Preparing renewals in a hardening insurance market

Hardening Rates
The insurance market is becoming more challenging for buyers as carriers look to improve their underwriting profitability and only offer cover when they fully understand the clients’ exposure. Insurers are reducing their capacity in some risk areas and tightening their policy terms and conditions. As a result, insureds need to spend more time preparing for renewals and disclose more information to persuade insurers and secure the best possible outcome.

Over many years insurance buyers have been benefitting from rate reductions, increased sublimits and enhanced cover, driven by an oversupply of capacity in the market. Competitive premiums and broad coverage have left insurers unable to absorb an increase in claims frequency and severity. A low interest rate environment has reduced returns on investments, further squeezing insurers’ financial performance. This has seen some smaller insurers and Lloyd’s syndicates put certain lines of business into run-off.

As a result, insurers have adjusted their business plans focusing on premium rates and coverage. Consequently, a number of insurers have reduced capacity or pulled out of certain risks altogether. Instead of rate reductions, insureds are now increasingly facing rate increases at renewals, particularly in risk segments for which insurers have reduced appetite or which experienced losses. Insurers are also often requesting clients to increase retentions or introducing restrictions in cover.

The tightening insurance market is affecting insurance lines in different ways. Financial lines and particularly directors and officers (D&O) insurance providers are completely changing the way they underwrite the risk, in order that they can still offer capacity to their clients. 100% premium rate increases have not been uncommon in the past 8 months which has been driven by a significant increase in frequency and severity of claims.

The UK retail liability insurance market has also experienced increased claims frequency and severity and a change in the legal environment, such as changes in the Ogden personal injury (discount) rate and the introduction of the General Data Protection Regulation (GDPR), further adding to claim costs. Therefore, insurers have reviewed their portfolio and adjusted their risk appetite to drive sustainable portfolios. Motor insurance has been under the microscope following poor loss ratios and the developments in the legal environment. Fewer markets have appetite to write standalone motor and those that do, are placing greater emphasis on rate stability, claims analysis and risk management (i.e. telematics / risk matrix reports). Many larger insurers are only writing motor in conjunction with other profitable lines of business (i.e. property and casualty).

The global property market has also begun to evidence a change in appetite and strategy following major catastrophe losses, the withdrawal of capacity and changed underwriting guidelines.

Current conditions are of course subject to supply and demand which is reflecting in pricing, conditions and limits. Non-core property extensions such as cyber are gaining attention and limits are being addressed. Increased global footfall back to the London market as well as a hardening reinsurance market are amplifying the impact as similar conditions are evident globally.

While rates start hardening, the impact and severity vary on the basis of occupancy, history, risk quality and profile. General liability insurers are seeing an increasing number of claims in areas which insurers have historically provided cover at no additional premium, such as inner limits for professional indemnity and financial loss. Insurers are reviewing these inner limits and reducing them significantly and sub-limiting these within the master primary.

Numerous markets are increasing the minimum premiums on small and medium-sized enterprises (SME) accounts. The increase in premium has been implemented to cover an rise in claims and operational costs. 

Examples of claims inflation drivers are:

Casualty 
•    Increased exposures from emerging risks not developing for many years. 
•    Increase in life expectancy leading to increased claims pay-outs 
•    Medical advancements 

Motor 
•    Increased material cost due to in-built technology 
•    Increased repair costs due to a greater complexity 
•    Increased claims costs due to increased life expectancy (as outlined within Casualty claims)

What to do 

Generally, insurers are requesting more information than in the past years before making an underwriting decision, particularly when it involves areas where their risk appetite is low. As a result, placing a competitive insurance programme now takes longer. Alternatively, there might be opportunities with specialty insurers who are eager to broaden their books of business. Insurers are committed to improving their loss ratios and have appetite to combine various lines of cover which increases gross written premium (GWP) and promotes a sustainable portfolio.

In order to achieve the best possible outcome, insureds may want to reassess their risk appetite and preferred limits they are seeking in the market. By increasing their deductible can release premiums which can be used to fund additional excess of loss capacity. Insurers are still able to offer significant levels of capacity, and are willing to deploy large limits (particularly excess limits) at low cost. Due to this change in limit deployment and in order to assess the right level of limits, companies can perform various assessments such as a benchmarking exercise to analyse their exposure to potential large losses.

Top Tips to renew the insurance programme in a hardening market: 
•    Prepare well ahead of renewal and remain open to adjusting strategy according to market responses
•    Differentiate the risk. Prepare a detailed submission 
•    Review and adjust the insurance programme structure 
•    In a hardening market, personal presentations to underwriters can make a real difference 
•    Communication between all parties should be constant and transparent throughout

For further information, please contact: 

Matthew Sinden, Casualty Broker, AVP, Retail Property & Casualty
Direct Tel: + 44 (0) 20 7933 2094
Email: Matthew.Sinden@uk.lockton.com

or:

Stephen Wilkins, Senior Vice President, Retail – Property & Casualty
Direct Tel: +44 (0) 20 7933 2885
Email: Stephen.Wilkins@uk.lockton.com

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