Further signs of stability are evident across the public sector insurance market but there are still some trouble spots. Alison Goodwin, public sector practice leader at Aon, says an early start and attention to detail are key to securing the best possible terms.
With another April renewal season behind us, there are some encouraging signs in the public sector insurance market. But, while the inflationary heat has cooled and there’s renewed interest from insurers, some areas are still causing concern.
Aon’s Q1 2024: Global Insurance Market Insights Report highlights some of the key dynamics in the market. An overview of the report is available here, or click here for a short video outlining the key trends.
The report shows that while positive performance in 2023 has fuelled insurer growth ambitions, resulting in improved capacity and pricing, underwriting remains disciplined as insurer caution dictates a more detailed understanding of risks.
For the public sector, the key takeaways are as follows:
- Insurers are growth focused but underwriting remains disciplined. The best rates are available where risks are supported by good data.
- Property pricing is beginning to improve for most areas. This is linked to relaxation in inflationary pressures, although insurers will still be looking for data to support improvements.
- Risk differentiation is increasingly important for insurers. They’re looking for the right risks, especially those supported by sound and proactive risk management and where longer-term strategic relationships can be formed.
- There’s more interest in alternative risk vehicles from insurers but also, tentatively, from public sector organisations. These offer organisations greater control and more stability in pricing but time will tell whether these vehicles have a long-term role in the market.
After a few tough years, it’s good to see so many positives coming through in the market. Capacity is available for the right risks and, thanks to new products becoming available, there is also more scope to develop solutions for difficult to place risks.
Data remains critical to securing the best terms and pricing and we have seen some organisations realise considerable savings, in extreme cases six figure sums, by providing their insurers with good quality data. Gathering this data is a good long-term strategy and one that can deliver a solid return on investment.
Sustainable pricing is also becoming more important to our clients, especially as new capacity comes into the market. Providing insurers with good quality data can help build the long-term relationships that support stability in pricing.
To allow sufficient time to meet insurers’ data demands, we encourage all public sector organisations to engage with their brokers, and their internal stakeholders, as early as possible.
Casualty
There’s less pressure in the casualty market where typical increases are in the lower single digits and some tenders have even secured modest reductions. This is a welcome shift but caution should be paid to the sustainability of pricing.
It’s also important to be mindful of any changes to award guidelines that could affect pricing. More details of the recent Judicial College guidelines and the upcoming changes to the personal injury discount rate can be found below.
Property
There’s still some inflationary pressure in the property market, with increases coming in around the 10% mark. Again, data is key to unlocking improved pricing, with insurers able to price more accurately when good data is provided.
Insurers are reporting significantly improved rates where detailed risk supporting data is provided versus cases where limited or poor quality data is offered by the insured. We acknowledge that budgets are tight, but investing in improved property data is a good long-term strategy that can help secure the best rates.
Unfortunately, if data is poor or information is missing, insurers will make assumptions: these are invariably in their favour rather than their customers.
Motor
Motor is still under the most pressure, as anyone who has recently renewed their own motor insurance will be all too aware. The Association of British Insurers (ABI) reported that average premiums were 34% higher in Q4 2023 than the same period a year before.
These increases are the result of several factors according to the ABI, including the cost of labour, parts and energy but also rising car theft; the shift to electric vehicles; and higher purchase prices. For example, ONS data shows a 24.9% uptick in the number of vehicles stolen in 2022, compared to 2021, and Thatcham Research reports a 64.7% increase in the average cost of repair – £3,304 in 2021 up from £2,005 in 2014.
Financial lines
There’s more stability in financial lines and more capacity too, although not specifically for public sector risks. A healthier level of competition does appear to be returning, although this will depend on the precise activities being covered.
Where these risks are not written as part of a package or under an LTA, we recommend remarketing to ensure you are accessing the most up-to-date market pricing. This can take some time and we would recommend careful broker-lead market engagement to secure the best terms.
Cyber
Cyberattacks on the public sector are constant and commonplace. Recent examples include the MoD data breach, in which the armed forces payroll was hacked, and the Leicester City Council hack, where the council was forced to disable its phone and computer systems.
Against this backdrop, cyber insurance has never been more valuable. More capacity is coming into the market, with new entrants and products available, some with appetite for public sector clients.
We’re also seeing some evolution in coverage. Rather than a one-size-fits-all approach to supporting services, some products now offer these on a modular basis. This allows an organisation to select the services they want, avoiding duplication and making cover more affordable.
We also recognise that cyber insurance may still be out of reach for some organisations. Although plenty are working towards the minimum security requirements set by cyber insurers, budget restraints can slow progress. In these instances, incident response can be a useful alternative approach.
Education sector
The education sector is ramping up for its main renewal season in August but already some of the same themes are in evidence. There is more appetite from insurers, especially where there’s evidence of improvements in risk mitigation. Property capacity is available but we’re not yet seeing insurers increase their capacity share. Scheduling may still be required for larger risks.
Data remains key to securing the best possible terms. Insurers’ desire to see good quality, clear data across all classes of business means it’s important to engage with your broker as early as possible.
Procurement Act
After a flurry of activity in March, in which draft regulations were laid before parliament and further guidance published, the Procurement Act is on track for implementation later this year.
More details of the key changes can be found here.
Personal injury awards
The Judicial College has published the 17th Edition of its guidelines regarding general damages awards for personal accident claims. The guidelines, which apply in England and Wales and with adjustment in Scotland, give an average 22% inflationary increase in damages, reflective of inflation since the guidelines were last released in April 2022.
Although this is a significant increase in the size of awards, the absence of any knee jerk reaction from insurers suggests it has already been priced in. Neither do we expect it to require any material changes to policy limits, although it is always prudent to check these are in line with exposure.
Announcements on the personal injury discount rate are also expected. This is used to calculate lump sum awards in life-changing injury cases and the government is committed to review it every five years.
In England and Wales, the next formal review of the discount rate must begin by 15 July 2024 while in Scotland and Northern Ireland, reviews are scheduled to begin before 1 July 2024. We will keep you posted of any changes and the implications for your cover.
All change at the top?
Change and uncertainty could also come from the political sphere. With a general election set for 4 July, no one yet knows what a change of government could bring to either the public sector, the insurance market or the UK economy more broadly. The decision to go for a snap election has already meant that some bills were shelved, including the Terrorism (Protection of Premises) Bill, commonly known as Martyn’s Law. Again, we’ll keep you posted of any insurance-related implications that arise from political change.
While there’s uncertainty and change on the horizon, it’s encouraging to see stability returning to the insurance market. Sticking to the principles that became a necessity during the past few challenging years – starting early and delivering on data – will help secure the best possible terms, whatever comes our way.
About Aon
Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Through actionable analytic insight, globally integrated Risk Capital and Human Capital expertise, and locally relevant solutions, our colleagues in over 120 countries and sovereignties provide our clients with the clarity and confidence to make better risk and people decisions that help protect and grow their businesses.
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 05/06/2024.
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