The United Kingdom Q3 Market Dynamics
Landscape
The United Kingdom has experienced a third wave of the COVID-19 pandemic with the spread of the Delta variant. However, related hospitalisations and deaths have remained well below previous peaks as the vaccination campaign has advanced: by mid-September, over 80% of those aged 16 and over had received two doses, although uptake has slowed. Consequently, the government has not introduced new lockdown measures after most restrictions ended in July. GDP grew 5.5% in the second quarter, while the United Kingdom saw 3.2% inflation in the 12 months prior to August 2021.
Interest rates have remained at 0.1%, and the average of September forecasts for annual growth is 6.9%, marking a partial recovery from the 2020 fall of 9.9%. However, disruptions to the supply chain (including fuel), labour shortages and the end of the government furlough scheme on 30 September threaten this recovery. Government plans for economic recovery include a ‘green industrial revolution’ financed with GBP 12 billion through a new infrastructure bank. Efforts to secure post-Brexit trade deals have resulted in a new free trade deal with Australia in addition to ‘rolling over’ pre-Brexit arrangements with many countries.
Key Indices - The United Kingdom
Market Dynamics
The United Kingdom Featured Products Q3 2021
Q3 Automobile Summary
Overall (Stable) Although loss costs are increasing due to escalating costs of parts and expenses related to technology components included in modern day vehicles, market pricing remains stable. Insurer appetite is robust - especially, for well-performing risks - and underwriters are taking a sensible, growth-focused approach to renewals. Engaging early on renewals has been an effective strategy for achieving the best results.
Rates (+1-10%) Insurers are looking to gain rate strength, but this is amounting to only nominal rate increases on clean risks, with more material adjustments on distressed risks.
Capacity (Ample) Capacity is stable and generally sufficient. There is an expectation that the void left by the withdrawal of a key market in this space will be readily filled.
Underwriting (Prudent) Insurers remain cautious but are demonstrating some flexibility. Distressed risks have become more palatable in some cases.
Limits (Stable) Expiring limits can be achieved in most cases.
Deductibles (Stable) Expiring deductibles can be achieved in most cases; however, loss-active risks are subject to deductible evaluation and in some cases, increases. In addition, insureds are increasingly exploring deductible options as a mechanism for managing premium costs.
Coverages (Stable) Expiring coverages can be achieved in most cases.
A Look Ahead (Challenging) Insurers will be looking to meet 2021 premium goals through both retention and slight rate increases where deemed necessary. The UK HGV driver shortage, the increase in electric vehicles, and new expense strategies aimed at offering company cars in exchange for employee salary give-back may change risk profiles in 2022 and beyond.
Q3 Casualty/Liability Summary
Overall (Challenging) The market remains challenging, with price increases, coverage reductions, and underwriting scrutiny now becoming common across most risk types and placements.
Rates (+1-10%) Pricing is up modestly for most risks; however, poor performing risks and/or risks deemed unprofitable are experiencing more material adjustments.
Capacity (Constrained) Several insurers have reduced or withdrawn capacity, which is now constrained; however, most risks are able to secure sufficient limit.
Underwriting (Stringent) Underwriting is rigorous, and additional, detailed underwriting data is required, even for renewals. Insurers are scrutinizing ancillary coverages such as Financial Loss and Professional Indemnity extensions.
Limits (Decreasing) Primary insurers are reducing limits, in some cases, materially. Some insureds are reducing tower limits as the cost of capacity has become too expensive.
Deductibles (Increasing) Deductibles are increasing, mostly driven by insureds looking to offset the impact of rate increases.
Coverages (Restricting) Due to the current climate, most ancillary coverages are now being restricted and insurers are focused on returning to core coverages.
A Look Ahead (Challenging) The market is expected to remain challenging.
Q3 Financial Lines Summary
Overall (Challenging) There are signs of stabilisation; however, the market remains challenging across all lines, particularly Crime and Pension Trustees Liability.
Rates (+11-30%) Rate increases continue as insurers seek long term rate adequacy, with poor performing risks experiencing the most significant increases.
Capacity (Constrained) New business appetite is improving for low-medium risk profiles, but there is still caution on higher risk sectors and/or those susceptible to COVID-19 impacts.
Underwriting (Stringent) Underwriting remains rigorous; detailed risk information requirements remain the norm for both new and renewal placements.
Limits (Stable) Limits have stabilised following the turmoil experienced over the past 18 months. Underwriters have implemented long-term strategies on capacity deployment for each line of business.
Deductibles (Increasing) Deductibles continue to increase, especially for Crime, Pension Trustees Liability, and higher risk D&O placements. The increase is determined by risk size, risk profile and insurer strategies.
