The effects of COVID-19 are likely to play out for long-time on the insurance market and so we thought it was important to let you know how it will affect you. 
Impact on the industry 
Lloyds of London, the mecca of insurance has forecast total industry losses at $107 billion in 2020 alone, not taking into account any tail of losses that will accrue with their inhouse losses estimated between $3bn and $4.3bn. To put this in perspective, this will cost the market more than 9/11 disaster in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2007. In addition, due the widespread impact of the virus on the globe, insurer and reinsurer investment portfolios are expected to take a $96 downturn, making total industry losses at a whopping $203 billion. 
Market cycles 
We have been in a prolonged soft market since circa 2003 which is coming to an end and seeing premium increases at more restrictive terms being imposed across all lines as capacity reduces and markets consolidate. Even before the ‘Corona bombshell’, the signs of a hardening market was on the wall, notably in Design and Construct sector of Professional Indemnity Insurance since the Lloyds ‘Decile 10’ review in 2018 that uncovered how poorly performing this sector was and syndicates were forced to either demonstrate remediation plans or cease writing this business. The Grenfell Tower tragedy in 2016 sent shockwaves through the market and confidence that the industry understood and managed its exposure was low. This has led to close risk scrutiny, steep premium increases, higher retentions, aggregated limits and has even meant that some building inspectors and main contractors are unable to obtain cover. Another sector is Casualty, which was feeling the effects of the Ogden Rate that has been at a negative until recently, then only being adjusted one and a half points to 0.75%, though this was greatly less than expected meaning claim settlement amounts and reserves remain higher than predicted, putting pressure on regulatory capital requirements under EU Solvency II Directive. 
Key drivers of change 
1. Increased Regulation (under the EU’s Solvency II Directive insurers are required to hold more capital to ensure they are able to cope with claims to reduce the risk of failure 
2. Lloyd’s Decile Ten Review in 2018 (this scrutinised the performance of syndicates requiring many to either stop writing certain lines of business or increase their rates accordingly in order to return to profitability) 
3. ‘Ogden Rate’ still set at a negative -0.25% (leading to higher personal injury claim settlements and claims reserves) 
4. Poor return on investments linked to low interest rates (premium paid up front in advanced are typically invested and the return on their investment goes towards their income) 
5. Recent global catastrophes (floods, hurricanes, fires, COVID-19, etc) 
This has led to poor underwriting results causing a reduction in capacity (less capital in the market able to write risk and forcing insurers to withdraw from certain lines of business) and consolidation (reduction in competition) all leading to pushing rates up in order to return to profitability. 
Forecast for the outlook ahead 
According to Marsh’s Global Insurance Index in September 2019, it saw 8 consecutive quarters of global insurance price increases in the three major insurance lines – Property, Casualty and Financial. The continuation of this trend has been reaffirmed by the Acturis Index (a widely used in the industry platform) showing demonstrable signs of average rate increases and the music stopping. 
What can you be doing? 
A firms risk management and their ability to demonstrate what controls, systems and processes have never been so important and will provide comfort to underwriters that an insured understands the risks they face, their ability to manage them and mitigate against possible losses. 
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