The first few months of 2021 have been a rocky ride, with market conditions proving particularly challenging. But, even with some normality returning as COVID-19 restrictions begin to lift, starting the renewal process as early as possible remains key, as Alison Goodwin, Public Sector Practice Leader at Aon, explains.
It’s set to be a tough year, with further hardening across the insurance market making premium increases and coverage restrictions the norm. But there are some green shoots of improvement, and we will watch will interest to see how these develop. Hopefully, the worst is now over.
Although there are signs of improvement, securing the best possible terms requires time and much more detailed renewal information. Cases with high exposure and/or poorly performing claims will come under much more scrutiny.
In the current market, even where a risk is running well and there have been no claims, premium increases are common. Starting the renewal process early allows time to provide the detail insurers want and, where renewal terms are unacceptable, seek alternative options.
There is often room for negotiation too, especially when an insurance broker is involved. We’ve seen plenty of instances where, thanks to the provision of more detail and some pressure from the broker, insurers have offered less onerous restrictions than the initial market response might have suggested. It’s a challenge, but it’s one we relish.
New beginnings
Although it’s a challenging market, it’s particularly good to see some glimmers of light as the lockdown restrictions are lifted and some normality begins to return. Our experiences of living through a pandemic mean it’s a normality that could be very different to what we all knew.
There’s an opportunity for it to be a fresh start, with many organisations beginning to look at future ways of working and how to ensure the whole workforce is on board. At Aon, we’ve been exploring this potential to create a ‘new better’ through our Work Travel Convene project. More information can be found at Working Towards the New Better: “Every Firm is now a Healthcare Organisation” | Aon UK.
To help you ensure risks are well managed in this ‘new better’, here’s our round-up of what’s happening across the insurance market:
Property
We’re still seeing rating increases across the property market and this is likely to continue. These increases are generally linked to reinsurance rates, although some high-risk activities, such as waste management, and clients with more challenging claims profiles could see additional increases.
Cladding remains a concern. The government has launched a £1bn Building Safety Fund to support the remediation of unsafe non-ACM cladding systems. This is available for residential buildings 18 metres or over in both the private and social housing sectors.
We’re seeing more enquiries about green building methods. This is positive but, with any new building method, it’s important to consider future proofing and future accessibility of insurance cover. As an example, using old tyres as a building material may tick some of the green boxes but they are also highly combustible, which would cause considerable concern.
Interest in renewable energy is also gathering pace and many clients are increasing their ownership of solar panels placed on their corporate buildings. These need to be declared to insurers and taken into account when arranging buildings cover.
Properties with very high sums insured, involved in high risk activities and/or of unusual constructions are requiring a more bespoke approach to placement with some now falling outside of the main portfolio in order to access alternative products and sufficient capacity.
Motor
Increases are being sought across motor too. These are claims-driven but, even where a risk is running well, we’re seeing increases of 5-10%. Insurers are also monitoring the effect of lockdown on driver behaviour.
On the positive side, competition exists for most risks, other than blue light. As the best rates are achieved by those organisations that can demonstrate they have the best risks, Aon has developed a free Fleet Profiler tool. This provides a detailed overview of your risk in a format that will look to get the best results from the market.
Liability
Liability insurers are still requesting rate increases and these vary greatly. Reasons for an increase include a change in exposure, often COVID-19 related; poor claims experience and increased reinsurance costs.
There’s increased uncertainty in the market due to the potential for future COVID-19 claims, especially around employee stress. Claims could come from employees involved in delivering front line services, those working in the community with increased risk and home workers and home schoolers who suffered additional stress.
Communicable disease exclusions are being applied generally from renewal, although some insurers are specifically targeting activities with a perceived higher risk rather than applying it to the whole policy. If you haven’t already had some restrictions applied, expect it during 2021.
The sharing of over 15,000 testimonies on the Everyone’s Invited platform is also raising concerns about the potential for future claims in education and safeguarding.
Financial lines
There are some very small initial signs of the hardening starting to slow down in relation to directors and officers and we hope that during 2021 professional indemnity and crime/fidelity guarantee will start to follow suit. On PI there are still a lot of issues with fire safety/cladding combustibility clauses and we’re also seeing insurers pushing for higher retentions, even on renewals. Many clients are opting for this, as it can be a way to mitigate some of the large premium increases.
We’re advising clients to budget for further increases and provide detailed information. The magnitude of increases for any remaining 2021 renewals will remain to be seen but we will update further next quarter as the situation develops.
As it’s also common to expect clarification questions and terms to be provided late, we still recommend starting the process as early as possible and return complete information to your service team as quickly as possible – extensions are not always being offered.
Cyber
The market is more cautious than ever about public sector risks. A greater dependence on home working and the emergence of technologies such as smart cities increase cyber risk.
The National Cyber Security Centre has recently published a set of principles for local authorities and partners to help establish secure smart cities. This advice will help councils embrace the opportunities smart cities bring while protecting critical public services from the threat of cyber attacks.
Insurers are being required by regulators to provide greater clarity around the intentions of any data extensions in public liability policies, which will mean a greater dependence upon cyber cover in the future.
But, as access to cyber cover is determined by the maturity of an organisation’s data risk management, we’re recommending in many cases that clients focus on improvements to risk standards so they can get cover in the future.
All organisations are at risk so we’re encouraging clients to start their cyber journey now so they can get to a position where they can buy cover.
It’s set to be a challenging year, with the potential for further pressures as we return to some form of normality. As things change and the world starts to open up again, we’ll keep you up-to-date on how this affects your organisation.
More information
For more information about any of the issues covered in this market update, speak to your account manager or contact Alison Goodwin at [email protected]