Most sectors will have their ups and downs and the insurance sector is no exception. The difference is that until recently, for a very long time, the insurance market has been what is known as “soft”. The soft market is distinguished by new entrances to the sector, lots of competition, low and or stable rates and multiple choices for the policyholders. The contrasting “hard” market is known for reduced capacity, higher rates, harsher terms and less choice.
The insurance sector cycle swings between a soft and hard market, this used to happen on average every 6 -7 years. What has been unusual is that the market has been soft for a least the last 15 years, with some businesses and insurance professionals never having experienced a change.
So why is this change happening now, is it all down to Covid19? The answer to this is that Covid19 will undoubtedly impact on rates, but it is not the overriding reason. I believe rates were set to rise irrespective of Covid. Grenfell, floods, low interest rates and a Lloyd’s of London review of loss-making syndicates selling profession indemnity covers, have all contributed to creating a perfect storm.
It is now more important than ever for policyholders to have the right risk management measures in place. Anything that can be done to demonstrate to an insurer that risks have been minimised as much as possible will help with the rating and may make the difference between a risk being accepted or not. Especially when times are financially tough it can be tempting to look for insurances to cut to make savings. My advice would be not to make any rash or hasty decisions. In times when the economy is suffering there are likely to be a higher amount of risk than when the economy is buoyant. We have already seen a dramatic increase in cyber crime incidents in recent months.
What can an insurance broker do to help?
Fairly presenting the risk information to an insurer clearly and concisely has always been a prerequisite but nowadays it will be even more important for brokers to sell the story behind the risk to the underwriter. For example. If there have been claims, how did these happen, what has been done to reduce the risk of a similar occurrence?
Time scales are also even more important now. In certain classes and sectors there is going to be a reduced number of insurers in the market. In addition to a quality presentation they are going to need adequate time to consider a risk properly. A presentation received a few days prior to renewal is unlikely to receive much merit and could result in an immediate declinature.
Traditionally most brokers will receive their remuneration by means of a commission from the insurers. On larger or more complex risks it is more common for brokers to receive the terms from the insurers net of any commission and to work for a fixed fee. On risks where the premiums are high, working on a fixed fee is likely to become more common. This is often seen as a fairer solution and will impact on the level of insurance tax paid by the policyholder.
The insurance sector, like most others, has its challenges. Despite recent bad press, it has to be remembered that billions are paid out each year in claims. It is important that the insurance sector in the UK remains strong and that the premiums being charged are commensurate with the risk.