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What it means and the impact on your business.

September 2020

COVID19 - The Hardening Insurance Market

Hello Everyone, apologies for leaving it so long to catch up with everyone. I do try and keep these emails as brief and to the point as I can as I know we all get a raft of ‘helpful’ emails from everyone and it is hard to know which one to spend your precious time on. The main topic in this email is regarding the Hard Market which the insurance industry is now moving into, this will affect us all but understanding it and knowing what to do to minimise it I think is extremely important. Also, as some of you may know I am doing a parachute jump this coming Sunday, fundraising for Dementia UK. I must be mad, but its all for a very good cause. If you would like to sponsor me please CLICK HERE. I would be very grateful and I promise to add pictures to my next newsletter!

David McGowan (Managing Director )

The Difficult Market We Find Ourselves In

We find ourselves in a very difficult period for our prospects, customers and ourselves, we are all still feeling the impact of the Pandemic as we try to return to a sense of normality.

Behind the scenes in the Insurance Industry, there are the small strands of Insurers looking to increase premiums, reduce capacities, which, if matched across all sectors will begin to look like a “hard market”. Rest assured that, whether you are an existing client or a prospect that we may come across in the future, we will continue to work hard with our Insurer panel in obtaining the most comprehensive policies with competitive premiums.

It has been a while since the UK Insurance Industry approached a hardening market, the main reasons why we are in this position can be explained by some of the following scenarios –

  • Solvency II regime (an EU directive which all Insurers have to adhere to) took away a lot of spare capital to underwrite insurance business – insurers have been made to increase their solvency margins (available cash) significantly over the past couple of years. Insurers have had to increase their cash holding from 100% to 200% since solvency I and solvency II have been introduced. This has also put off new capacity from joining the market.
  • Climate change leading to significant flood event/costs over the last couple of years – for example £425m has been paid-out so far for Storm Ciara and Storm Dennis at the start of 2020 – with recent flash flooding, 2020 claim estimates have increased to over £1 billion
  • Reinsurance rates – all insurers reinsure a proportion of their risk to alternative insurance companies – capacity for reinsurance has reduced significantly in 2020, leading to significant rate increases (minimum 25% rate increases) across the board for insurers to budget against – these costs can only be recouped from policyholders
  • Investment losses (until very recently) were estimated at $96 billion worldwide – insurers can no longer rely on investing premium income to make a profit – interest rates are also at an all-time low
  • Almost 250 insurers/underwriters have pulled out of the UK insurance market over the last six years, of which more than half of those insurers have pulled out of the market in the last two years – leading to significantly reduced capacity and appetite to create competitive trading conditions
  • The Ogden Rate (reversal) decision – insurers were lobbying the Government to significantly reverse the ‘Ogden Rate’ decision which insurers have to work with, in order to pay-out large and long-term liability claims – unfortunately the Government only revised their decision slightly, leaving insurers to ensure that they set higher claim reserves on their balance sheets (see below example).
Example of An Ogden Settlement
Serious brain injury to a person of 21 years at the age at date of settlement
At 2.5% rate - Claim would settle at £9,072,028, with a future loss element of £8,242,086.
At -0.75% rate – Claim would settle at £20,020,103 with a future loss element of £19,193,161.
This is an increase of 121%

What this means for us hard working individuals is that we are looking at mainly double digit rating increases at this years renewal, this is mainly on well run claims free risks. For those clients who have had claims or are classed as heavier risk then the rating increase could be higher with some clients already seeing 40% increases and more over last year’s premiums. We have been in a very soft market for a number of years and a hardening market was always inevitable however as I have said before I think the timing is just incredibly poor.  

If you are not currently a client of ours you should be contacted by your broker about the hard market and what this means to you, especially if your policy is going to increase by a significant amount. Discussions should then take place as how to mitigate these increases by risk management and also negotiations with your current insurance company and others. I would not recommend reducing your cover as your insurance portfolio has been placed specifically for your business to protect your business for risk and reducing cover will expose you to risk when you really cannot afford it. I would recommend however looking at whether you are with the right insurer, chances are you are which is why you are insured with them at the minute but times change and therefore reflection of the market should be seriously considered. For those who are clients of ours at the moment your executive who handles your case will be in touch well before renewal to discuss all of this, if you are mid term and have concerns please do not hesitate to contact either myself or your Woodward Markwell representative as we are more than happy to discuss this situation. 

Covid-19 Business Interruption Court Verdict Nears

A quick update on the Covid-19 Business Interruption battle between Insurers and the FCA and Client Action Groups. We are nearing the time when we should receive the verdict from the Courts in respect of the legal battle between FCA & Others Vs Insurance Companies in respect of the Covid-19 Business Interruption claims. The decision was to be expected mid-September, however as many other legal cases, we are expecting a appeal from either losing party however it has been agreed that any appeal will be expedited. For more information and to sign up the FCA email update service please click on the link

Other Useful Information

Here is some more useful information from the Heath and Safety Executive about safety in the work place and also managing Covid-19 risks in the work place.

Managing risks and risk assessment - For most small, low-risk businesses the steps you need to take are straightforward. Our step-by-step guide features a short video explaining what employers should do to manage risk in their workplace and protect their workers, and other people, from harm. The web pages also include advice on identifying hazards, controlling risks, recording findings, and reviewing controls, a risk assessment template and examples of typical businesses' assessments and details of more information and links on managing risk.

HSE's Health and Safety Made Simple website outlines the basics for your business and offers guidance on the basic legal duties, whatever industry you work in.  

I have talked a lot over the few months about things to be watchful for, especially with the return to work. To read any of my previous emails (they are not too long I promise) please see the links below:-

14th May - click here

21st May -  click here

3rd June - click here

11th June - click here

4th July - click here

11th July - click here

29th July - click here

26th August - click here

Further Information

As we mentioned earlier, as we are in a rapidly changing climate therefore we will continue to provide regular updates and advice over the coming weeks.

If you have any concerns or queries you can call us on 01473 408408

or e-mail us directly by clicking here