Global Broking Centre
Insurance Market & Key Risks
- Claims activity is driving shifts in appetite and coverage: Insurers are reducing capacity or withdrawing altogether from some loss-active lines of business / risk types and/or clarifying coverage language, especially related to communicable disease, silent cyber, and business interruption.
- Signs of pricing stabilization are emerging: There are early signs of a change in the market. Overall, there is still a firming trend to most classes; however, the trajectory of increase across some classes appears to be declining quarter-on-quarter, particularly for US and International Property, and Marine Cargo.
- New capacity is entering the market: Even as some insurers withdraw from poor performing classes and risks, capacity overall is increasing. It is emanating from new sources as well as from current insurers taking advantage of elevated pricing conditions by increasing shares.
- Run-off activity is increasing: There is increased activity in run off companies acquiring books of business from live insurers. The claims philosophy of run off companies is different than that of live companies. They are more disciplined in terms of how they handle claims and less focused on ensuring the maintenance of relationships through claims.
- Claims volumes are fluctuating: While some claims activity has slowed due to COVID-19 impacts, there has been an increase in claims activity in the following areas:
Marine / Cargo / transit
Financial lines / class actions
Cyber / ransomware
Medical Professional / missed and delayed diagnosis
Property Catastrophe losses (especially emanating from the US)
Tips for Clients
- Explore alternative solutions: Traditional and non-traditional options are expanding, and it is increasingly important to explore alternatives such as captives, facilities, MGAs/MGUs, risk financing, and changes to program structures to achieve the best outcomes.
- Re-review insurance coverages and structures: Risks, exposures, and risk management strategies have changed. Coverages, limits and deductibles should be carefully considered to ensure they remain appropriate.
- Start early: The renewal process is taking longer. There is greater underwriter scrutiny, and more questions are being asked. Give yourself enough time to respond.
Global Broking Centre Q1 2021 Rate Trends
Updated as of May 19 2021
Global Broking Centre Featured Industries Q1 2021 Overview
The past year has brought a number of challenges for the aviation industry, including COVID-19 which resulted in a massive reduction of passenger numbers and air traffic, and a relatively large number of accidents resulting in passenger fatalities. The industry now awaits decisions as to which governance approaches and restrictions individual countries will implement such as COVID testing requirements and proof of vaccination. These measures will likely affect how insurers assess and price risk profiles. In the meantime, rate increases remain significant, and capacity remains challenged. Claims performance is stable, although there have been some delays in payment, particularly with insurers which have withdrawn from this space.
Insurer remediation efforts are not only focused on pricing but also on retentions, given the market perception that retentions have not kept pace with growing exposure values and risk profiles. Coverage is generally stable, although most international Professional Indemnity insurers are imposing Cyber exclusions. Very few will agree to affirm Cyber coverage, and those that do are specifically underwriting the Cyber exposure and charging additional premium. Insurer appetite is inconsistent based on exposure type and risk profile and some insurers have specific agendas to de-risk their portfolios. Insurer responsiveness has generally slowed. Market conditions are expected to continue throughout 2021 as insurers remain cautious that the full effects of the pandemic remain unknown.
The effects of the pandemic and global demand fluctuations have driven a focus on managing volatility. Generally, insurers continue to focus on the accuracy of declared Business Interruption values. Rate increases remain the norm for Downstream risks, although they have moderated since the conditions experienced in 2020. Gross earnings coverages based on "actual loss sustained" wordings are coming under scrutiny. Insurers have widely introduced BI volatility clauses seeking to cap annual and monthly recoveries to a percentage of declared values. There are Downstream pinch points such as Oilsands, natural catastrophe exposed locations, high aggregation areas, and where significant limits are required by lenders. The Upstream market remains stable overall; however, underwriters are focusing on the accuracy of unit price declarations used for LOPI cover. ESG is increasingly being considered by insurers as a factor in deciding which clients are appropriate partners. Retentions remain stable - although options continue to be sought. There is broad consensus on policy wordings. A new LMA version of the BI Volatility clause (LMA5515) was released in Q4 2020 to clarify earlier versions. Communicable Disease Exclusions are now present on all major programs (LMA 5393 is most common). Looking ahead, a further capacity constriction in specific areas like Arctic Drilling and Oilsands is expected. Energy transition technologies and low net carbon dioxide emitting entities are expected to receive preferential treatment.
