09/10/2020

After over a decade of soft market conditions, the insurance industry is experiencing upheaval– with fewer insurance providers, reduced appetite for risk and capacity.

What has caused the market to change? 

A combination of factors has occurred over the last few years to place increased pressure on the insurance industry. The ongoing pandemic has been one of the biggest factors with global losses more than $200B, however other factors have contributed including: -

• Solvency II – Legislation introduced in 2016 means that, by 2021, all insurers are required to hold certain levels of cash to ensure they can meet their liabilities. The need for increased capital is reducing the insurers ability to carry the same levels of cumulated exposure.
• Low interest rates – With the Bank of England’s base interest rate at a record low of 0.1%, many insurers have taken a loss on investment income which has further reduced their capacity to underwrite risk.
• Rising claim costs – there has been a significant increase in costs over the last three years with particular emphasis on motor, marine, property and financial lines, such as professional indemnity. 
• Restructuring within the insurance industry – In recent years we have seen many insurers withdraw from certain lines of business, such as construction professional indemnity, resulting in reducing capacity for certain risks. This naturally leads to less competition and higher premiums.
• Climate change – Sadly, natural disasters related to climate change appear to be increasing, leading to significant pay-outs for the global insurance industry. There were more than 200 natural disasters globally in the first half of 2020.

What action is Ae Insurance Brokers taking to help clients?

This change will present big challenges for brokers due to higher premiums with a squeeze on the availability of insurance products. This time around it will be difficult to calculate how long this change will be with us because previous ‘hard’ markets have lasting anywhere from a decade to a few years.

When the market is in a status of flux even more emphasis will be on providing the best overall value for our clients. We will focus on insurers and products that offer something extra.

During a ‘hard’ market the insurers are likely to apply more strict acceptance criteria, varying policy terms and will adhere to premium increases. Therefore the better we evidence our clients positive risk features which give underwriters an insight into how well managed, protected and generally well looked after a business risk is, the more appealing it will be to underwriters and the more likely they will be to take on the insurance and provide favourable terms.