Competitive insurance environment but concerns over medical and social inflation, says Lockton

Lockton expects a competitive environment to develop in global insurance markets throughout 2022 as more capacity is deployed. The broker says that during the course of the last six months, many insurers have returned improved results, with combined operating ratios now being reported at less than 100%. But it warns that the continual rise of both medical and social inflation will lead to many insurers still requiring rate increases. In its Insurance Market Update H1 2022, Lockton says the competitive environment will lead to more modest increments, or flat adjustments, at least for good risks, with the exception of cyber, which continues to be a challenge. And for good risks, Lockton says: “The enhanced security of long-term agreements is once again possible, but only where insurers recognise the dedication of clients in their own risk management and loss mitigation.” Alex Boswell, partner, Lockton, says in the report: “Despite the improved picture, it is important that we remain vigilant due to the economic forces arising from the unknown consequences of the Ukraine-Russia conflict, as well as extreme inflationary pressures and catastrophe costs, which could apply a break to further price easing.” The Lockton report includes a number of recommendations for buyers to negotiate the current market: Consider the use of higher primary limits, buffer layers front and reinsurance Consider the efficacy of alternative risk structures Review potential synergies associated with placing multiple lines with key insurers Differentiation enables the negotiation of bespoke solutions Pricing and capacity can often be mitigated by key factors such as proactive risk management, quality of survey information and a detailed breakdown of up-to-date values, including latest independent valuation reports Vertical/split placement solutions are likely to become more common for market capacity risks or the more challenging placements Be prepared for greater scrutiny of any exposures relating to sanctions. Lockton stresses the importance of a well-structured submission supported by detailed analysis and says buyers should treat insurers as partners. “Insurers prefer to work with clients who adopt a portfolio approach to risk selection, using CPRI insurance to complement their business. Conversely, insurers are increasingly wary of the market being used to shift high-risk deals off a firm’s balance sheet (aka ‘risk dumping’),” the report states. The report notes that the general pace of service and placement has slowed since the pandemic, due to many underwriters now working from home two days a week. At the same time, it says that a growing number of insurers are focused on a more technical underwriting approach with the aid of artificial intelligence (AI), in conjunction with historical data supplied by third parties such as Concirrus and vessel-tracking data. “In some cases, insurers believe that the AI-based risk assessment is more accurate than the information contained in the renewal information,” says the broker. Lockton also advises buyers: “Whilst there is competitive pricing tension and the market rate rises are starting to ameliorate, the underwriting discipline around understanding the risks they write and the need for full underwriting information remains firmly in place. Full risk presentation and high-quality technical data will be a key feature for 2022 and can directly influence renewal pricing.”

Competitive insurance environment but concerns over medical and social inflation, says Lockton

Full underwriting information and technical data key to submissions

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