The UK insurance market has been dominated by London for centuries and while that’s unlikely to change any time soon, the market is more than just London.
Scotland has a long history in insurance, dating back to the 1700s when the first maritime policies were written. Since then, it’s grown to become a crucial pillar of the Scottish economy.
According to the Association of British Insurers, 24 of its c.200 member companies have a presence in Glasgow which is, alongside Manchester, the highest concentration of insurers outside London. And this local market provides 10,000 jobs in Glasgow (9% of the city’s workforce) and generates more than £1bn to the local economy.
It’s an economy that’s long been a profitable one for the insurance industry with good loss ratios and decent rate to be found. Indeed, AXA Commercial has been operating in the city in one form or another for several decades, and is now led by Alan Blair, Branch Manager.
Alan says it’s a competitive market, where appetite is driven by that historical profitability.
“The Scottish market is quite aggressive. Being a traditionally profitable area to write business, most of the composite market acknowledge that fact in the rates they charge,” he says.
While that may be true for Alan and AXA Commercial in their favoured sectors of construction, manufacturing and property risks, for brokers, who must consider risks across the board, it’s still a tough market to operate in.
“The market is still very difficult,” says George Stubbs, CEO of GS Group.
“It can be a challenge to get capacity. Scotland has always been profitable, but all the underwriters are in Glasgow, fighting over the same pieces of business. Ten years ago, there would have been a better geographic spread but now it’s very Glasgow-centric.”
Likewise, Ewan MacDonald, Managing Partner of the MacDonald Group, says that the market remains challenging in certain lines.
“From a broking point of view, there’s a real lack of appetite from a number of insurers, and it’s changed quite a lot in the last two years,” he says.
“A lot of capacity has been withdrawn, particularly regarding Professional Indemnity and the leisure sector. A lot of insurers are shying away from those classes, which makes it very challenging.”
So, while competition generally is strong, it doesn’t exist across the board. It seems to be in pockets and in particular lines, but wherever it exists it’s clear that both brokers and insurers are feeling the pressure.
According to Alan, this has led to insurers focusing on more aspects of their proposition than simply rate to get the business they want. Increasingly, it’s about the broader proposition, with AXA’s set to be revolutionised by its transformation programme.
“We’re going through that extensive change programme and it’s about more than replacing systems,” says Alan.
“It’s about improving the service we can provide by giving our underwriters the tools they need to underwrite business more efficiently. It’s designed to help underwriters build better relationships with brokers and provide compelling propositions for their clients.
“We’re absolutely on a growth trajectory in Scotland, but always focused on profitable growth, and this transformation will help us do that much more effectively.”
While AXA is well-placed in Scotland, what will the future look like if the independent broking sector continues to be consolidated? Is there a risk that placement strategies will be dictated by, or even managed, south of the border?
“I can’t see the Scottish market getting hollowed out,” says Ewan.
“We’ve recently joined Partners& and one of the most important elements of that transaction was maintaining our connections with key providers in Scotland. The underwriting requirements are very different and that’s more apparent the further north you go.”
Likewise, GS Group’s Stubbs believes that the insurer presence in Scotland shows no signs of diminishing: “I don’t see the insurer presence in Scotland changing. The broking community would demand that presence as it’s still a people business.”
It could be that the historical profitability is keeping insurers here; and that could be reinforced by the fact that, in certain dimensions, the Scottish economy is in ruder health than its English counterpart.
A study of 220,000 UK businesses found that the average profit margin for a Scottish business was 7.5%, above the UK average of 6.7% and second only to businesses in London where margins were 8.1%.
Despite this, the economy faces challenges but according to Alan, they are macro, rather than localised.
“The cost of living, supply chain issues and the increasing cost of materials are all issues for clients and are causing claims inflation,” he says.
“We haven’t been able to carry the full rate increases needed to counteract inflation across the board, as businesses are under financial pressure and there’s a desire to write new business in this market. What we do have to stick to though is ensuring we increase the rate for poorer performing cases.”
AXA Commercial has always been strong in construction, and he says that will remain the case and even the property sector, from which many insurers have retreated, is a market AXA remains committed to.
Despite Alan’s challenges in carrying rate to compensate for inflation, brokers are finding it difficult to get cover at all in some cases.
“Trying to get property lines is very difficult. We’re seeing clients self-insure because of the rate increases,” says George. And Ewan says that it’s common to see renewal terms come back 10+% higher than the previous year.
It’s this difficulty in trading that’s encouraging more and more Scottish brokers to find a new, larger home for their clients. George recently sold his business to JM Glendinning and Ewan sold his to Partners&.
“Trading conditions are tough at the moment, so being part of a larger organisation is important from the point of view of passing on benefits to our clients,” says Ewan.
“Having joined Partners&, we were a good-sized broker but now we have wider tools at our disposal which was a real driver and a huge benefit going forward. Our clients can hopefully benefit from better pricing as the risk management support now available is excellent and will greatly assist when presenting to the market.”
Whatever the latest round of consolidation leaves behind, it’s clear that the market’s profitability, a requirement for tailored underwriting, and the desire to maintain a centuries-old local market, is enough to keep a strong insurer presence in Scotland.
Or as Alan puts it: “Anyone who wants to write business in Scotland, must have a Scotland branch. AXA Commercial has big ambitions here and we’ll continue to invest in our underwriting and processes to ensure we can give local brokers and the local economy the support they need.”