Burns & Wilcox COVID-19 Update Read more here

Market overview - Specialty Insurance

15 March 2021

Contributor(s): Stuart Kilpatrick, Managing Director, Burns & Wilcox

A focus on building relationships and helping clients during a time of change and uncertainty within the market

The insurance market was already hardening in the months leading up to the global pandemic in March 2020. COVID-19 produced a further chilling effect, exacerbating the pressures on capacity and premiums, with most property and casualty policies experiencing significant premium increases. While there is potential for turnaround in the future, given the rollout of multiple vaccines globally, change is unlikely to happen anytime soon.

Customers are increasingly looking to brokers and underwriters for guidance and service to help them through a difficult time. No matter the business segment, policy increases, restrictions in cover, and response, delays have been as common as losses have been prevalent. 

The team at Burns & Wilcox seeks to continue working closely with partner brokers—serving as an invaluable resource for businesses waiting for growth to ramp up as they navigate their way through the pandemic.

Skyscrapers

A Look Back

From 2005-2017, carriers were afraid to raise rates for fear of losing market share. However, insurer profitability issues, discount rates changes, and market underwriting reviews, have contributed to significant change. Exhaustion of prior year reserve releases coupled with a rise in major losses were enough to overturn what had been a buyer’s market for most policyholders.

Other factors driving market change include social inflation, rising loss costs, litigation financing and climate risk. Meanwhile property and casualty classes, and other lines such as directors’ and officers’ insurance, have also seen significant rate increases and capacity reductions.

All of these factors, aggregated with the pandemic, created a “perfect storm” in many ways, with brokers, and their clients having to accept significant changes in terms, cover and brokerage as a sign of the times.

COVID’s Role Cannot Be Ignored

The financial impact of COVID on many businesses, particularly those in the hospitality industry, has been devastating. The pandemic has increased risks on many levels, with the growth in business related COVID claims, and other claims helping to accelerate market change. Some businesses are seeing premiums double or triple from the previous year, with owners being given very little time to make decisions and capacity disappearing seemingly overnight. The current global climate of low interest rates and volatile investment markets has also significantly impacted insurers’ balance sheets.

Flexibility and Personalised Service Required to Support Client Needs

Everyone has been reminded since the start of the pandemic that flexibility and empathy matter during these chaotic times. Retailers, restaurants and other hospitality and leisure businesses have been hit hard not just because of fewer customers, but mandated governmental shutdowns that have kept more people at home–limiting the ability for businesses to generate revenue. This has forced businesses to make difficult cuts, while doing everything they can to maintain staff and meet the needs of their own customers. 

A flexible and understanding approach is required. New options should be considered, such as shortened policy periods or coverage to reflect the risks that customers now encounter. We must ensure that we respond to the immediate needs of our brokers and their clients. 

Light at the End of the Tunnel

Perhaps a corner has been turned in the battle against  COVID-19 with vaccinations growing, but a full economic recovery from the pandemic will take time. We do not expect the insurance market to return to pre-2018 premiums or capacity levels anytime soon. It is still yet to be determined what the impact of remote workers in certain industries will have, how well vaccines will work, and how soon tourists will be willing to travel and spend money at hotels, restaurants, and other entertainment venues. Potential governmental restrictions may loom well into 2021. 

Although we do not anticipate immediately increased capacity, there may be a rash of mergers and acquisitions in the months ahead as companies increasingly seek to protect their positions. We are already witnessing significant change within the broker market with “super-mergers,” as well as growth of consolidators. It is unclear what the long-term implications will be, but it is unlikely to benefit all customers equally. New start-ups will enter the market, meeting consumer needs; companies and consumers will begin to spend on a more macro level. At that point, it is likely that we will witness industry stabilisation, which will provide clients some relief.

About Burns & Wilcox

At Burns & Wilcox, every team member is a decision maker. There is no massive hierarchy required to get things done. With a team of 26 and growing, our speed of response matters almost as much as our breadth of knowledge. Nothing is “out of the box.” Everything is customised. All information is transparent. 

We recognise that this is a business involving people, and so we are here to help our brokers protect their clients’ businesses, capital, brands, and livelihoods, at a time when they need us most.

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.

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