Author: Edgar Flaherty
The trend towards a tougher market began as early as the autumn of 2019, and over the summer the market has become even tougher. Insurers were starting to select risk more carefully and de-risking where they had big exposures. This trend has continued on almost all insurance products, especially the property and financial lines markets, as insurers try to improve their results after previous years' lack of earnings and now from the unknown impact of COVID-19.
We have seen insurers exit some lines of business and others cease to write new business in certain sectors. This has been particularly significant for voluntary organizations that provide care services.
The UK management liability landscape has been altered by increased class actions and changing legal and regulatory environments globally, emphasizing the accountability and liability of directors and officers. As a result, the market has seen significant increases in premiums, retentions and cover restrictions in all sectors, geographies and for all types of nonprofit organizations.
The impact of COVID-19, in particular, has made the risks of nonprofits, which for the most part used to be seen as one of the more attractive sectors for management liability insurers, extremely difficult to place. We expect to see a number of high profile closures and mergers in the sector as a result of this virus, which may lead to future litigation.
UK domiciled charities have for many years been seen by insurers as a safe haven from business in some other territories. Competition between insurers for this type of business was high, which drove down premiums and allowed brokers to broaden wordings. It has become apparent in the past 24 months, however, that there was insufficient premium in the pool for UK risks and that this part of the insurers' books has, in fact, been very unprofitable. Rate rises on a percentage basis, to the point where the insurers believe that they are no longer making a loss, have therefore been more drastic.
The crime insurance market also continues to suffer. Claims continue to come in thick and fast. Considerable in quantum, losses are frequent, and rarely are they long tail. The crime insurance market is considerably smaller than the directors and officers (D&O) market in terms of relative premium, but the regularity, size and difficulty of recent claims in this space has started to take its toll.
We are often seeing two to three insurers are required on any given placement, regardless of the limit, and additionally some broker facilities are not being renewed.
Also, with a lack of insurers willing to write crime in isolation, as they become more selective in writing the D&O, it's likely to cause a negative knock-on effect to the crime market.
As charities continue to focus and address risks of social engineering, their attention has been diverted from more traditional loss categories, including employee dishonesty and employee theft. Nevertheless, we are seeing increases in all of these claims categories — and no dip in social engineering claims to offset this rise.
Based on the highly nuanced nature of this market and the broker-dealer, it is imperative that you are working with an insurance broker who specializes in your particular industry or line of coverage. Gallagher has a vast network of specialists that understand your industry and business, along with the best solutions in the marketplace for your specific challenges. It is extremely important to start renewals as soon as possible, work with your Gallagher team with dedicated expertise in this space to deliver a comprehensive and professional submission to underwriters.
Please note: A client's risk profile is the primary variable dictating renewal outcomes. Loss experience, industry, location and individual account nuances will also have a significant impact on these renewals.