UK risk management association Airmic has released the findings of a survey carried out this summer to examine the “harsh market” for insurance—a near perfect storm of conditions that have created a challenging environment for commercial insurance buyers and risk managers.
Four headline findings from the report, titled “The Harsh Market: D&O and Renewals Focus”, include a need for stronger communication and improved use of existing data; dissatisfaction at sudden, extreme and unexplained changes to rates and terms; resultant increased interest among buyers for captives and alternative risk transfer solutions; and a desire for change in the renewals process in future.
Questions focused on recent and upcoming insurance renewals and specifically on directors’ and officers’ (D&O) liability, the scene of some of the most dramatic changes in rates since insurance prices began to turn. The pulse survey ran over two weeks between August 7 and August 20 and canvassed some 60 respondents from among Airmic’s membership community of UK risk managers and insurance buyers.
Poor and late communication from insurance partners figured highly. Some 66.7 percent made this complaint in the most recent survey, a rise from 42.6 percent last year. A running theme, this is perhaps among the most disappointing finding for insurance partners that pride themselves on relationships.
Rate rises were unsurprising, but the scale of price increases is nonetheless dramatic. Broken down by class of business, D&O saw the most exponential rise in pricing. A fifth of respondents said they had experienced a rate increase of more than 400 percent.
A majority experienced D&O rises of at least 50 percent, and almost 30 percent said prices had doubled. The situation follows similar but less pronounced price rises observed in 2019’s study, highlighting the scale of the rate hikes.
The traditional measures of a hard market are present and being felt across the board: higher rates, more exclusions and tighter terms and conditions. Asked to tick all that applied, 95 percent of respondents observed higher rates and 85 percent witnessed reduced capacity from their insurers.
Asked how their approach to renewals will change amid the hardening market in the second half of this year, the results suggest organisations are more open-minded than a year ago.
Some 73.3 percent said they would seek to begin the renewals process earlier and 70 percent wanted to provide more data and information to insurance partners.
Some 66.7 percent said that in response to 2020’s harsh market conditions they would explore use of alternative risk transfer—captives, parametric triggers, capital markets—as opposed to traditional insurance.
Exactly half said their organisation already operates one or more captives. Asked, if their organisation doesn’t have a captive already, whether they would consider forming one, 20.3 percent of the overall group said they were thinking it over.
John Ludlow, CEO of Airmic, commented: “Hard-won trusted relationships are clearly under strain.
“We must work better together to share relevant data with insurers to gain recognition for good risk management.
“Poorly managed exposures and vulnerabilities will be priced harshly, but brokers and insurers should seek out well managed risks and price them beneficially to be respected as balanced and fair.”
Airmic, Risk Management, Insurance, Reinsurance, Survey, Directors and officers liability, John Ludlow, North America