In the November edition of SMT, several of the leading security companies complained of huge price hikes for employers' liability and public liability insurance premiums. While insurance specialist John Ludley believes that contractors must examine their claims records before crying foul, there's also a feeling that insurance writers should adopt a longer term and far more realistic view of their pricing structures.
Having read the News Special in the November edition of Security Management Today referring to the current "crisis" in the liability insurance market ('Liability insurance crisis bites deep into security contractors', pp17-18), there are certain statements within that need to be clarified.

Firstly, Legion Security managing director David Evans has been misinformed... Iron Trades has most certainly NOT gone out of business. In truth, the company was bought out by QBE (a very large Australian multinational insurer) in 1999 and, at that time, withdrew mainly from the motor and household insurance markets.

At present, Iron Trades enjoys a Standard & Poor credit rating of A+, which I believe to be the highest rating of any insurer writing in the security sector. Indeed, Iron Trades has written our own specialist scheme for the past 13 years, which makes them the longest serving, best established and most committed insurer for the security industry.

During that 13-year period our competitors have used many different insurers for one reason or another. Generally speaking, though, it's fair to say that insurers are not in the habit of withdrawing from markets if they're making money! Of course there are exceptions with takeovers and the like, whereby – through no fault of the scheme broker – an insurer withdraws from a market due to changes in, say, corporate philosophy.

In search of commitment
If security companies want a long term, committed insurer with a good credit rating – an essential for 'long tail' liability business – then they must be prepared to pay a reasonable premium and not constantly look to save a small amount of money by changing insurer in a soft market. Such a stance is likely to come back and haunt them in a hard market, which is exactly the kind of environment in which they find themselves at present.

For its part, the insurance industry has to realise that it cannot constantly compete on price to win business. Insurance providers must take a long term and far more realistic view of their pricing structures, and remove the peaks and troughs from their business.

As brokers, I suspect that we are also guilty of continuing to place business at prices that we know to be unsustainable in the longer term. If the past trends of suicidal rating re-emerge I guess we will have to offer clients not one but two prices – one being the renewal terms, the other referring to what we think they should really be paying. At least that way the client can budget sensibly for the future.

Hopefully, I'm being far too pessimistic here and the insurance industry has truly learned from its past mistakes. However, history tells us that the insurance sector doesn't enjoy a particularly strong track record of doing so.

The current average rate increase from Iron Trades is between 20% and 25% for all those risks without a claims problem. Only those clients with a specific claims issue are penalised further.

One cannot blame security companies for seeking the cheapest price [for their insurance] as long as they’re buying the right cover, but if they are clearly paying a reducing premium each year against a background of rising claim costs, then they must real

On many occasions we have recently written business where Iron Trades was, I suspect, the only company actually prepared to offer terms. Those terms may well have been significantly more than security companies paid last year but, frankly, in some instances the terms were driven by claims history. If a security company has a poor claims record against its name, it cannot expect the insurance industry to go on subsidising that.

In these circumstances, Iron Trades wasn't the insurer that had previously written the business at too low a premium, but was the insurer prepared to step in and help when no other writer would quote.

Having said all that, I do sympathise greatly with security companies in the current climate. It is patently unfair to impose overnight price hikes of even 20% on any client. The insurance industry needs to remove the peaks and troughs from its business and provide year-on-year stability when it comes to pricing.

Likewise, security companies must also be prepared to offer some sort of consistency and not constantly seek to tout their insurance needs around the market in the fashion of a Dutch auction. This is a generalisation... there are indeed a great many companies – Legion Security among them – to whom this accusation most certainly does not apply.

Settlements on an upward trend
I rather suspect that if many security companies were to look back at their records and see what rates they were paying five years ago, their current rates – even with recent increases – are lower than they were paying back then. This is set against a background of ever-rising claims costs and frequencies that insurers have been forced to endure.

We must also recognise the difficulties faced by insurers. What other industry has retrospective legislation introduced by the Government which forces companies to pay inflated claims costs due to changes in the law?

For years now the insurance industry has subsidised UK businesses – not just those in the security industry – by paying out more in claims each year than it has received in premiums. It has managed to fund the difference through investment income, but that too has now dried up courtesy of reduced interest rates and declining stock markets.

Ultimately, UK businesses need a solvent industry to support them, but society must come to terms with the fact that the increase in litigation perpetrated by 'no win, no fee' ambulance chasing and the like has to be paid out by someone.