Spanish brokers see light at end of tunnel for risk managers

Spanish companies must gear up for a difficult series of renewals in 2021, but negotiations may be not as traumatic as in the past two years, according to leading Spanish brokers. Even though buyers face a less dramatic hard market than their peers in other European countries, things are dire for Spanish firms in some lines, such as D&O and professional indemnity, they added. Capacity is also virtually non-existent for companies in specific sectors of the economy, the brokers warned. They added that following global reinsurance trends – driven by higher losses, pitiful investment returns and a somewhat knee-jerk reaction to the long soft market – renewals in 2021 will not be easy for Spanish risk managers. The hard market was already two years old by the time Covid-19 hit the Spanish economy very hard in March. As a result, Spanish risk managers have had to deal with higher prices and tougher conditions as their companies look to reduce costs to compensate for lower revenues. Nonetheless, some brokers in Spain believe there are reasons to see a light, weak as it may be, at the end of the tunnel. “The mix of variables makes us think that 2021 will be a complicated year. But if one looks at the rate growth curve of the past 12 quarters, the trend is that it is flattening a bit,” said Miguel Martínez Paniagua, managing director of Marsh in Spain. “That means that 2021 may be a challenging year, but may [also] be a little smoother than 2020.” “In general terms, the Spanish market has not yet responded to global trends in the same way as other European countries,” said Juan Ramon Plá Otañez, COO of Concentra Group. “In large risks, the market is very hard and difficult. But in other lines, there still is a lot of competition. Not as much as in previous years, it is true, but the situation in other European markets looks tougher,” he added. One of the factors that has helped mitigate the impact of global reinsurance trends on the Spanish market is its lack of exposure to many nat cats. The local market also benefits from the stabilising effect of its well-working, state-backed natural catastrophe pool Consorcio Nacional de Seguros (CCS). “We have an advantage in Spain,” Mr Martínez said. “From a practical point of view, when it comes to natural catastrophes, we have CCS, which covers earthquakes and other natural events, and for this reason they have less of a negative impact on the market. But in the past decades, much investment has been made by Spanish companies in Latin America, where there is a lot of nat cat exposure, and there they are not covered by CCS.” That said, domestic insurance buyers are feeling the effects of the hard market, even if they do not necessarily take the shape of astronomical rate hikes. “In the middle market, we are not seeing large increases but we have started to see the reduction of capacity offered by insurance companies, which have been much more selective of risks,” said Santiago Cordero Fernández, corporate technical director at Concentra Group. He estimates that price increases for smaller buyers range between 3% and 5%. Up the corporate ladder, where risk transfer needs become more complex, the situation is more difficult for risk managers. “In Spain, the hardening of conditions had already started some time ago in lines such as motor fleet, professional indemnity, medical liability and property with nat cat exposure,” said Manuel Garcia, head of P&C at Assiteca. “But it has now quickly spread to sectors like construction, energy, aviation, D&O and general liability.” He added: “Right now, we face, on average, premium rate increases of 25% in property damage, 30% in financial and professional lines, and some 20% in general liability. However, depending on the kind of risk insured, price hikes can be higher.” In fact, the brokers all pointed out that liability and financial lines, with D&O and PI at the forefront, are a particular area of concern for buyers. “The PI market is very hard and we are particularly worried about the fact that generalised pandemic exclusions are popping up all around,” Mr Plá Otáñez said. “This could leave clients without coverages not only in the future, but also for losses that happened in the past, as PI coverages work on a claims-made basis,” he added. “In D&O, all renewals face significant price increases,” he continued. “There are multinational companies for which it is very difficult to find worldwide coverage and, when they manage to get it, it is with premium prices that are two, three or four times higher than before, with more restricted coverages to boot.” If higher rates and tougher conditions are not bad enough, risk managers now increasingly face the even worse option of telling bosses that they have not been able to find the breadth of coverages their companies require. “In general, we expect higher premium prices and deductibles along with a toughening of the terms and coverages of policies. And that is in the case where companies are able to find the levels of coverage that they need,” said Paloma Migoya Tejedor, head of carrier management in Iberia at Willis Towers Watson. “When that is not the case, we would be also talking about lower limits and sublimits, and higher retention levels demanded from buyers,” she added. She warned that the biggest challenges are casualty and property programmes with catastrophic exposure, as well as D&O and cyber policies, which have seen a drain of capacity in recent months. Trade credit and political risk insurance are also problematic lines. “When a buyer looks for coverage for civil turmoil, civil unrest and vandalism, it is very difficult to find them in the current market,” Mr Martínez said. “In fact, it is the kind of risk that insurers have been excluding from policies.” Business sectors such as food and drinks, chemicals, automotive, mining, aviation and construction are viewed with much suspicion by underwriters. Brokers said companies in some energy subsectors, especially fossil fuel generation, risk facing 2021 without proper insurance coverage, while waste management has been a no-go area for the insurance industry for some time. “Right now, the insurance market is completely closed for everything related to the recycling of waste,” Mr Cordero said. “We are still seeing a general increase in prices in virtually all insurance lines, as well as higher deductibles and the review and limitation of coverages and conditions,” said Erlantz Urbieta, managing director and chief broking officer at Aon España. “But a fact that we have started to notice with concern is an important shrinking of capacity, or even the withdrawal of capacity from certain risks, business sectors or segments. Along with a lack of appetite for risks beyond a certain value, it is all making it difficult to place some risks, or leaving buyers with few alternatives to place many others,” he added.

Spanish brokers see light at end of tunnel for risk managers

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