Entertainment & Leisure
COVID has had a range of impacts on the different sub-sectors comprising the Entertainment & Leisure industry. There has been little change in the event cancellation landscape. Robust COVID protocols are enabling the TV/Film/Commercials Production sub-sector to continue. Non-appearance risks are minimal as no international touring is expected until late 2021. While the business impacts of COVID have differed, insurance pricing is consistely challenging across the industry at large, with no diminution of rate increase being seen across any Contingency product. Deductible increases have become common – driven by insureds’ premium management efforts rather than insurer demand. A general tightening of policy language continues. Capacity has slightly contracted, and more is expected to leave.
Food System, Agribusiness & Beverage
Price increases generally continue. Capacity is stable, with a focus on adequate retentions and insurer profitability. Insurers are reviewing line sizes on any individual risk and are actively reducing lines when deemed necessary. There is heightened underwriting scrutiny, particularly in the product contamination space. Soft market enhancements have become more challenging to secure, particularly when transitioning to a new insurer.
There has been some downward pressure on Cargo rates amidst increasing market appetite and capacity, with new entrants – particularly MGAs - coming into the market. While there is still significant capacity for the majority of Hull risks, capacity is being tested on cruise vessels and major construction projects due to values exposed. A two-tiered hull market is emerging. In one tier are insurers with appetite for growth, driving opportunistic underwriting and leading to increased verticalization as a result of a number of factors, including having the ability to write on company platforms, new entrants coming into the space, and greater autonomy to manage and grow the portfolio where underwriting results have been favorable. The second tier reflects those insurers which continue to be challenged by Lloyd's remediation and who are restricted from adopting a flexible underwriting approach. There is concern that vessel reactivation issues could arise where vessels have been in long term lay up. Coupled with growing mental well being concerns for crew, the market is watching for a potential rise in Hull losses. Reinsurance requirements have led to the application of Communicable Disease Exclusion clauses across all lines.
The claims environment is relatively stable but a few notable losses in 2020 has continued to ensure that a softening market is still some way off. Simple, straightforward losses are benefiting from the work from home environment, with underwriters being more available and reviewing electronic claims files in a more timely fashion. Complex losses that require interaction, understanding and discussion have been more problematic and take longer to resolve than they would in the office.
In the conventional tech power assets space, capacity contractions which started mid-2020 have stabilized, although new players are not entering the market. New renewals capacity is entering; however, and this is leading to hybrid programs with a mixture of Conventional and Renewable assets. There is continued private equity acquisition of aged conventional fleets. Gas Turbine Technology is under scrutiny. GE 'F' units are experiencing material price increases, often combined with deductible increases depending on version. There has been a slight warming to HA technology. LMS 100 is experiencing continued Property Damage losses (versus historical BI outages). Hydro continues to experience losses across the spectrum, with vertical losses in pump storage. In the onshore renewables space, some conventional insurers are branching out into renewables as existing market players reduce line sizes. There is increasing concern over Natural Perils and appetite is reducing further due to reinsurance treaty provisions. In the offshore renewables space, traditional wind markets are pulling back capacity due to losses, but upstream energy markets are starting to enter the market, bringing significant potential capacity at a more sustainable price. DSU wording remains a key concern. In the operational conventional power generation space, following discussions with lead markets regarding 2020 loss ratios, it is expected that insurer appetite will narrow in 2021 and some capacity may withdraw if profitability does not improve.