Coverages (Restricting) Insurers have defined clear strategies regarding the coverages they are prepared to offer, and negotiations to deviate from those strategies have proven challenging.
A Look Ahead (Challenging) The market is expected to continue to stabilise into 2022, but will remain challenging. Insurers will remain cautious, particularly with regard to risk selection, capacity deployment and rate adequacy.
Q3 Professional Indemnity Summary
Overall (Challenging) The market remains challenging across-the-board, although there are indications it is starting to plateau.
Rates (+11-30%) A more varied stance is emerging. While significant pricing increases continue, rate adequacy has been achieved on a growing percentage of placements so the rate of increases has decelerated.
Capacity (Constrained) Appetite for new business is narrow, and capacity is restricted for most risk types.
Underwriting (Stringent) Underwriting is rigorous and detailed. Extensive information is being required for some risk types, and the process can be onerous.
Limits (Decreasing) Limits are decreasing, driven either by lack of market capacity or insured preference in response to rising premium costs.
Deductibles (Increasing) Deductibles continue to increase, driven either by insurer mandates or insured preference in response to rising premium costs.
Coverages (Restricting) Breadth of coverage is under review, with coverage restrictions now commonly required.
A Look Ahead (Challenging) Current challenging market conditions are expected to continue in the near term; however, a slight improvement is expected in 2022.
Q3 Property Summary
Overall (Challenging) Market conditions remain challenging, in general, with rigorous underwriting and rate correction applying to most risks. However, there is growing appetite and competition for risks that are both progressive and are deemed to have already achieved rate adequacy.
Rates (+11-30%) At the portfolio level, the rate of increase is slowing, with less severe corrections than experienced over the last two years. Favorable occupancies and quality risks are experiencing generally modest increases while risks exiting LTAs for the first time since the hard market began, risks in less attractive occupancies, and poor-quality risks are experiencing more significant increases.
Capacity (Constrained) Capacity is constrained but sufficient to meet the needs of most risks, with the key exception of heavy industry sectors where insurer appetite and capacity remains limited.
Underwriting (Stringent) Underwriting remains rigorous, and there is little flexibility related to compliance with central underwriting requirements. Extensive, detailed information – especially related to risk control and investment – is expected.
Limits (Stable) While limits have stabilised overall, there is a continued focus on certain areas such as Nat Cat and Contingent Business Interruption, which remain subject to limit reductions, particularly if complete underwriting details are not satisfied.
Deductibles (Increasing) Deductibles continue to increase, driven either by insurer mandates or insured preference in response to rising premium costs.
Coverages (Restricting) The market continues to be focused on Communicable Disease, Cyber and various Business Interruption coverages. Insurer stances in these areas are rigid with very limited flexibility.
A Look Ahead (Challenging) Current trends are expected to continue for the rest of the year. Competition will continue to increase for certain occupancies and risks; however, appetite is expected to remain limited in some heavy occupancies or risks with poor risk quality, lack of investment, or insufficient information. Insurer results and treaty renewals at the end of the year will likely influence underwriting strategies, pricing, capacity and coverage into 2022.
Q3 Trade Credit Summary
Overall (Stable) The government Trade Credit reinsurance scheme introduced during the pandemic expired on June 30, 2021, with no overall material effect on coverage continuity. The scheme’s impact, as part of a broad range of UK government support measures, enabled credit insurers to continue to maintain cover when it was unclear what impact the economic crisis would have on affected sectors and vulnerable companies. The UK economy has rebounded, resulting in a low loss/claims environment leading to an increasingly competitive credit insurance market and adding back significant capacity for resilient trade sectors, as well as buyer credits.
Rates (Flat) Pricing is becoming increasingly competitive for businesses with favorable experience and risk spread as insurers focus now on top line growth.
Capacity (Ample) Insurers have maintained credit limit support across sectors and buyers following the expiry of government schemes and have continued to add net new capacity to their total potential exposure. Hospitality and travel sector risks; however, remain constrained.
Underwriting (Flexible) Insurers became more stringent during the pandemic but are now adopting a more flexible and pragmatic approach.
Limits (Stable) Limits remain stable where there is continuity in credit and policy limit underwriting.
Deductibles (Stable) In the absence of losses/insolvencies, there is no upward pressure from the market on existing deductibles. Insureds have options related to risk retention strategies.
Coverages (Broadening) Expiring terms and conditions can be achieved in most cases, and favorable risk types may achieve broader terms.
A Look Ahead (Stable) Notwithstanding the favorable experience of 2021, the outlook for 2022 includes a “normalisation” of insolvencies, particularly with the recommencement of formal business insolvency procedures, inflationary effects linked to ongoing supply chain issues and rising commodity prices, and higher refinancing costs as interest rates are expected to rise.