CPA Bulletin

32 CPA Bulletin > November 2020 www.cpa.uk.net JCB FINANCE InsuranceMarket Update fromSpecialist Insurance Brokers – JCB Insurance Services InsuranceMarket Cycle Many of you will remember when the Insurance Market used to be cyclical. Typically, the market wouldmove from ‘Hard’ to ‘Soft’ and then back to ‘Hard’ again over a period of around 8 years. Insurers would have loss ratios (the amount of claims they paid vs the amount of premium they received) where they were making sufficient profit. At this point they could look to reduce premiums and commit more capacity in these areas in order to secure more business. This over time took the market towards a ‘Soft’ market where there was lots of appetite from Insurance Companies who were happy to compete against each other to win business and lots of capacity (availability of Insurance). It’s a simple question of supply and demand. This situation drives premiums lower and the insurance cover tends to be wider with greater limits of indemnity available. The terms and conditions required under certain insurance policies are often less stringent too. This is obviously great for those needing to buy insurance but there comes a tipping point where Insurers are no longer achieving the loss ratios they need for this to be sustainable, and something has to change. This is when insurers start to increase premium, restrict their exposure by tightening up on cover restriction and reduce capacity. The supply and demand equation starts to swing the other way into a ‘hard’ market. Twin Towers This was the traditional cycle. The last time this cycle was in action however was almost immediately after the World Trade Centre terrorist attack in 2001 when the market turned hard - and fast. Particularly for those businesses involved in perceived ‘high risk’ sectors. As a result, businesses associated with the construction sector were amongst the hardest hit when it came to purchasing insurance to protect their business with premiums increasing very significantly, very quickly. Thankfully this situation only lasted for around 18 months - 2 years until the market softened again. Broken Cycle As a result of various factors including a huge swathe of consolidation in the insurance broking sector, falling interest rates and an abundance of capacity, the market has remained broadly soft ever since which, although youmight not feel this way, has been good news for purchasers of insurance. There have been some periods where the market has firmed up slightly in certain areas for short periods of time (most notably when the Ogden Discount Rate reduced late in 2017) but overall, buyers of insurance have been used to having consistently stable, low insurance rates for a long period of time along with good availability of cover. Market Changes To add to the raft of problems that 2020 has thrown our way, there has been a change in the Insurance market too, leading to the first hardening market in over 15 years with some classes of insurance more affected than others. This is due to a good number of factors however, not just the ‘C’ word, some of which are; Grenfell Following the Grenfell Tower Tragedy there have been a proliferation of claims against contractors relating to cladding. This has caused Professional Indemnity Insurers in particular to reduce their exposure to this sector significantly or in some cases withdraw altogether. The result of this is increased premium, reduced limits of indemnity and in most cases a switch from the limits being ‘any one claim’ to ‘in the aggregate’. Cost of Construction As a result of the nationwide lockdown earlier this year, there was a shortage of construction materials in some cases, pushing prices upwards. The cost of bricks for example has increased by an estimated 8%. This increased material cost, together with a fear that any buildings with cladding are at much greater risk of fire are factors that have led to an increase in Property Insurance premiums. Increased Risk of Directors being Sued Prior to Covid-19 we were witnessing a steady increase in claims against directors of businesses personally for perceived wrongful acts or omissions. In some cases, off the back of employees being injured at work, so called ‘no win, no fee’ Solicitors see an additional opportunity to the Employers’ liability insurance claim, by pursuing individuals for alleged professional failings. There is a fear that Covid-19 may further fuel claims again Directors. As a result, Directors’ and Officers’ Liability Insurance premiums are increasing steadily with some insurers even declining to offer renewal terms. Covid-19 There has beenmuch reported around Business Interruption insurance claims that many thought should have been paid that weren’t. These are decisions which are being challenged in the Courts now. Thankfully, the Construction sector does not seem to be too embroiled in this however, there is a perceived bigger threat. There is a genuine concern amongst many insurers that there are waves of Employers’ Liability claims coming down the track in respect of Employees suing, alleging that they have contracted Covid-19 in the workplace. There is also a concern that there will be claims for potential psychological damage caused by the stress of potentially catching Covid-19 at work. It is anticipated that this will again be driven by the ‘no win, no fee’ injury lawyers. Indeed at the start of the pandemic we witnessed a number of Companies being set up with names like ‘The Covid Claims Company’ and ‘Covid Claims Lawyers’ ready to capitalise on this already awful situation. There will of course be a burden of proof by the claimant to determine if an Employer is liable but even if they are not, each claimneeds to be defended. As a result we are seeing Employers’ and Public Liability insurance premiums increase accordingly. Reducing the Impact Many buyers of Insurance and indeedmany Insurance Brokers will not have found themselves arranging insurance in a hard market before, so what can you do to reduce the impact, contain your insurance cost and not compromise on insurance protection beyond where you are comfortable? Start the Conversation Early Therewill be lots of business coming to the insurancemarket as a result of themarket conditions. That means that Underwritersmay be overwhelmedwithwork. So, make sure your Insurance Broker start the conversations about your insurance early. Leaving it to the lastminute will almost certainly leave youwith fewer options Providemore Detail Insurers can afford to be more selective and they will not want to take any chance so they will be looking for more detail regarding what you do, how you do it and how youmanage risk in your business. Be prepared to provide this detail as it will make a difference. Use a Specialist Broker When trading conditions are relatively easy the right insurance is widely available but when conditions are more difficult, it follows that a Broker that specialise in a specific sector is far better placed to navigate the potentially choppy waters for you. A specialist broker will have access to the right Insurers and Underwriters that have the knowledge appetite and capability to provide you with the right insurance at the best premium. They may also have exclusive facilities to that really come into their own when the going gets tough. insurance @ jcb.com , 0800 141 2877 Jcbinsurance .co.uk