How changing dynamics in the insurance industry will filter through to the policyholder level
As each of our recent blogs has highlighted, the insurance market will see potential repercussions from the pandemic for years to come; however, rate hardening was already in evidence across several sectors prior to COVID-19. In fact, the global spread of the pandemic is only likely to serve as a major catalyst for further market-wide rate increases.
The industry has experienced an extended soft period, now combined with declining investment returns, a predicted GWP drop and a renewed focus on underwriting profits. In light of this situation, it is expected that insurers will have to work hard to maintain an upward rate momentum to counter any drop in earnings.
What do these changing dynamics mean for policy and renewal negotiations?
According to Fitch Ratings, 2019 saw global non-life commercial insurers record double-digit price increases across several lines. And adding the impact of the pandemic, the agency has seen some companies introducing drastic hike rates in loss-affected lines, with others withdrawing from particular sectors/territories.
Insurers will also be looking to introduce more stringent terms and conditions — improving the precision of policy wordings/refining the scope of cover — to reduce potential exposures/remove any coverage uncertainty that may emerge at the point of claim.
Benedict Burke, chief client officer, Global Client Development, comments
“We would expect to see these change dynamics result in greater pressure on insureds during the renewals process or when securing additional coverage. The demand for more granular information during representations will undoubtedly increase as insurers seek clearer evidence of risk management and mitigation procedures, and also details of robust claims planning procedures and effective claims management practices during negotiations.”
Such industry developments will undoubtedly create a more challenging environment as companies, and their brokers, begin the renewals negotiation process. Looking forwards, negotiations will be about ensuring greater clarity in terms of both exposure and coverage.
Mike Jones, president, TPA International, states,
“As the uncertainty regarding pandemic coverage in the context of business interruption policies has demonstrated, the negotiation process must ensure that the risk itself is presented clearly and that similar clarity is achieved around the coverage on offer – without that level of understanding on both sides problems will always arise at the point of claim. I would certainly expect to see a more involved negotiation process developing as we move forward.”
The effect on the claims process
Due to these evolving market dynamics and current financial hardship, there is also growing industry concern that this will spark an increase in fraudulent/over-exaggerated claims. We will likely see insurers placing a greater burden of proof on claimants in the event of a loss — e.g. a more intensive causation examination.
Pat Van Bakel, president, Canada, remarks,
“We are seeing evidence of an increase in opportunistic fraud — and as more and more businesses find they no longer have the capacity to absorb the financial impact of the pandemic, we would expect to see more instances of fraud.”
Coming up in our next post, a re-assessment of the risk environment and how insurance buyers can differentiate as market conditions evolve. To read our findings in more detail, please download our report called Responding to a market in flux.