Ferma expects hardening to continue during 2021 and calls on insurers to maintain partnerships

Ferma has told CRE that it expects commercial insurance market hardening to continue during next year, with exclusions and limits remaining a particular area of concern. President Dirk Wegener added that this could result in a “significant” shift of insurance premium to captives and other self-financing tools, particularly among large organisations. But he stressed that insurers have a big role to play in the hard market, partly through their risk assessment and mitigation services, and urged them to maintain their position as trusted partners. “During 2021, we expect that the insurance market will continue to harden. We were already aware of this trend from the responses to the Ferma European Risk Manager Survey 2020. Those responses mainly predated the pandemic. However, we know from reports from brokers and ratings agencies that commercial insurance prices are increasing quarter by quarter,” Mr Wegener told Commercial Risk Europe. He said exclusions and limits “have been and remain a particular concern”, as insurers seek to reduce their exposures and “even exit entire lines of business”, including cyber and now covers related to the pandemic. Some 90% of risk managers responding to the federation’s survey earlier this year named limits and exclusions for emerging and other risks as their main concern when it comes to insurance. Mr Wegener also flagged a worrying protection gap for non-damage business interruption cover. “Ferma has just released the results of its Covid-19 survey. Only 5% of the respondents found that insurance provided their organisation with coverage for the business interruption losses resulting from the pandemic,” he noted. Mr Wegener said there are signs of new entrants coming into the commercial insurance market and some regional insurers expanding as the big players consolidate. This traditionally helps to arrest a hard market cycle. But Ferma’s president said it is not yet clear how quickly it will have an impact this time around. He added that in the aftermath of Covid-19, a harder insurance market will add pressure on businesses already suffering financial difficulties and poorer economic conditions in many markets. As a result, companies are considering their risk transfer options and will likely turn to more self-insurance, continued Mr Wegener. “Companies will be looking at decisions like: How much retention can we accept? How do we differentiate a must-have cover from a nice-to-have one? How much insurance should we purchase and where?” he said. Adding: “Especially in large organisations, we could see a significant shift from the insurance market into captives and other self-financing tools, with the risk that this business leaves the insurance market, at least for a while.” He explained that 27% of respondents to Ferma’s Risk Manager Survey said they would use an existing captive for hard-to-place risks, up from 1% in 2018. Some 16% planned to create a new (re)insurance captive by 2022, compared to 14% in 2018. “These figures are likely to be higher if we repeated the survey this spring,” said Mr Wegener. He added that insurers have a lot to bring to the table in these challenging time and hard market conditions. For example, through highly skilled technical services that can contribute to risk assessment and mitigation. And Mr Wegener encouraged insurers to play an active role in finding solutions for individual companies and widespread catastrophic risks. “It is in a period of crisis such as we now have that they can make a difference and maintain their role as a trusted and reliable partner,” he said. Mr Wegener also reiterated Ferma’s call for the creation of a resilience framework for catastrophic and systemic risks, such as a pandemic, with shared input from business, insurers and government. Its proposed scheme is based on strong risk management foundations and protection from insurers, ultimately backed by national government and EU funding at the very top.

Ferma expects hardening to continue during 2021 and calls on insurers to maintain partnerships

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