Inflation is a global dilemma and one that will stretch well into 2023. Anyone undergoing building work on their house, car repairs or buying a car will have faced seismic cost increases in materials and labour. Inflationary pressures fall into four different types: social, claims, economic and asset inflation. While inflation will act as the primary influencing factor on rates, insurers are still striving to predict its impact on future capacity.
Insurers are increasing premiums, to offset claims inflation and economic uncertainty, but also in response to rising asset values and claims costs due to social inflation. However, the backdrop of the cost-of-living crisis prevents them from pushing the premium rate through all at once. Therefore, we are experiencing a balancing act: insurers are calculating where they can allocate the various cost pressures into premium.
The reinsurance market has hardened and insurers are flagging significant reinsurance costs emerging on their treaty while they are also trying to increase capacity to balance volatility.
Within the broader cost-of-living crisis, there is also anticipation that fraud will rise – this has led to the stricter application of terms and conditions.
Overlaying this picture of doom and gloom is the market’s constant supply and demand, and competition. No insurer is immune to ambitious growth targets, and this is good news for clients. Nevertheless, competition for business is diversified, and there is less appetite for high-risk clients across all lines. Insurers are also still de-risking business – reducing their line size and limits on property and casualty.
The first half of 2022 followed suit with the previous year in terms of motor being an ultra-competitive market. Insurers were hungry to write new business, and all insurers stated their renewal retention was very high.
While this desire is still present, insurers are adopting a harder stance on their renewal book. This approach was triggered by performance in early 2022, claims inflation, the continuing evolution of the vehicle profile and the cost of repairs, parts and labour. For credit hire, providing clients with a like-for-like vehicle is a challenge. Consequently, insurers have been more proactive in writing off vehicles due to the cost of repair, and this stance has caused friction with clients who want to maintain their vehicles.
While electric vehicles are undoubtedly the future for motor, the market’s stance is currently cautious, with higher rates, excesses and greater driver restrictions.
Inflation and index linking has been a hot topic in the property market. Insurers are adopting a firm position on the adequacy of property sums insured and inflation proofing. If clients haven’t index linked their sums insured or completed a building valuation, it can be a real sticking point at renewal. Indemnity periods and BI is also a red flag for insurers – 12 months is unlikely to be sufficient.
Currently a two-tier marketplace exists – there is plenty of competition for the ‘vanilla’ risks, but the market is shying away (or seeking more rate) from high hazard trades with poor protections or non-standard construction.
Clients with loss activity have endured some significant price hikes and there is a remediation of the property book continuing, within the composite market in particular. We have been challenged by a lack of consistency from insurers regarding remediation.
There is potential for rate movement from a reinsurance perspective at January renewals in 2023, which is ultimately going to come through to primary markets.
The market is active and there is substantial movement, which has generated more competition. Where carriers prefer to reduce limits, it is generally still possible to secure an alternative excess layer solution. Composite markets are regaining strength and they will likely look to leverage casualty and motor to accommodate the difficulties in property.
Food, heavy manufacturing, waste recycling and storage are continue to be among the hardest sectors to place. Cladding and fire safety is an evolving issue and as building regulations change, the reality is a lot of residential blocks require remediation and that is driving significant rate.
While insurers remain cautious, particularly to crime and pension trustees, market conditions seem to be stabilising, with more capacity for D&O with new entrants unencumbered by legacy issues.
In 2021 the cyber market sought to deal with the increasing claims and climbing loss ratios by applying 70-100% premium increases. We are still seeing premiums increases in 2022 along with higher excesses. Insurers also sought to have clients improve their first-party controls to deal with attacks on their systems – better perimeter defence such as MFA, EDR, and increased staff awareness and training. In 2022, the risk management requirement has remained but with an additional focus on third-party controls, such as suppliers.
At Gallagher, we are navigating these challenging market conditions every day, and we are able to provide our clients with options to enable them to make informed decisions around retaining and transferring risk.
The opinions and views expressed in the above articles are those of the author only and are for guidance purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage readers to rely upon more than one source before making a decision based on the information.
FP1432-2022
