Hard European market set to last for at least two years, warns Aon

Aon said it is now clear that risk managers are heading towards a hard commercial insurance market in Europe following a decisive break in the last quarter of 2019, and warned there will be at least two years of rate increases before any stabilisation. Aon’s global chief broking officer, Hugo Wegbrans, said the firm’s Navigating a Changing Insurance Market report last June found a market in transition, with rates across many lines and geographies beginning to increase after a long and sustained soft period. Releasing Aon’s February 2020 European insurance market heatmap, he said: “If there was any question as to which way the market would go, then the last quarter of 2019 dispelled those doubts: it’s clear that we are heading towards a hard market… Whereas last year the insurance market was more finely balanced, in the final quarter of 2019 a decisive break was made towards significant rate increases across more lines.” Mr Wegbrans added that it is “safe to assume that there’s likely to be at least two years of rate increases before a possible stabilisation”. Aon’s heatmap shows that buyers in the majority of European countries are currently seeing at least moderate rate increases of between 5% and 10% across most lines. But many are facing increases of more than 10% and potential capacity contractions in other areas such as D&O, which is leading the hardening, professional indemnity, cyber, property and business interruption, Aon’s numbers show. The broker added that previous hard markets have been driven by a lack of capital and capacity, but this one is different. “This time, insurers are fighting high levels of losses, low levels of reserves and the legacy of a lengthy soft market. Some are even exiting lines that they may have spent years building up a market share of, rather than underwriting their way out of the situation,” he explained. The market conditions are putting pressure on businesses to allocate more budget to meet increased costs, but Aon said there are strategies to minimise the impact. “Working closely with your broker, starting the renewal process earlier and making sure that an increased level of underwriting information is provided to insurers can help organisations to mitigate increased costs and ensure appropriate coverage can still be secured,” said Mr Wegbrans. He also said the higher retentions now demanded may well drive buyers to look outside the traditional insurance market for risk transfer solutions. This will increase demand for alternative risk transfer arrangements like captives and protected cells, the broker added. Aon’s latest European insurance market heatmap, with details on the state of each market and line of business across Europe, can be found here. It gives the following commentary on the current state of the markets in Europe. UK The market is entering a far more disciplined phase with insurers expecting sufficient risk information and allowing enough time for renewals. Markets are becoming increasingly slow in providing renewal terms, with little time for clients to look at options. Specific areas of concern include D&O, crime and professional indemnity Professional indemnity (PI) remains one of the biggest challenges, leading to rate rises in construction, design and other related professions; in addition, there is significant reduction in capacity Food and waste are challenging sectors for property and business interruption (PBI), with insurer focus on risk management quality. Ireland The cyber market has firmed considerably in a short time and the financial lines market continues to firm. Property capacity on higher hazard industries is challenging and some leisure businesses are closing as they are unable to find economic insurance cover due to the withdrawal of London capacity. Considerable firming seen in the cyber market A firming PI market with shrinking capacity in all professions; situation continues to deteriorate Challenges in high-hazard property risks and financial lines for listed companies with US exposures Ongoing negative development in liability lines as historical losses continue to deteriorate. France Market is firming considerably on D&O, PI and PBI. Renewals are taking longer with limited markets to lead the largest programmes. Long-term agreements and rollovers are difficult to obtain. Agriculture, pharma and automotive sectors are showing signs of firming for general liability D&O market is firming for organisations with US exposures Broad trends include programme layering and challenges for long-term agreements. Germany Clients with poor loss records and/or limited risk management investment are seeing premium increases and facing capacity constraints. The market is firming. Rate increases in marine cargo due to a shrinking capacity A rising number of cyber claims has led to insurers increasing premiums Rate increases in PBI, especially for international risks (chemicals, pulp and paper, and wood). Belgium Rates across cyber, D&O, general liability, motor fleet, professional indemnity and PBI are firming quickly, with rates increasing at 10% or more together with a marked contraction in capacity. Firming rates and reduced capacity seen across cyber, D&O, general liability and motor fleet Motor fleet rates have increased, with more restrictive terms and conditions. Netherlands Recent sudden hardening on cyber. Premiums up and capacity down on especially-large placements due to recent increase in claims activity. Increases seen in marine cargo along with an increased demand for underwriting information. Cyber remains high profile, with increasing rates and reduced capacity The property portfolio will see rates increase and more sectors have become distressed (food, cold storage, waste and recycling, woodworking), leading to capacity constraints Underwriters are looking for moderate increases and/or restrictions of cover for clients with adverse loss records in marine cargo. Italy The market is giving signs of firming in property and D&O but most other lines remain stable. Property and D&O have been particularly affected by rate increases Lack of PBI capacity available for waste treatment Financial institutions and the public sector are becoming more disciplined. Spain There is a significant firming in the market across D&O, general liability, marine cargo, marine liability, professional indemnity and PBI – which is more significant for associations, medmal, engineering and construction. The D&O market is still firming across prices, conditions and capacity. PI and PBI have seen a significant firming for associations, medmal, engineering and construction Limited capacity in waste management and food Large construction projects are seeing challenges in capacity and conditions. Portugal Rates are increasing and capacity is contracting on PI. Natural catastrophe exposure – such as earthquake and wildfire – has caused some challenges due to limited ongoing insurer appetite. Limited local capacity for PI, along with rate rises Awareness of cyber risk is still low, with many viewing this as an IT issue Motor is under pressure, particularly in sectors such as car rental. Denmark The market is stable across most lines, with rates flat or even down for general liability, marine liability, marine cargo and motor fleet. Cyber is firming as underwriters better understand the risk Capacity challenges remain for life sciences general liability Some D&O insurers have increased rates and reduced their capacity. Sweden D&O insurance has seen restrictions on both primary and excess layers due to an increase in Securities Class Action Lawsuit filings. Regulatory proceedings are on the rise, with insurers withdrawing capacity from the market. The commercial crime market continues to be restrictive, with higher deductibles and premium rate increases. The market is firming, with rate increases in marine cargo and risks are being analysed more carefully The employment practices liability market is firming, with a reduction in capacity and adjustments on both deductibles and premiums, and regulatory changes contributing to more restrictive underwriting Placement challenges for product recall (automotive) and PI (financial institutions). Norway There have been increases, and capacity is driven by loss history, US exposure and historical pricing. But there has been a marked firming for general liability and recall for the automotive sector. Commercial real estate is stable due to strong local insurers. Market changes have seen a significant firming across general liability D&O insurers continue to focus on risk selection, with reduced capacity or increased premiums for challenging risks Cyber insurers have a better understanding of risk and are looking at risk selection. Finland Where domestic insurers have a strong presence, there is little market change. Conversely, where international insurers are stronger, there are more signs of a changing market. Domestic market remains competitive Underwriters are scrutinising property risks in certain sectors such as food, meat production and recycling Accumulation concerns are affecting cyber placements for financial institutions and tech companies.

Hard European market set to last for at least two years, warns Aon

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