Current insurance market
Conditions in the insurance market over the last year have been as difficult for buyers as they have been for a number of years. The COVID-19 pandemic arrived against a backdrop of a challenging insurance market, and quickly exacerbated the issue, with insurers concerned about rising claims and the unstable economy. The result has been significant reductions in insurer appetite for risk, meaning cover is harder to find - especially for more unusual risks; narrowing of the cover insurers are prepared to provide; rate increases; and higher deductibles or excesses.
The markets remain extremely tough, but there are some green shoots, and as consumer and business confidence starts to grow, insurers are starting to relook at their current risk appetite.
Directors’ & Officers’ (D&O) is one class which we are starting to see some positive signs – not an evolution by any means, but some hope. D&O has arguably been one of the classes most affected, with Gallagher’s specialist D&O team estimating that over the last three years, over 90% of insurer capacity dropped out of the market1.
However, as a result of the current high rates available, we are starting to see new insurer entrants coming into this class. The majority of these are new insurers to D&O and although we aren’t seeing the dial move yet on rates, as more insurers come in and take on new clients, competition increases and over time rates will start to reduce.
Looking at property, within this class difficult risks still remain extremely challenging, particularly those such as high rise, food and waste and often require many different insurers on individual portfolios, but more standard business, which was also been heavily impacted by a lack of insurer appetite, is starting to improve. We are seeing a combination of new insurers entering the market together with the existing big players, who have in-depth expertise in this market, starting to have more confidence and looking to provide cover against certain types of risks, attracted by the rating environment.
But there are still some classes which may need to see upward rate adjustments. Cyber, by example, where there is heightening concern about the likely increase in the number and value of claims. Although many larger clients have moved to standalone cover, many packaged policies include elements of cyber cover, and there may be significant disparity between the pricing of these policies, and claim values.
Motor is another; competition in the market is fierce, driven in part by the benign claims environment last year. 2020 was an unusual year as many people worked from home and weren’t driving as much, but with lockdown easing and light at the end of the tunnel with the vaccine roll out, the decrease in claims isn’t likely to last long, plus there is the need to take into account the increasing cost of importing car parts for repairs which will add to motor claims inflation.
The market has by no means turned and it is too hard to call what might happen over the coming year. The market is fragile and if we have heavy floods or storms we will no doubt see retraction in the market, and from a buyer’s perspective, this momentum is unlikely to feed into rates for some time to come. However insurers are keen to grow, which over time should increase appetite.
To help manage the current tougher market there are steps that buyers should bear in mind when they come to renew their insurance. The extent that renewals will be affected will vary depending on the firm’s risk profile, claims record, strategies for risk management, and the capabilities of the insurance broker appointed. At Gallagher, we work with a large variety of businesses and individuals, each exposed to unique risks and dealing with individual challenges and circumstances. As one of the leaders in risk management, we remain fully committed to supporting businesses and individuals through these uncertain times.
- Teamwork: Buyers should work with a broker that understands their business, is well-resourced to absorb the additional time that renewals will take, and that can leverage the insurance market.
- Make an early start: Buyers should start the renewal process early. A three or four month lead time for renewal is advised. This is highly important as insurers are referring some risks right up their management chain, they want more time to review all information, and they ask more questions. Don’t risk leaving the renewal too late.
- Choose the right insurer: Not all insurer offices or individual underwriters behave in the same way. It is important to work with the right underwriters for your risks. Buyers should look for an insurer that understands the risk profile of the business and can achieve the optimal terms. Be wary of underwriters that may be opportunistic, or those where service levels have dropped in recent months. A good broker will guide on which insurers are a suitable partner, as they may have noted any deterioration in underwriter behaviour on other client accounts. Buyers may need to be flexible and ready to trade with new underwriters; all possible global capacity should be approached and all options sought out.
- Be flexible: Your broker will ask you about new structures and programme designs to ensure they’re looking at all available options to secure a renewal. If there’s an option for greater utilisation for higher deductibles, or restructuring a limit, or considering entirely new markets, or structures (such as captives), or taking more risk on the balance sheet.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as 28/07/2020, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher. FP579-2021