Signs of market improvement for UK buyers despite volatility in some lines

UK insurance buyers have told Commercial Risk Europe that the commercial market remains dislocated and tricky in some areas but they are seeing the first real signs of market softening during summer renewals.

During our Risk Frontiers Europe survey, Kate Loades, insurance director at Liberty Global, said: “Past renewals have been painful but this is the first renewal for a while that we are starting to see a slight softening.”

Another insurance buyer source said things are better for insureds but the market is dislocated and offering “vastly different” prices and coverage for certain risks.

“I don’t think insurers know where they are from a commercial market perspective. We are seeing huge differences in approaches depending on the line of business, which are not necessarily correlated with losses that have or have not been reserved. In financial lines or casualty, for example, it is all over the place. There is very little consistency between the markets we are speaking to in terms of their approaches. In many lines, they are offering vastly different prices and coverage,” said the source.

He thinks it will be the same mixed bag in the year ahead but with some bright spots. “D&O, for example, has surplus capacity, everybody is looking to get a bigger piece of the pie and rates are sliding. For aviation there is more capacity than people were expecting so rates are beginning to harden less than expected,” he said.

George Ong thinks cyber, D&O, property damage business interruption and EIL will require the most attention going forward. “This is mainly to do with scope of cover and their associated costs,” he said.

Although things may be getting better for buyers, they are still concerned about premiums fluctuating and how they then sell this within their organisation.

“What makes it hard as a buyer is when premiums fluctuate so much and explaining this to finance colleagues who want certainty/continuity, particularly for budgeting,” said Loades.

“What I find difficult is explaining to my executive committee and board how the insurance and reinsurance market functions, and why this can result in reduced scope of cover while costs escalate when there is little change in the company’s risk profile,” agreed Ong.

Glenn Ellis, Airmic board director and former risk and insurance manager at BT, said there remain issues around capacity at an acceptable price in some lines.

“Cyber, as an example, has been very difficult for buyers to purchase; while it is better understood nowadays, capacity can be difficult to access for buyers,” he said.

Ellis noted that the exponential increase in captive activity is a clear reaction to market terms and pricing, and the fact that some insurance buyers probably bought too much traditional cover in the soft market.

“When the market was soft, insurance buyers often bought more capacity than they really needed – it seemed a good idea. However, when the market turned hard many were not as prepared as should have been for that change,” said Ellis.

“To make use of the captive in the hard market, you really need to have done your statistical and actuarial work. Risk and insurance managers should be regularly reviewing what risks and what level of risk they can put into their captive, so they build a financing strategy for those risks that the entity can absorb through the captive insurance, and shouldn’t be at the will of the market even though it is very tempting to purchase soft market capacity,” he added.

And beyond captives, insurance buyers are employing a variety of tactics to get the most out of current market conditions.

“We have got ahead of this [market vitality] by making insurers an offer to say this is how we would like them to support us in order to try to get away from the uncertainty. So we are trying to underwrite the risk before it gets to them and asking them to support that. This helps us to steer away from some of this volatility we are seeing,” said one.

He added that although pricing can be difficult, he has been very well supported by insurers overall.

“In terms of insurance strategy to improve on quality, scope and price, I have had the privilege of working with various insurers to better understand the format and structure of risks associated with specific lines of cover and how to capture better data for underwriting analysis, conducting pilots for new forms of insurance trigger events and redesigning scope of cover and new insurance solutions,” said Ong. “Such engagements are invaluable and provide the framework for insurers and brokers to work effectively with risk managers to create a ‘win, win’ solution for all,” he concluded.