Market hardening fast-tracked by Covid-19 crisis

Coronavirus

Experts say the insurance sector has been “traumatised” by the prospect of unintended coverage for business interruption related to coronavirus.

The Covid-19 outbreak has accelerated the hardening of the UK insurance market, with rates being pushed up as insurers scramble to respond to the crisis.

Last year, Insurance Age reported that pockets of the market, including the construction and professional indemnity sectors, were seeing rate increases, with brokers reporting reduced capacity and difficulties in placing certain books of business.

“There’s probably an unstoppable momentum towards a hardening market, even if in some areas it might appear slightly irrational,” said Paul Dickson, chief executive officer of Innovation Broking.

“It’s all driven by a sense of fear, and it’s not helped by Covid and people getting a bit more protective.”

Difficulty
According to Dickson, the management practices sector, including classes of business such as directors and officers and employment practices liability insurance, is currently experiencing a hard market.

“These are proving difficult to place,” he added, noting that the situation had moved from being an issue about rising prices to an issue of whether it was even possible to get the cover.

“Anything that is not vanilla in terms of its risk profile is going to start to cost more,” Dickson continued.

Construction and professional indemnity also continue to be under strain.

Traumatised
Dickson stated that the market has been “traumatised” by the prospect of unintended coverage for business interruption related to coronavirus.

A number of insurers are currently facing litigation from consumer groups after rejecting claims.

“In my opinion the market shouldn’t entertain this,” Dickson added.

“This is sweeping the world, we can’t have it sweep away all of the insurers in the process. They never collected any premium for pandemic cover.”

He explained that the situation was likely to push premiums upwards as insurers scramble to cover potential claims costs.

“I’d say Covid has galvanised insurers into being more aggressive on premiums,” he noted.

Costs
David Williams, managing director of underwriting and technical services at Axa, agreed that some insurers will be looking to cover off “substantial costs”.

“Regardless of whether or not anyone intended to cover losses arising from Covid-19, some policy wordings will include them,” he noted, adding that the situation could cause “serious financial difficulty” for some insurers that might withdraw their capacity.

However, he noted that Covid-19 could also have the opposite effect on the market.

“If there’s less insurance being purchased that can cause a supply and demand twist and there might be more competition and rates might come down,” he explained.

According to Williams, rates continue to be high at the moment, but he flagged that Axa was also seeing dropping premiums overall.

He continued: “People are laying off or furloughing staff, taking vehicles off roads and reducing cover sometimes in an attempt to save money. That’s a factor that might cause interesting patterns.”

Impact
Meanwhile Clear Insurance Management CEO, Howard Lickens, explained that the size of the impact that Covid-19 will have on the insurance sector depends on how long the crisis lasts and how quickly the economy can bounce back.

He continued: “I’m sure all of us [in the insurance industry] can weather another three to six months but if we’re still wondering when we can safely open shops in Q1 next year all bets are off.

“If that’s the case we’ll have had the deepest recession post war.”

Lickens argued that the market would continue to harden during the crisis, adding: “Reinsurers are going to firm up their rates and insurers won’t be wanting to absorb that.”

Meanwhile, Graeme Trudgill, executive director of the British Insurance Brokers’ Association, stated that Biba members in the professional indemnity, surveyors and fire engineers had been seeing market hardening since last year.

He concluded: “Now coming up to renewal, many of our members are seeing it, because the terms are harder to come by now than this time last year.”

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