This update is designed to give you a flavour of what we see is happening in the Contingency marketplace, the issues on the dashboard and an insight into how things may shape up as the year progresses in what can only be described so far as a resounding ‘annus horribilis’. Whilst London is very much ‘open for business’ it is useful to take a snapshot of the matters in hand and what is happening in all matters insurance and risk management for this industry class.
London market Contingency capacity in recent times had already begun contracting before the outbreak of COVID-19, as a result of long term trending losses and unsustainable rating given the frequency and severity of claims. This led to the defection of a handful of syndicates and insurance company markets alike, however a good stable of ‘A’ rated lead and follow markets remain, such that only the very largest of placements would potentially prove problematic in the Contingency market from a capacity point of view. London market capacity remains the strongest in the world as elsewhere local markets have retreated in the wake of poor results. Whilst capacity is still strong, it is likely that new entrants will emerge in London after the shadow of COVID-19 begins to fade. Significant rate increases and those without previous exposure to this class has led to opportunistic insurers entering the fray and we expect to see more of this.
In addition to the trending losses of previous months/years, we have the fallout of COVID-19 losses to contend with too. As a result, we are seeing rate increases of between 25% - 100% on non-appearance business and increases of 150% on conference & exhibition cancellation insurance business too. Sustainability has been an issue for some time in these classes and as a result the ‘double header’ of market hardening and COVID-19 means that this class is likely going to be significantly more expensive from here on out.
Contingency and Associated Losses
Much media attention in the insurance and business press has been focused towards claims concerning losses arising from disruption to business. These claims have a huge knock on effect to the wider market and other classes as a whole. It is believed that insured losses for the Contingency insurance market are reliably estimated as between the USD6-8bn mark.
Although this pales in significance against disruption to business losses of USD80bn, it does present a fundamental problem vicariously. That being said, we estimate the Contingency market globally probably writes around USD500m of premium per year, the economics of that therefore make for grim reading against the current spate of losses.
Restrictions on Communicable Disease coverage has led to much debate as regards COVID-19/Communicable Disease Exclusions. Each insurer currently has their own specific communicable disease exclusions which they want to apply - albeit that each of these different wordings are trying to achieve the same conclusion to exclude COVID-19 pandemic losses - and therefore it makes it frustratingly difficult to adopt a singular position on this matter where a placement comprises of more than one insurer/syndicate. Moves are afoot with Lloyd’s and various market committees to reach a unified position that will attempt to alieve this current frustration.
It is fair to say that other than in relation to communicable disease elsewhere has really only seen mildly restrictive moves at this time as the uncertainty of the future continues to weigh a little heavy on insurers’ minds and therefore their appetite for broad coverage.
So far as renewals ‘exist’ in the Contingency sector, it is worth considering that terms are likely to be more restrictive, Communicable Disease cover will be practically non-existent and in short, cover is going to be considerably more expensive and harder to source. Therefore it is wise to start the process as early as possible to allow for time to consider your options and forecast for the expenditure.
It is going to be an interesting and for many, an unprecedented experience, working in what will inevitably become a hard market and for an industry coming to terms with the fallout of lockdown and ongoing social distancing measures.
There is much that Gallagher is doing to assist our clients in getting their businesses up and running again and navigating the ‘new dawn’ on the horizon. The live event industry will face many new challenges as will the entertainment business as a whole.
We, of course, will be there to guide our clients along these paths. 2021 will doubtless be a flurry of activity as public demand for entertainment will skyrocket following such a long period of absence.
In these challenging and uncertain times the Gallagher Entertainment & Media team are here to give you the advice, market access and diversity of experience that will be essential to securing a safe charter through these uncertain waters.