Covid-19 contributes to higher prices and capacity pressures, Aon says in Q1 report

Insurance rate hardening accelerated in Q1 with Covid-19 impacting some regions, according to a new report from Aon that found Europe recorded rate increases of more than 10% in the first few months of 2020. The market has also tightened on terms and capacity, Aon says, with higher risk placements “very challenging” in Europe.

Aon adds that insurers have retreated to core coverage, with fewer extensions on offer.

“In the face of a continued firming of the market and ongoing profitability concerns, insurers have tightened underwriting, focused their appetite and are becoming much more selective on the types and quality of risks they will write,” the report on Q1 global trends states.

Covid-19, or more specifically its economic and risk impact, has accelerated global trends that first began in 2019, Aon says. “Pricing is continuing to rise, capacity is being withdrawn in several key lines of business and geographies, terms are being tightened, and the underwriting process is more rigorous,” the report notes. It adds that the pandemic crisis has also created a “unique opportunity” for insurers and risk professionals to help businesses build resilience and mitigate risk.

“The impacts of Covid-19 in EMEA have been devastating. Most immediately, the loss of human life, as a percentage of the population, was the highest in the world, with the worst impacts in Spain, Italy and the UK. Beyond the human toll, the economic, social and political impacts have cut deep,” Aon says. Europe’s industries hardest hit from the pandemic include retail, hospitality, entertainment and transport, with greater resilience shown by utilities, technologies, telecoms and insurance.

Aon says Covid-19 will exacerbate claims concerns already in place last quarter. “Insurers are less flexible and commercial with regard to disputed claims, and cycle times have become elongated,” Aon says. It adds that insurers are looking at coverage in detail and with greater involvement from lawyers.

Aon adds that wording used in follow-form and quota-share placements are also under more scrutiny, particularly when clients need partial payment of claims, as has been encouraged by regulators in Covid-19 claims.

The broker has also found a source of tension in Europe’s markets between adjusters and insurers, which is negatively impacting clients. “Adjusting firms and experts are feeling the pressure from certain insurers to maintain service standards and resource commitments while concurrently accepting lower rates,” it says.

Going forward, Aon says European corporates must be as transparent as possible about their risk, including supply chain information, to ensure there are no coverage gaps for major current hotspots of pandemic, business insurance and cyber.

“Be prepared for new underwriting questions related to Covid-19 risks and exposures,” Aon warns buyers.

With rates up more than 10% across the EMEA region in Q1, double-digit increases were most common in France, Ireland, Italy, the Netherlands, Norway and the UK. Lower rate increases of between 0% and 10% were recorded in Austria, Belgium, Finland, Germany, Portugal, Spain, Sweden and Switzerland.

North America also recorded ten rate increases of more than 10% in Q1, with Asia-Pacific and Latin America recording rate increases of between 0% and 10%. Aon says many Latin American clients and insurers face severe economic impacts from Covid-19, while in Asia the virus has driven policy language reviews.

In the UK, Aon says Covid-19 “overlays” ongoing Brexit concerns, creating political and economic uncertainty. It says the marketplace is now more disciplined, trending towards higher prices, coverage restrictions and higher retentions. Aon adds that the underwriting process is taking longer, with food and beverage, construction and waste the most challenging sectors to place risks.

The French insurance market has extended rate increases for high-loss risks to almost all lines of business and risk type, according to Aon. It says that as capacity tightens, fewer businesses are insured with a single carrier and guarantees are now limited.

Looking at the Spanish market, Aon says Covid-19 and communicable disease exclusions have already been proposed by insurers for many lines of business, but particularly property, casualty and marine.

“The property market continues as one of the most challenged, especially for large, complex and catastrophe-driven risks, including power, energy, construction, food, waste, and risks with US exposure,” Aon notes. It adds that Spain’s D&O insurers are concerned about Covid-19-driven insolvencies and bankruptcies.