With the dust settling after the 1 April renewals, we are beginning to see signs of improvement across the public sector. But, as Alison Goodwin, public sector practice leader at Aon, explains, there are still some areas of concern.
Inflation and cost of living pressures remain key themes in 2023, with their effect being felt throughout the insurance market. In particular, claims costs are rising on many lines of business with knock-on effects for premiums and sums insured.
As pressures remain, underwriters continue to write business in a more disciplined way, requesting much more detailed information to support their decisions. As we’ve seen some organisations struggle to provide this additional information, we strongly recommend starting the renewal process early and ensuring that any stakeholders who will be providing information are fully aware of your timetable.
Requests for additional information in the run up to the last renewal process meant that some underwriters experienced bottlenecks towards the end of the April. Putting plans in place now will help your organisation avoid being caught up next year.
Insurers are also tightening up on premium collection procedures. Clients are likely to see this in action if premiums are not paid promptly.
Here’s our rundown of the market, including the good, the bad and the ugly.
Leasehold property
The most challenging area in the public sector market is currently residential leasehold property, also known as leasehold right to buy. These policies operate similarly to personal lines policies and often have nil or very low excesses.
The big issue is that this market has seen a significant increase in claims over the last few years, both in terms of cost and frequency. Although fire claims have hit the headlines, escape of water is the major concern for insurers in this space.
Claims costs are under considerable pressure. On top of inflation-linked increases for materials, the repair market has been affected by factors including supply chain issues, labour shortages and wage inflation. Alternative accommodations costs have also increased significantly as a result of shortages in the rental housing market.
Frequency of claims is concerning too. Whether due to a lack of maintenance or risk management, policyholder behaviour or the quality of fittings, materials and repairs, insurers have seen the number of claims escalate over recent years.
Given these pressures, it is increasingly common for claims costs to exceed premiums. Insurers might be able to handle this on a small proportion of their portfolios but it’s not sustainable long-term or across a large percentage of their book.
As a result, Ocaso stopped writing this class of business in 2021 and, more recently, we’ve seen Zurich Municipal redefine its appetite, mainly towards smaller authorities and those where they hold other property lines as well. Avid, who are a Managing General Agent, advised us of the withdrawal of its capacity, Accelerant, earlier this year, affecting all renewals after mid-March. Between them Avid and Zurich Municipal had a significant market share.
As market solutions and additional capacity are sought, the market has been adversely affected. Some authorities, who were in the middle of a long term agreement have had to make alternative arrangements at short notice, either through emergency tender exercises or other means. This strong surge in demand, at a time when supply is significantly reduced, has resulted in some large premium increases. This is not just affecting local authorities and housing associations and the ABI has been working with the insurance industry to find a solution.
We are watching developments closely and working with our wider broking teams to find alternative approaches that could work for some clients.
Property
Rising reinstatement costs mean that other property classes are experiencing inflationary pressures too. Most insurers are looking for sums insured to be as accurate as possible and, as inflation is running at such high levels, some clients have seen considerable increases in premiums.
It’s also brought the importance of accurate sums insured into sharp focus. We urge all organisations to have a robust means of providing accurate information as this ensures sums insured are adequate in the event of a claim. Insurers use this information to understand their overall and combined risk exposure.
It also meets clients’ obligations of fair representation and the need to provide accurate information to insurers. The responsibility to set and declare sums insured sits with the insured and we have seen instances where an insurer has challenged sums insured that have not increased in line with inflation. In some cases, this was linked to a property disposal strategy, but where insurers are concerned about the adequacy of sums insured, there is the potential for them to impose policy restrictions or conditions.
We’ve also seen some cases where insurers have asked for a general inflationary rating increase in addition to the sums insured increase – usually up to 10%. This is to cover increased claims costs but, where possible, we have challenged and mitigated the impact on our clients.
Where sums insured have increased, some clients have increased their overall property loss limits as inflated sums insured may fall outside of existing limits. This is an area to watch when submitting your updated sums insured.
Motor
Increases are still being sought across the motor market. These are largely claims driven but, even where cases are running well, organisations can still expect increases of 5-10%.
Competition exists for most classes, other than blue light where claims costs are causing concern. As ever, the best prices go to the best risks, especially where they are accompanied with good quality information.
Liability
The liability market is also affected by claims inflation but this is having a more limited effect than in recent years. Where increases are being sought, they are generally linked to claims performance and tend to fall between 5% and 10%.
We expect this to continue throughout 2023, unless there is a significant shift in market conditions.
Financial lines
The market for products including officers’ indemnity, directors and officers, professional indemnity and crime is more competitive as a result of increased capacity and insurers looking to secure new business. Flat rates are becoming more normal and the best risks are even seeing reductions. This is a welcome improvement on recent years.
There are some changes to note. As a result of the conflict in Ukraine, insurers are carrying out increased sanctions checks which may result in additional questions at renewal. Insurers are also amending cyber/data clauses to provide more clarity around the intention of their policy in relation to these risks.
Cyber
With more capacity available, the general market outlook is stable with rate reductions available for good risks. Clients with cover in place may start to see the benefits of these improved conditions at their next renewal, providing they continue to meet the minimum security standards required.
However, for organisations looking to take out cyber insurance, strict underwriting requirements, which can be difficult for the public sector to achieve, can put cover out of reach. Access to cover is determined by the maturity of an organisation’s data risk management strategy, with the focus firmly on improvements to risk standards.
Our broking teams have found that a flexible approach can deliver great results for some clients. This might include creative solutions such as co-insurance and layered programmes. We’ve also seen considerable interest in incident response services, as these can help to minimise losses following a cyber attack or data breach.
More information
To discuss any of the topics raised in this market update, please speak to your account manager or contact Alison Goodwin at [email protected]
Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it. In any case any recipient shall be entirely responsible for the use to which it puts this article.
This article has been compiled using information available to us up to 06/07/23.
Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales. Registered number: 00210725. Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN. Tel: 020 7623 5500.