Insurance market update

Insurance market conditions have continued to ‘harden’ over the past 12 months. COVID-19 has exacerbated the already poor market conditions: insurers are faced with the uncertainty of significant future losses resultant of the pandemic. We have experienced significant delays in turnaround times as insurers, already poorly resourced, attempt to manoeuvre underwriting, claims and administration to respond to COVID-19.

What is a hard insurance market?
In a “hard” market, premiums and excesses increase; insurer appetite and “capacity” reduces; and, coverage becomes narrower.

Hard markets are brought on by some, or all, of the following:

  • falling investment returns / low interest rates

    investment returns have been low for a number of years. Insurers have sought to offset this source of revenue by cost cutting mechanisms (including offshoring, improved IT systems) and otherwise restructuring their businesses to retain profitability. They have now reached a point where such measures have little effect on their bottom line.

  • increased frequency or severity of losses

    insurance claims are increasing in frequency and severity. Catastrophic weather events over the past 24 months in Australia had already realised significant losses, these being exacerbated by increasing claims costs. This was prior to the COVID-19 outbreak which is likely to cost Lloyds up to $4.5B:
Llodys losses
  • higher reinsurance costs

    reinsurance providers are also increasing rates, and limiting cover and appetite across treaty and facultative reinsurance placements. Insurers generally pass these additional costs to policyholders. There is a time lag for these costs to realise on policyholders. We consider that the market will continue to harden into 2021.

  • intervention by regulators (loss reserve/capitalisation requirements).
Impact on premium

Most policyholders would have experienced significant corrections in premium / cover by now. Further pressure on rates going forward ought to be more moderate. That said the more problematic classes may continue to experience onerous insurance terms. Policyholders who have suffered losses and have made claims under their policies, or have complex risk/placements, are most likely to be impacted.

To review market updates by product class, profession and industry please click on the link below: