Buyers call on insurers to be ‘flexible’ and avoid ‘adversarial’ renewals

Faced with a hardening market and evolving Covid-19 crisis, US risk managers are urging insurers to be flexible during upcoming renewals and resist the temptation to hike rates. Renewals will be challenging due to uncertainty surrounding coronavirus and because risk management teams are working under difficult circumstances and with reduced resources, according to Twane Duckworth, RIMS board director and the chief of risk management for the City of Jacksonville, Florida. “At this time, insureds are just trying to keep their heads afloat, juggling renewals with the potential for coronavirus-related lawsuits, business interruption and increased cyber risk. We need insurers to give us a break and be flexible. As an insurance buyer, we have fewer staff and are working at full capacity,” he told Commercial Risk Europe. “The situation with Covid-19 presents a once-in-a-lifetime experience for the insurance industry and a considerable challenge. Most risk managers will have faced catastrophes and downturns and market hardening at some point. But few will ever have had to deal with an infectious disease outbreak on a global scale,” said Mr Duckworth. The relationship between insurers and customers has become more adversarial in the hardening market and this needs to change, according to Penni Nelson, assistant vice-president, risk management, at Dallas-based real estate company Hillwood (a Perot company). “The last few years have been adversarial, with a lack of capacity, higher deductibles and outrageous price increases. But I would like this adversarial relationship to stop for now. We are all in this together. Both risk managers’ and insurers’ jobs are on the line,” she told CRE. “I would like carriers to loosen terms and conditions and be more corporate and risk manager-friendly. I have colleagues that saw deductibles rise from $100,000 to $1m. Who can take a high deductible right now on their balance sheet? Insurers need to be more subjective during the outbreak,” Ms Nelson said. As yet, commercial insurance has not suffered from a sudden shortage of capacity and large rate hikes following the Covid-19 outbreak, as was the case after the 9/11 terrorist attacks, according to Ms Nelson. However, if state US legislators force insurers to retrospectively cover business interruption losses related to Covid-19, market conditions could change for the worse, said the past president of RIMS’ Dallas Fort-Worth chapter. “If legislators require carriers to pay BI claims regardless of exclusions, it would create a 9/11 capacity shortage. At the moment, I do not see this as a 9/11 issue. There is still capacity in the market and rate being taken, and we can still put [programmes] together,” Ms Nelson said. The goals of buyers and insurers are not opposed, argued Mr Duckworth. “I want insurers to charge a fair premium and be capitalised in order to pay claims if I should need it. The majority of the market will not feel the pinch from coronavirus losses and we do not want the market to be opportunistic,” he said. “We are asking the market to be balanced and considerate as we go into renewals. However, If there is a visceral response on top of the hardening market, we will find ourselves in a place that is not productive to the buyer-carrier relationship as a whole,” he added. “For now, the insurance industry has responded to the pandemic cautiously. Renewals in the months to come could become more challenging as policy forms and language catch up, and as Covid-19-related losses are filed,” said Mr Duckworth. “We were already looking at a hardening market in a number of coverages, in some cases with double-digit rate increases. On top of this, we now have the coronavirus. We don’t want the market to go crazy and become untenable,” he continued. Recent renewals tended to renew “as if”, with terms and conditions largely negotiated before the pandemic got into full swing, said Mr Duckworth. However, renewals in May and June – key for US property ahead of the hurricane season – and beyond are likely to become more “difficult and technically challenging” for corporate insurance buyers, he said. Renewals later in the year will become more challenging as insurers get a better handle on coronavirus exposures and make changes to policy wordings and forms, according to Mr Duckworth. Two areas in the US where there are immediate issues are business interruption and workers compensation, with insurers beginning to review exposures, wordings and cover, according to Mr Duckworth. For the latter, the definition of ‘essential workers’ will need to be addressed. Essential workers – who are likely to be considered higher risk – are not typically defined in such policies, while each US state has varying rules for what constitutes essential businesses and employees. For business interruption, buyers will need to reconcile the “pandemic environment” and government lockdown measures with their cover, said Mr Duckworth. This is needed for existing policies and at renewal, he added. Some buyers may face the added challenge of renewing cover while at the same time being in dispute over business interruption claims with their carrier, said Mr Duckworth. “We will see carriers with claims from unintended business interruption cover, simply due to the situation we find ourselves in. It will cause restructuring of BI policies in the future,” he added. Relationships and flexibility will be important in upcoming renewals, as companies and insurers adjust to the Covid-19 environment, believes Ms Nelson. “In this renewal environment it will be important to get out early and find ways to connect with your carrier. It is critical to understand that you will have to be flexible and tell your insurer what you expect from renewal,” she said. Risk managers have been maintaining relationships with brokers and insurers remotely, including ‘virtual happy hours’, he explained. “This crisis highlights the importance of relationships with underwriters and the need to get involved with brokers and senior managers at carriers. If you don’t have good personal relationships, your renewal will suffer this year,” she said. Insurance budgets are likely to come under pressure, so risk managers will need to get a good handle on their exposures and priorities, advised Ms Nelson. “The balance sheet may not allow for high levels of cover. At this time, risk managers need to get good at assessing what their true exposures are and think outside of the box about what their new exposures might be. But they might not know their true exposures until just days before their submission,” she said. “Now is the time for carriers to show the value of their product and their partnership skills. For risk managers, this is an opportunity to get involved in the c-suite and demonstrate their value. If not, they will be looked at as a burdened cost centre,” Ms Nelson said.

Buyers call on insurers to be ‘flexible’ and avoid ‘adversarial’ renewals

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