Financial firms likely to face increased scrutiny from underwriters
Financial firms faced a 15% hike in average premiums as insurers made up for a flood of credit crunch-related claims, Willis has reported.
The broker said there had been a “notable hardening” of rates in the financial institutions (FI) market, and the trend would continue throughout the rest of this year.
Willis’s second quarter FI update blamed the flood of professional indemnity and directors and officers claims, related to exposure such as the Madoff and Stanford frauds, for the premium hike.
FINEX Professional Risks managing director Duncan Holmes said: “Due to the magnitude and long-tail nature of the type of claims financial institutions insurers are facing, and the continuing climate of economic uncertainty, we expect to see the market hardening further.
“That being said, we have not seen a widespread withdrawal of insurers from this sector, and there is still a surplus of capacity for certain risks. In these conditions, there are still opportunities for specialist FI brokers to drive competition and dilute premium increases. While negotiations are getting more difficult, the market is still flexible.”
Willis said that underwriters were taking three steps to reduce their exposure to the financial turmoil:
• Increasing premium: Underwriters wanted premium increases across their portfolio and were prepared to “walk away” from unprofitable risks.
• Reducing exposure: In a very difficult marketplace, it was common for insurers to reduce their overall participation on a programme.
• Restricting policy coverage: Underwriters were examining existing wordings in detail with a view to restricting various areas.
The report said that financial institutions were likely to face increased due diligence from underwriters.
As a result, clients should begin the renewal process early and promptly respond to underwriter queries to secure coverage at the best possible terms.