Experience is everything in a hard insurance market - comment

John Neal, chief executive of Lloyd’s of London, estimates that the insurance industry currently faces claims topping £150 billion.

Chris Tosh, group director at Scottish independent insurance broker Blackford. Picture: Derek Ironside/Newsline Media.

Oliver Bate, chief executive of global giant Allianz, says “the virus has hit insurers like a meteorite”. Pre Covid-19, insurance rates and terms were already under stress, but we have definitely entered what is known as a “hard market” – and are far from leaving it behind. All types and sizes of businesses and organisations renewing insurance programmes face potentially significantly higher premiums, restricted cover, or more demanding insurer scrutiny.

Key contributory factors include historically low and unsustainable premiums; the impact of the greatly increased balance-sheet strength now required of insurers; shortage of “capacity” as capital flows from the market; the impact of negative actuarial calculations on future liability claims awards and the total withdrawal of some insurers from areas such as management liability or professional indemnity.

The forced Covid-19 closures of businesses have rightly put focus on the fine detail of the wordings of business interruption insurance policies across the market prompting a significant legal test case by the Financial Conduct Authority. Whilst the initial judgement was to an extent favourable to policyholders, such is the gravity of the consequent insurer appeals that leapfrogging straight to the Supreme Court beckons.

So how do you cope with a hard insurance market? Claims experience is significant in dictating the cost and extent of insurance programmes, but the experience of your insurance underwriters or brokers is also key. For many years, market conditions have been benign and few people working in insurance have “hard market” experience.

Underwriters are under extreme pressure due to additional workload and homeworking so it’s crucial to start renewal discussions with brokers very early. Experienced broking staff can prepare you for what may feel like a forensic examination of your business and the risks it faces. The fuller the picture and more professional the representation of your requirements, the better the response will be from underwriters.

Intelligent risk management (risk identification, quantification, mitigation and, where required, transfer to an insurer) should be an integral part of your approach to assessing the risks facing your business and should ensure that you only purchase cover that is financially prudent and meets your requirements.

If you are fortunate to receive renewal terms that are reasonably comparable to your expiring programme, meet your needs and are not too much more expensive than previously; take them. If not, don’t shoot the messenger! Provided that your brokers are resourceful, experienced and professional, value their advice and work with them. Entrusting them to get on and do what they do best will ensure you experience the softest possible landing in what is potentially, the hardest insurance market ever. As Oscar Wilde once said: “Experience is one thing that you can’t get for nothing”.

Chris Tosh, group director at Scottish independent insurance broker Blackford.

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