The insurance sector experienced ‘soft' market conditions for almost two decades until mid-2018 and clients became used to demanding, and getting, premium reductions from compliant brokers and underwriters whose major concern was to maintain market share.

But then things changed. Reductions in market capacity, combined with a series of serious losses in the catastrophe and reinsurance markets, severely affected the results for many underwriters and caused their shareholders to demand a rapid return to profitability. This task has not been made easier by the minimal investment returns available in financial markets adding further pressure on underwriters' bottom line results.

As a result, the insurance market has now ‘hardened', causing premiums to increase and policy terms to be more restrictive; underwriters have less appetite for the more exotic classes of business due to shareholders' demands and more restrictive terms being imposed by their reinsurers. All these problems have been compounded by the outbreak of the Covid-19 pandemic at the start of this 2020. Many underwriters resisted coronavirus-related claims on the basis that “it was not factored into our rating models”, “it would bankrupt the industry” or “it is not covered under our wording”. The issues are still the subject of legal actions around the world and the final outcome remains uncertain. Without doubt, public opinion and government pressure have influenced legal proceedings to the benefit of policyholders. Covid-19 has certainly adversely impacted international insurance markets for a number of years to come.

Whatever the final outcome, the pandemic seems certain to have helped cause record losses across the global insurance industry, adding to significant natural catastrophe losses which continue to adversely impact underwriting results. There is an ongoing realignment of capital in the insurance and reinsurance markets, and the market is likely to ‘harden' even further in certain classes of business. While there are signs of new capacity coming into the market, that capacity is likely to be more selective meaning that certain market sectors will continue to suffer lack of underwriting capacity. This will lead to increased premiums & harsher terms particularly for those clients who have suffered losses in the sectors concerned.

There are not many brokers around today who have sufficient ‘hard market' experience to help their clients through the harsh challenges of the current insurance market. Sovereign Insurance Services (SIS) does have such experience within its ranks, as well as access to the necessary international market resources to lessen the likely adverse impact on clients' businesses. We are also fortunate enough to have substantial international market presence through our Sovereign Group client base portfolio that can significantly benefit ‘non-group' clients. Our unique resources are available to those clients seeking more acceptable terms in the current insurance market.

For all current and potential clients, if ever there was a right time to undertake an unbiased review assessment of your corporate and personal insurance programmes, that time is now. One effect of the ‘soft market' has been that many insurance programmes have been allowed to renew, year after year, without proper review. That situation should be addressed now. SIS is available and keen to undertake such a review and demonstrate the added value we can provide to a client's portfolio.

Business models and profiles, as well as personal insurance needs and requirements, have changed significantly in recent times, and so has the insurance market. These changes have been accelerated and exaggerated by the Covid-19 effect. SIS is available to undertake such insurance reviews at no cost and provide clients with the help and advice that will be needed to get them through the critical times ahead.

Originally Published by The Sovereign Group, January 2021

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