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Market update and the outlook ahead

The effects of COVID-19 are likely to play out for long-time on the insurance market and so we thought it was important to let you know how it will affect you.

Lloyds of London, the mecca of insurance has forecast total industry losses at $107 billion in 2020 alone, not taking into account any tail of losses that will accrue with their inhouse losses estimated between $3bn and $4.3bn. To put this in perspective, this will cost the market more than 9/11 disaster in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2007. In addition, due the widespread impact of the virus on the globe, insurer and reinsurer investment portfolios are expected to take a $96 downturn, making total industry losses at a whopping $203 billion.

We have been in a prolonged soft market since circa 2003 which is coming to an end and seeing premium increases at more restrictive terms being imposed across all lines as capacity reduces and markets consolidate. Even before the ‘Corona bombshell’, the signs of a hardening market was on the wall, notably in Design and Construct sector of Professional Indemnity Insurance since the Lloyds ‘Decile 10’ review in 2018 that uncovered how poorly performing this sector was and syndicates were forced to either demonstrate remediation plans or cease writing this business. The Grenfell Tower tragedy in 2016 sent shockwaves through the market and confidence that the industry understood and managed its exposure was low. This has led to close risk scrutiny, steep premium increases, higher retentions, aggregated limits and has even meant that some building inspectors and main contractors are unable to obtain cover. Another sector is Casualty, which was feeling the effects of the Ogden Rate that has been at a negative until recently, then only being adjusted one and a half points to 0.75%, though this was greatly less than expected meaning claim settlement amounts and reserves remain higher than predicted, putting pressure on regulatory capital requirements under EU Solvency II Directive.

According to Marsh’s Global Insurance Index in September 2019, it saw 8 consecutive quarters of global insurance price increases in the three major insurance lines – Property, Casualty and Financial. The continuation of this trend has been reaffirmed by the Acturis Index (a widely used in the industry platform) showing demonstrable signs of average rate increases and the music stopping.

What can you be doing? A firms risk management and their ability to demonstrate what controls, systems and processes have never been so important and will provide comfort to underwriters that an insured understands the risks they face, their ability to manage and mitigate losses.

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Johnson Insurance Services is a trading name of Johnson Insurance Services Ltd which is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference no. 784664. Johnson Insurance Services Ltd is registered in England & Wales no. 10822509 at Tower House, Fishergate, Yok, Y010 4UA