Pre-Covid-19, the insurance market had been hardening steadily. As the pandemic exacerbates this environment, Insurance Times asks the industry what lines of business might further harden and which could be the most exposed to coronavirus risks…

Ian Stutz, managing director of Brokerbility

We recognised that the hard market had arrived a good while before Covid-19 struck. The first reaction of many brokers post lockdown was to try and manage clients’ expectations of premium rises at a time when many were dealing with the effects of the deepest, fastest recession in 300 years - albeit government induced in the face of a pandemic.

Ian Stutz_Brokerbility

Ian Stutz, Brokerbility 

However, it is clear that the effects of Covid-19 will add to the problems. We can expect a greater degree of property losses as premises remain unoccupied and it will impact rates going forward. An increase in business failures are anticipated as the government withdraws its life support machine towards the end of the summer; this is having a major impact on directors’ and officers’ (D&O) pricing. Travel premiums are bound to be affected by the mass of claims too as foreign travel has come to a resounding standstill in recent weeks.

Less cover for the same or more premium also equates to a hardening of terms for the client. With the ongoing FCA investigation into Covid-19 cover through poorly drafted BI extensions, I expect to see cover restrictions and a reduction in the offer of wording extensions on relatively low priced package or combined policies.

Finally, this hard market bears all the hallmarks of the post 9/11 conditions in late 2001 to early 2002, with large risks being scheduled, capacity falling and prices on professional indemnity policies going through the roof. Not all of it is down to Covid-19, but the global pandemic is more than playing its part.

Stuart Stead, director of broking at Romero Insurance Brokers

We are already seeing an impact of Covid-19 on multiple lines of business.

The property market was already hardening at the end of last year and into 2020. The impact of Covid-19 has seen insurers retreat further, with a variety of potentially ambiguous exclusions being applied.

The consequences are that, with many large property risks requiring multiple insurers to share the risk, each insurer requires its own Covid-19 exclusion to be applied, which prevents unanimous agreement. This results in certain insurers not being willing to participate on risks with other certain insurers.

Stuart Stead_Romero

Stuart Stead, Romero Insurance Brokers 

Exclusions can often have words directly or indirectly relating to Covid-19. The concern is that valid claims could end up being void if there is the slightest connection to Covid-19.

Professional indemnity (PI) is another area that is being presented with a Covid-19 exclusion, which is worrying as policies are written on a claims-made basis. This means that if an insurer imposes a Covid-19 exclusion at renewal, then any claim occurring in the future which emanates from the past - even remotely related to Covid-19 - would mean that an insured would not be adequately protected.

Michael Rea, chief executive at Gallagher’s Retail division

The market was hardening across many different classes prior to Covid-19; the pandemic has exacerbated this as insurers look to protect revenues.

The UK D&O landscape has been altered by increased class actions and changing legal and regulatory environments, emphasising the accountability and liability of directors. As a result, D&O is a currently a tough market to do business in, with rate increases particularly significant for public companies.

With the considerable impact that Covid-19 has had on the construction industry, we are seeing insurers evaluating losses incurred over this time being factored into pricing.

Michael Rea_Gallagher

Michael Rea, Gallagher

Similarly, medical malpractice, in particular care home cover, has been heavily impacted by Covid-19 and we’ve seen a subsequent decrease in availability of cover for new business.

It’s hard to know what insurer appetite will be for some business interruption (BI) risks going forward, with the outcome of the FCA case likely to influence, but we are already seeing insurers taking a tougher line on Covid-19 related exclusions.

Benedict Burke, chief client officer, global client development at Crawford and Company

It is important to address first the macro-economic environment, with insurers facing reduced gross written premium due to the economic contraction resulting from Covid-19 and the corresponding decline in exposures. Add dramatically reduced investment returns, US and China trade tensions as well as Brexit uncertainty and we are primed for a market paradigm shift.

Pre-Covid-19, rate hardening was in evidence across several specialty lines, including cyber and financial lines, such as directors’ and officers’. Construction was also witnessing upward rate movement. Given current dynamics and a new market norm, we would expect hardening to continue at pace in these areas.

Benedict Burke_Crawfords

Benedict Burke, Crawfords and Company 

There is much market focus on potential business interruption exposures and the findings of the FCA test case will inevitably have a major impact on how this business line develops moving forward. Other lines directly affected by Covid-19, such as travel and event cancellation, will also come under significant rate pressure.

It is also important to recognise the wider market implications. It is to be expected that insurers will reassess terms and conditions and scope of cover as they work to ensure that all policies accurately reflect exposures covered in this new norm. We can also expect higher deductibles.

From a claims perspective, insurers will likely seek stricter ‘burden-of-proof’ and causation examinations as part of efforts to limit fraud and claims exaggeration. In addition, risk management will likely become a more prominent differentiator in renewals discussions, with a greater onus on insureds to demonstrate best practice.

This, in turn, will evolve the loss adjuster’s role as all parties to the policy strive to ensure the process continues to run efficiently. Adjusters will work with insureds on pre-scenario loss planning, bolstering claims programmes, causation analysis and supporting renewal representation. Our view is that the impartiality of the adjusters will increase in importance in such an environment.

Hayley Robinson, chief underwriting officer at Zurich

It is still early to speculate on what changes we will see in the market in terms of the impact on specific business lines and whether any changes will be permanent or temporary. It has become clear that the Covid-19 pandemic has accelerated the shift in focus on how we do business. Agility, flexibility and capacity have never been more important.

Hayley Robinson  Zurich

Hayley Robinson, Zurich 

Similarly, the value of broker advice and the relationships between brokers and insurers are more crucial now than ever. As the risk landscape continues to evolve across all business lines, with the market trying to figure out what the ‘new normal’ looks like, the use of technology and digital solutions, underwriting expertise and efficient decision making are key to ensuring that the customer receives the best service they can, both from their broker and insurer.

Neil Clutterbuck, chief underwriting officer at Allianz

The lines most hit by claims are travel, event cancellation, trade credit and business interruption, so it follows that these areas will be affected first.

As an unprecedented worldwide event, Covid-19 will cause insurers to take a closer look at accumulation exposures in their books. We may see cover extensions, which have previously been considered manageable exposures, reduced or removed as a new lens is applied to accumulated losses.

Neil Clutterbuck_Allianz

Neil Clutterbuck, Allianz

Insurers will also be attempting to balance short-term claims frequency fluctuations with the risk of continued economic austerity as a result of Covid-19, compounded by the potential Brexit fallout. These latter factors may also drive changes in frequency, such as a potentially increased number of arson and theft claims, linked to the potential reduction in risk management or maintenance expenditure.

Similarly, in terms of claim severity, increased costs of labour, vehicles parts and supplies of building materials may drive sustained increases in average claims costs in a number of business lines.

As this is a global event, reinsurers will see a clustering of losses and will therefore react to this as reinsurance contracts renew. Events in the past that have hit the reinsurance market hard (Hurricane Katrina or 9/11 for example) have been followed by increased reinsurance costs, which in turn led to rate increases in some of the primary markets.