Why should I revisit my insurance strategy? By S-tech
The word ‘unprecedented’ is the common phrase to describe 2020 in so many ways. Our Associate Founder member S-tech is here to help you with insurance strategy.
This can equally be applied to the insurance market which has seen a number of factors combining to create a ‘perfect storm’ for customers and insurers alike. A turbulent marketplace has resulted and there are a number of key drivers at play below.
- ‘Solvency 2’ – new regulations originally introduced in 2016 has meant that Insurers are now obliged to double their free asset levels. The result of this has been a reduction in the capacity (amount of cover) insurers can offer as they need to ring fence additional capital to meet these requirements.
Additionally, there have been fewer new Insurer entrants to the market and some exits.
Less capacity = increased premiums.
- Government legislation has meant that Insurers have had to provide greater reserves against increased liabilities for personal injury claims. The requirement for such larger reserves has resulted in reduced capacity.
- ‘Historical Rates’ – the previous decade has provided good levels of insurer capacity producing a competitive market and downward trends in premiums. The last few years, however, have seen Insurers looking to increase rates and the combination of less capacity and increased claims losses has strengthened the need for significant premium increases – the early natural disasters, e.g. floods in early 2020, merely exacerbated the problem.
- ‘Covid 19’ – there has been the well-known legal case challenging Business Interruption policy cover. Whilst restricted to very few industry/policies (e.g. hospitality and small shops) this has generated significant focus and cost for some insurers and with the greatest impact being seen with Travel Insurance, Health and Safety management and potential litigation against Employers and Directors. The full effect is yet to play out but immediate impact has been on insurance appetite and premium.
- ‘Reinsurance Costs’ (insurers own insurance). These are mostly negotiated from 1 January with significant increases for 2021 being passed onto Insurers. This further results in reduced capacity and with some insurers no longer being able to provide cover for losses associated with Communicable Diseases and Contractual Liabilities. The consequences of increased reinsurance costs are higher premiums for clients and reductions in cover. Some areas will be disproportionately hit, especially in the high risk liability areas such as Directors and Officers protection.
- ‘Investment Losses’ – Insurers have always utilised good investment returns to bolster available capacity. Low interest rates mean less capital is available as a contribution. Unable to rely upon such investment income means Insurers are having to return to underwriting Insurance Programmes in anticipation of profit and, thus, generating higher scrutiny and premiums.
- Working from home presents businesses with certain unique challenges, not least ‘home environment’ risks assessments and data security. Similarly, this change in working practices, along with empty business premises, has presented insurers with previously unforeseen issues, particularly in relation to cyber security and employee health.
- Emerging Risks. This principally concerns the ever increasing threats posed by unseen cyber attacks and the evolving solutions of insurers to address these.
- Insurers are using all of these factors to revisit and re-write their business. A consequence of this is the reduced new business appetite of some for writing risks which they would have entertained in the past. Additionally, many insurers are now enforcing and imposing wide-reaching policy warranties which customers are unaware of until the time of a claim and which allows insurers to avoid their liabilities.
So, what does this mean for you?
- Higher insurance premiums
- Higher excesses
- Cover will be restricted (e.g. communicable diseases)
- Warranties will be enforced and/or introduced
Consequently, you will need to review your upcoming insurance offers and requirements with a high level of scrutiny. It is difficult for the layperson to pick their way through the plethora of options, restrictions and terminology and still arrive at the right insurance protection for your business.
Picture from Devanath
Whether you’re a start-up which needs to purchase insurance for the first time or your business is more advanced, we would love to offer you a free non-obligation review of your insurance requirements. We understand that the Cleantech industry is unique and you need an insurance partner who can find you a bespoke programme that meets your needs, not simply an off the shelf package from a comparison site.
As Associate Founder Members, we are here to help and guide you through these various challenges (you might recall reading our article on Risk Management in the January newsletter) and please contact us at https://www.s-tech.co.uk/staff/josh-simpson/ to request a call and to discuss further.
We look forward helping and guiding you through these challenging times