After a few tough years, there are some small signs of improvement across the insurance market. But, as Alison Goodwin, public sector practice leader at Aon, explains, data and time are key to securing the best terms.
It’s that time of year when most of us are thinking about the Holidays but, with many of the insurers agreeing reinsurance deals at the end of December, we’re beginning to get a sense of how the insurance market will shape up in 2024.
The good news is that there are already some signs of improvement. Yes, the market is still tough with insurers having to factor in rates of inflation considerably higher than in the recent past, but the pressure has subsided since the peak in the early part of this year.
This has meant that while insurers are generally still asking for some movement on rating, in most cases this is a much lower percentage than we’ve seen in each of the last couple of years.
There are some worrying trends that could feed into ratings. Global catastrophic events are a concern. Figures from Aon’s Reinsurance team show that global insured losses from natural disaster events have reached $88bn so far in 2023 – 17% higher than average and driven in Q3 by events such as the US and Italian severe convective storms and the Maui wildfires. These major catastrophic events impact on reinsurance rates, which in turn are passed on to insurance policyholders through the supply chain.
It's a similar picture for education risks. Although the market is plateauing, and we don’t expect any major rate increases akin to those of previous years, there are some pinch points. For instance, organisations under long term agreements will find that property market rates have moved on significantly. Understanding exposure, potential rates and corresponding premiums will help with setting budgets for insurance tenders.
So while there’s some encouraging news for the public sector insurance market, it’s still important for organisations to engage with their brokers well ahead of renewal date.
Insurers want much more risk information so be prepared to provide more detail. Additionally, as capacity can still be tricky, it may be necessary to start considering placement approach and structure for those high value and more difficult to place risks. More on structure options can be found here.
Here’s our rundown of the issues specific to each of the business lines. To discuss any of the issues raised, or to find our more your insurance arrangements, speak to your Aon team.
Casualty
There’s less pressure in this market and we expect to see more single rather than double digit increases this year. Insurer action is likely to be more targeted, with the best risks rewarded with the lowest premium increases. Insurers will be looking for more detailed information and trends in historic run-off claims will be under scrutiny to ensure long-term sustainability.
Property
Inflation remains an issue for the property market. As well as increased costs of labour, energy and materials, a skills shortage is causing delays in work being undertaken. These delays also push up claims costs, especially where alternative accommodation is required.
Although we’re expecting lower inflation rates this year, at just under half what they were this time last year, there are still pressures affecting the market.
Labour shortages are a major issue. In comparison to pre-pandemic levels, the construction workforce has shrunk by 181,000 people and vacancies are up 53.8%. These shortages are driving up wages. The Building and Allied Trades Joint Industrial Council agreeing a one-year deal in May of an 8% wage increase across the board and a 10.1% increase for daily fare and lodging allowance.
There are some property risks that are suffering from reduced competition and increased rating including waste risks. Recent fires have included Herne Hill, Oxfordshire, Cambridgeshire, Gainsborough, Hull and Taunton – all of which occurred in 2023.
Motor
This line of business is under the most pressure currently, as anyone who has recently renewed their own car insurance will have seen.
Insurers are facing above inflation cost pressures with higher prices for energy, raw materials and labour driving up premiums. For example, figures from the Association of British Insurers show that the cost of vehicle repairs increased by 33% over the year from Q1 2022, with increases of up to 40% in labour costs reported.
The increase in electric vehicles on the UK’s roads are another inflationary pressure. Although these vehicles are easier to repair than those with combustion engines, parts tend to be expensive and, due to safety concerns around batteries, they’re more likely to be declared a total loss following a collision. Availability of parts is also an issue which is leading to delays and increased costs. More on the risks associated with electric and hydrogen vehicles can be found in this article.
Financial lines
There’s more stability and generally more capacity across financial lines, including professional indemnity and directors and officers. Competition is increasing, although this depends on the activities that are covered. Pricing is also becoming more competitive, however insurers are seeking more information around exposure and some professions, for instance building design, are still suffering from restricted appetite.
Cyber
Cyber remains a top concern for the public sector. There are reports of new attacks each week and we know there is a lot of investment in cyber security but cover is still perceived as expensive and difficult to access.
The good news is there’s more capacity coming into the cyber market with new entrants and products available, although not specifically for the public sector. Insurers remain cautious about this risk in the public sector, especially following high profile data breaches such as Police Service of Northern Ireland and Norfolk and Suffolk police and other recent incidents. To obtain cover, organisations must meet insurers’ minimum security requirements and while many public sector organisations are working towards these, financial constraints often put them out of reach. Where this is the case, incident response is an option. This is proving useful to organisations unable to access cyber cover in the short term.
Other matters
Get ready for change in procurement. The Procurement Act will result in the most significant reform to public sector procurement in a generation. It’s not due to come into effect until October 2024 (after a six-month advance preparation period) but we recommend getting ready now. Check out Helen Povah’s article on the procurement reforms here.
RAAC remains a significant issue for many in the public sector and beyond. Although the media has focused on its use in schools, this form of aerated concrete has been used in many buildings including hospitals, prisons, theatres and offices. Insurers are keen to understand their exposure, so expect lots of questions about RAAC across your property portfolio.
The market is holding its breath for the discount rate review in 2024 and any movement is likely to have a significant impact on renewals later that year. This is the interest rate applied to claims settlements to adjust them for assumed future income from interest and has the most impact on the very largest claims and is most likely to affect casualty and motor business. There are various schools of thought about what might happen and it may be too early to make any definitive suggestions. Watch this space for future updates.
Martyn’s Law was mentioned in the recent King’s Speech and will now be brought before parliament. We still don’t know the finer details but please see our previous article to help you to get your organisation ready.
More insight into what we can expect in the next year will come from the Aon 2023 Global Risk Management Survey. The report offers insight into the risks that are of concern to risk managers around the world. The findings are still being analysed so we’ll bring you more on these findings once the report is published.
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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 10/11/2023.
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