Insurance Market Update

The insurance marketplace is undergoing significant change. Transactions taking longer to complete, rates are hardening across the board, in some classes of business significantly so, capacity is falling and, in some cases, insurers are restricting coverage and driving up excesses in key areas.

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The current state of the market

Insurance transactions are taking longer to complete

The process of purchasing or renewing an insurance programme is very much founded on the broker’s relationship with underwriters. Consequently, the substantial communication issues presented by the current pandemic pose a fundamental challenge for insurers and brokers alike when seeking to transact business.

A further factor is that many insurers have established back offices in places such as Eastern Europe and India where facilities for homeworking are not as developed as they are in the UK.

The net result has been a major “slowdown” in the transactional insurance process as the broker and insurer teams have transitioned to remote working. This was very apparent during the recent fiscal year end renewals, which is the busiest period for renewals. Insurers and brokers were hard pressed to finalise renewals with existing clients, let alone carry out alternative market exercises.

Market conditions have changed significantly

Even before the advent of the Coronavirus, two major factors were already impacting upon the global insurance industry, namely, the beginning of a hardening market and the potential results of Brexit.

The market is hardening

After 15 years of a “soft” market, premium rates are on the increase primarily because of reduced capacity, insurers withdrawing from certain market sectors that the now consider to be unattractive and poor global claims experience.

Currently, these developments are particularly noticeable for specific risks such as Directors’ & Officers’ Liability (D&O), Professional Indemnity and Construction, with premium increases of anything from 100% to 1000% being seen. This pricing volatility is likely to spread to other areas of the market as it continues to harden.

Reductions in capacity and withdrawal from sectors (for example, food risks) also mean that, increasingly, brokers are unable to place certain risks with a single insurer as has previously been the most common practice. Instead they are having to undertake “split” placements involving two or more insurers. In addition to driving up the cost of cover the complexity of this process is compounding the time issue still further.

Uncertainty around Brexit

The impact of Brexit is more an operational and administrative one for insurers and brokers. From the client’s perspective, specifically, this will affect those with global insurance programmes including countries within the EU area and are likely to entail additional charges for local policy issue where previously the Freedom of Services agreement could be utilised.

Insurers are restricting coverage

Matrix is seeing examples where insurers are removing cover. For example, in the case of some D&O renewals (particularly in the SME sector), cover such as Employment Practices Liability extensions is being removed, or even, in some cases, Corporate Legal Liability cover is being declined.

In addition, increased excesses may also become more common, particularly for companies with US exposures.

The key message therefore is that where you are seeking cover for a new investment or renewing an existing programme it is vital to allow the maximum possible lead time to obtain the best possible coverage and premium.

Matrix Global Services Limited

In these difficult conditions, the question facing the insurance buyer is how best to meet the requirements for reviewing and validating the corporate insurance arrangements for potential investment targets and companies within your existing portfolio.

The independent Insurance Due Diligence and Corporate Insurance confidential review processes pioneered by Matrix can assist you in delivering the optimum solution.

If you would like to discuss how we can be of assistance, please get in touch.