Market conditions continue to be challenging. Rates continue to increase. Capacity is limited, requiring some insureds to assume more of their own risks. Underwriters are highly selective on which risks they write. Silent Cyber is an ongoing challenge. Underwriting decision-making and authority is centralizing. Claims frequency is stable, while severity is rising – driven partially by social inflation - with some incurred sums reaching well into Excess layers.
Despite a number of anomalous events which led to several high-severity claims in 2020 and early 2021, there has not been a large uptick in premium rates. While rates remain elevated, competition between insurers for attractive risks, and significant overcapacity, is serving to stabilize the market. While a small number of insurers have withdrawn, citing poor book performance, other players are viewing the market more positively and additional capacity has entered. Currently, the maximum capacity available (theoretical capacity) for space launch risks is approximately USD 970 million, and USD 890 million for in-orbit coverage. Working capacity for launch is currently estimated to be USD 612 million and USD 457 million for in-orbit. (Working capacity represents the maximum capacity the insurance market will actually offer for a best in class launch or in-orbit risk and assumes all markets will underwrite the risk.) While there remains significant differentiation in pricing, technology of greater heritage and reliability continues to attract the strongest demand and preferential premium rates. Insurers are more selective in the programs they are willing to support and depending upon the risk profile are being judicious with their level of support. In the absence of further claims, Aon expects the space insurance market to stabilize and conditions for insurance buyers to improve later in 2021.
Global Broking Centre Featured Products Q1 2021 Overview
Underwriters are continuing their Q4 re-underwriting strategies aimed at correcting/resetting for profitability. These strategies include assessing coverages, capacity, triggers, and pricing. The impacts have led to ongoing price increases, particularly on Excess and Umbrella coverages, as well as reduced line sizes, increased co-insurance/shared placements, and more ventilation of layers. More restrictive, standard forms – rather than bespoke policy language - are being offered. Risks experiencing the most challenging environment include mining, thermal coal, energy, bushfire exposed, pipelines, and roofing involving hot torches.
The increase in claims did not materialize to the extent expected in 2020; instead, relatively modest upticks occurred. However, insurers remain cautious as waivers and requests for payment restructuring agreed last year are due to expire in 2021, and some of these transactions may be subject to claims thereafter. Market appetite has expanded and is more diverse, particularly for Political Risk. Capacity remains sufficient. Three insurers withdrew during 2020 but new entrants have filled the void.
Loss frequency and severity has escalated - particularly related to ransomware - and the market has reacted with tighter coverage language as well as continued, significant rate increases. Appetite remains strong, particularly for differentiated risks, as insurer risk selection is becoming more focused. Some established structures are being restructured in order to secure the same total tower limit; larger primary lines are becoming more common. Market conditions are expected to continue throughout 2021.
Market conditions continue in a similar state as the latter part of 2020, with insurers looking to impose significant rate increases nearly across the board. Retentions are increasing and coverages are restricting. The 'silent cyber' mandate from Lloyd's is currently the most pressing coverage issue, with some insurers attempting to impose exclusions that may impact core cover. Capacity remains a challenge with most insurers continuing to be cautious following a significant reduction in capacity over the past 12 months. Appetite remains focused. The Financial Lines market is expected to remain difficult in the short term, as insurers continue to look for what they believe to be adequate rates and appropriate terms and conditions, following an increase in frequency and severity of losses. Emerging new capacity will bring some relief in the medium term.
While conditions remain challenging for some classes like metals & mining and pulp & paper, there are signs the market is easing off its peak. Capacity remains constrained, although new capacity providers are proving useful to fill some of the more distressed mid-layers that were a major struggle 12 months ago. There is greater scrutiny of manuscript language. Significant new coverage restrictions are not being introduced; however, LMA 5393, LMA 5400 and SRCC exclusionary language for specific regions are now standard. Insurers are showing more flexibility and desire to maintain existing portfolios following a period of significant remediation. Insureds are generally maintaining limits and deductibles, although some deductible increases have been implemented to help offset premium increases at a time when budgets are constrained due to ongoing recovery from COVID-19 impacts.