily increase premiums with the market, which makes for better expectation management with IFAs, and eliminates some of the uncertainty which is dominating the market.
At the same time, we are likely to see more and more IFAs recommending reviewable rates on CI products. As guaranteed rates become cost prohibitive, IFAs need a cost effective and valuable alternative and reviewable rates are likely to be the answer in the short to medium term.
Reviewable rates are now available as an option on products from a number of providers who may not have offered this option in the past. For example, Scottish Equitable Protect offers rates which are guaranteed for five years and then reviewed in the context of the market at that time ' then guaranteed for a further five years. No further underwriting is required. Reviewable rates are the first step on a journey of change for the CI market which, in the longer term, will ultimately mean a significant change to product design.
John Joseph, John Joseph Financial Services
Should NU have put up their rates? Of course they should. Any prudent business would if they want to stay in business. Why should we, in the 21st century, expect to buy anything where the price is fixed for any term from 10 years to 100 years? Life expectancy is increasing; a baby born today may live to be 130 years old. Illnesses that used to kill us now cause us minor inconveniences. And with the constant invention of 'new' illnesses and the cures that mean people do not die, why should we expect our industry to fix premiums for exceedingly long periods of time, while not being able to fix the cause of a claim?
I do not expect any company to commit financial suicide by offering a low and competitive guaranteed rate when compared with reviewable rates, if it means they will go out of business in the future.
