Lease insurance providers have had to
adjust their expectations in light of the significant fall in
leasing activity over the last 18 months, although signs of
recovery in some sectors offer hope of increased revenues in 2010.
Paul Golden reports.
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The recession has inevitably taken its toll on
demand for lease insurance as overall leasing deal volumes have
dropped. James Read, European sales manager at Lease & Loan
Insurance Services, says there is little more than half the number
of deals being completed now compared to the middle of 2008.
The economic downturn impacted in less obvious
ways last year, for example, by creating uncertainty around the
residual value of used cars covered under guaranteed asset
protection insurance. This significant fall in values has been
reversed to some extent over the last few months but it was a major
issue throughout 2009, according to Read.
The consolation for insurance companies is
that their finely tuned risk assessment techniques have enabled
them to maintain premium margins during the recession. However, Ben
Cartwright of Asset & Lease Insurance Solutions claimed the
market needed to rethink the view that it cannot make profits and
look at products customers cannot find in the conventional
insurance market.
Fair margins
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By GlobalData“Sellers have to determine how fair their
margins are and justify that to the Financial Services Authority,”
said Cartwright.
“Living with regulation is not as onerous as
many assumed it would be and we are pushing the idea that customers
would benefit from insurance products that they cannot get
elsewhere.
“The asset
finance market is accustomed to taking large profits on insurance
deals, but it has to realise it can make money without charging too
much.”
Grant West, associate director Close Asset
Finance, described the reduction in lease insurance volumes as an
inevitable consequence of reduced asset finance activity, adding
that current levels of business are in line with expectations.
“Living with regulation is not as onerous as
many assumed it would be and we are pushing the idea that customers
would benefit from insurance products that they cannot get
elsewhere”
He said the market has not changed greatly in
recent years, with finance companies offering broadly the same
range of products.
“Our products are finance agreement-specific
to the asset we are funding. However, if a client is looking for
cover for an asset outside our core markets we would research it
further,” West said.
West added that uncertainty around residual
values of assets has not affected his company’s guaranteed asset
protection product in terms of pricing, stating that the most
important factor in setting pricing is claims history rather than
asset values.
When asked whether companies were more or less
likely to include newly leased assets under their existing
insurance cover in an attempt to reduce costs at a time when
margins are under pressure across the economy, Read said there has
been little change in the percentage of customers taking standalone
policies from their lessor.
“There are still many who do not want to add
to their principal insurance cover,” Read added.
Full range of assets
Likewise, he continued, cover is
still available on the full range of asset deals from microticket
to structured, although other observers referred to insurers’
current preference for easily replaceable assets and retrospective
policies.
Lease & Loan Insurance Services is still
the main player in this market although an interesting new
development is the establishment of Acquis Insurance Management by
a number of former Lease & Loan managers.
While those behind this new venture were
unwilling to comment on their plans, it might at least go some way
towards shaking up what Cartwright described as “a market that is a
little stagnant and looking for something innovative”.
He went on to explain that anything that is
revenue-generating is capable of being sold a fixed price insurance
package.
“The attraction of these deals is that the
premiums are paid monthly, which helps with budgeting for
commercial customers,” Cartwright said.
In the small-ticket commercial sector the most
popular product is insurance against theft and breakdown for IT
equipment, added Fred Yue, chief financial officer at Syscap. There
has been some hype around insurance for green assets, but it
appears that few other markets share the UK’s enthusiasm for
environmentally friendly business.
Indeed, Lease & Loan Insurance Services’
European sales manager stated that the ‘green business’ concept is
perceived differently in each market.
“In many parts of Europe it is much less of a
concern and in any case, business is business and you cannot afford
to be too selective,” Read said.
Looking ahead, while the recommendations on
banking law and regulations contained in the Basel II accord have
impacted on the leasing sector, Read added that these new measures
have not impacted the lease insurance market.
