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'UNSUSTAINABLE' PRICES PUT CHEAP PREMIUMS IN DOUBT

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Councils enticed by insurers offering massive premium cuts this spring could see those firms walk away in just 12 m...
Councils enticed by insurers offering massive premium cuts this spring could see those firms walk away in just 12 months, industry sources warned this week.

Some authorities have seen premiums slashed by up to 60%, in the battle over the lucrative insurance contract renewals market. But some pricing has been described as unsustainable and, with the recent costly freak floods due to push up claims, experts predict that a number of councils will be looking for new insurers sooner than they thought.

It is commonplace for councils to agree three-year insurance deals. But these are reviewable annually, allowing insurers to pull out if the deal proves commercially unviable and so forcing councils to either retender the work or agree to higher premiums.

John Jackson, publisher of Insurance Age, said: 'Local authorities may get a good deal this year. But there could be a different situation in 12 months . . . they shouldn't rely on these premiums even in the medium term.

'Risk managers in local authorities will know this, even if some members are rubbing their hands.'

Mr Jackson warned that the current general overcapacity in the insurance market would be followed swiftly by a market correction which would see premiums rise.

Another fear is that firms which have bid low will be keener to settle liability claims out of court - keeping their costs down but creating the potential for further expensive actions.

Zurich Municipal, which commands two-thirds of the local government insurance market, has admitted that it has been prepared to take smaller margins in the face of a 'soft' insurance market.

But David Forster, the firm's marketing manager, said: 'In some scenarios in local government, deals have been struck where pricing is unsustainable and we find it difficult to believe those firms can continue delivering those premiums.'

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