Gareth Beaver, Chief Executive Officer, SHA
We could argue that big changes were coming to the insurance industry even before the world had ever heard of COVID-19. Over the years, there have been significant changes in consumer awareness and litigation behaviour, coupled with an accelerated decline in the quality of risk management. This combination of factors invariably led to an increase in claims frequency and severity.
At the same time, growing competition and a lack of sustainable strategies in the market meant that premiums had in fact been moving in the opposite direction. In the liability space, some areas of the business such as Professional Indemnity were in fact pricing risks almost 20% lower than they had two years before, in spite of rising claims, while Single Projects rates had slipped by 33%.
It is therefore not a stretch to say that a global underwriting correction was well on its way long before the pandemic and resultant lockdown changed life as we knew it. What has happened during the Annus Most Horribillis, is that many brokers and clients really started to experience the effects of this declining
cycle for the first time.
The distinction is a critically important one because it suggests that the knock-on impact of the pandemic on the global insurance market has not actually been felt yet. Business owners could therefore still, be in for further tightening of the market in 2021.
Interestingly, whilst many businesses were forced to slip into survival mode in 2020, particularly in the SME sector, we have also seen an increase in risk awareness in our market. This could be attributed to business owners looking for ways to create new efficiencies in their operations. What is concerning is the impact on the human beings that make up the most valuable asset in any organisation. Less employed people, working longer hours and engaging in activities that fall outside of their normal skillset will eventually lead to costly mistakes, injuries and potentially even death.
Also on the horizon are more cyber related claims and regulatory fines following privacy breaches. Many businesses found themselves hurtling through cyber space in 2020, digitally transforming operations at breakneck pace in an attempt to keep employees and customers online during the lockdown levels. This has widened the pool of potential victims for cyber criminals who thrive in the gaps left in untested security systems. Once again, employees may find themselves operating outside of their comfort zones.
Looking forward into the coming year, we see employees being a potential source of claims across the board. Greater investment in training and education in 2021 could make the world of difference in this rapidly evolving risk landscape.
At the same time, there is a real need for greater collaboration between insurers, brokers and clients if we are to recover in 2021. Our own research has shown that a large number of businesses do not share their risk register or risk committee meeting notes with their insurer.
Giving insurers access to this information can only aid in providing businesses with the most appropriate cover. While withholding this information ultimately leads to insurers making conservative assumptions, meaning that clients end up bearing the brunt. That is the best-case scenario when assessing risk without the proper information. The worst-case scenario is a plethora of problems when there is a claim, due to the insurer not fully understanding the exposure.
Trust is a vital component of any healthy relationship, certainly one where close collaboration is a prerequisite for a sustainable economic future – for clients and for our industry. We believe that brokers have a critically important role to play in this, however, they cannot do it alone. The engagement between insurer, broker and client is tripartite and requires constant cultivation of trust and collaboration for it to work – one cannot survive without the other, and the broker is at the center.
Any developing trust deficit between insurer and client must be remedied, and brokers are well-placed to bridge the gap – with a little help from insurers. Greater transparency from insurers is needed and we at SHA are committed to this.
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Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.