Contingency insurance: market update
Increasing losses from non-appearance risks have put the contingency market under the spotlight.
Event cancellation and prize indemnity-related risks have run well in the past five years, but the non-appearance line has steadily worsened.
Recent cancellations include Adele's London shows last summer and various Kanye West concerts in 2016.
Gross incurred loss ratios for non-appearance losses have reached the highest level since records began in 1999.
Recent losses include the cancellation of Adele's London shows last summer, and the cancellation of various Kanye West concerts in 2016 (a claim that Lloyd's of London initially contested but subsequently settled).
As a result of such losses, there has been a scaling back in lines and three market exits since last summer. Barbican and Travelers both exited the standalone contingency business for 2017, while ProSight Specialty Insurance, which wrote contingency as part of its media and entertainment book, placed its Lloyd's operation into orderly run-off last June. More market exits could be seen in the months ahead.
Line sizes are also being pared back, with insurers more likely to reduce coverage to around £500,000-£1m – rather £5m as might have previously been the case.
The non-appearance insurance market is likely to see a general ‘tidying up’ of policies as a consequence of these losses and market loss pressures, with exclusions reintroduced and more specific wordings being put in place.
For example, where previously many carriers would have relied on non-disclosure rules to rebut claims on the basis of something they determined as a long-term illness, specific exclusions are now being written back in.
There has been a scaling back in lines and three market exits since last summer.
Uncertainties endure, however, about whether insurers truly have the level of medical knowledge required to effectively write the exposures, although improvements have been noted in this area.
Despite recent losses, there are still some new entries into the contingency market and rate increases have been more of a slight correction than a real hardening.
Non-appearance gross premiums in the Lloyd’s market alone have climbed from £30m in 2012, 2013 and 2014 to £39m in 2015 and £45m in 2016. Current indications suggest 2017's gross premiums will exceed £50m – around a quarter of the premium income for the whole contingency market at Lloyd's in 2016.
It is understandable given the nature of the business that every risk is different, with the variables of each risk potentially having an impact of the terms quoted. To achieve the best possible coverage available, policyholders should engage with their broker at the earliest opportunity and disclose as much information as possible about their particular risks and circumstances.
This will enable their broker to carry out a detailed review of the market on a risk-by-risk basis; it will also highlight any issues that the placement may face and improve the chances of finding a viable solution.
For more information, please contact Robert Barron on:
+44 (0)20 7933 2715