Insurers are facing many of the same challenges that their policyholders are grappling with.
They are trying to figure out how the pandemic will affect them and what related insured losses they will have to pay. They are thinking about what changes they need to make to their policies and what they now need to do to correctly underwrite them. Like other companies, insurers are trying to figure out how to manage their workforce that is suddenly working remotely while continuing to provide an undiminished level of service.
At Lockton, we are working closely with our partners to ensure any changes in underwriting and coverage are analysed and addressed appropriately by our local teams. Overall we are finding the following common themes:
Increased scrutiny on the financial health of a company, application of more insolvency restrictions.
Questions around Covid-19 preparedness both from a business continuity perspective but also how the company is looking after, and communicating with, its employees.
Some insurers are applying a Covid-19 exclusion across the board meaning that market capacity is further squeezed; restructuring programmes could minimise the impact of coverage restrictions.
At least one insurer has ceased to consider new business whilst they review their book and their longer-term strategy.
Expect longer sign off/approval process at insurers and therefore longer lead times for renewal quotes.
Expect a reluctance to extend cover, even for short periods.
Insurers understand the financial and other difficulties that the pandemic is creating for individuals and businesses. In an attempt to help, some are temporarily suspending cancellation and non-renewal of policies due to non-payment of premium and becoming more flexible with premium payment warranties and offering installments plans.
Financial Lines Market
At the same time there is pressure on insurers to maintain or increase renewal rates, particularly in the financial lines market which, even before the pandemic, had begun to shift towards a hard market in reaction to the global increase in insurance rates in 2019. Whilst the demand for products in Asia varies significantly depending on which country and invariably which legal system or regulatory regime is adopted, we have observed that even before the pandemic it was clear that many underwriters had mandates to increase rates and restrict coverage. Now the Covid-19 pandemic has thrust some more product specific issues into the limelight.
Directors and Officers Liability
Asia had already starting to see the impact of rates increases for D&O risks which began in the US and Europe in late 2018 and early 2019. Potential claims arising from the Covid-19 breakout are likely to further reduce insurers’ appetite for growth in D&O risks and the immediate impact of the pandemic is already noticeable at renewals. Insurers are introducing specific question sets relating the company’s exposure to the virus in order to assess their preparations. In the event that the questions are not addressed to the satisfaction of D&O insurers we are seeing Covid 19 exclusions imposed on renewals.
Professional Indemnity
Whilst currently the market for Professional indemnity Insurance (PII) remains fairly stable, the continuing economic downturn is expected to have an impact on both client buying behavior (reduced limits or non-renewal of cover) and an increase in claims against professional services companies. Professional mistakes are no more or less likely to occur immediately before an economic crisis, those errors that do occur prior to (and during) a downturn are more likely to see claims pursued as a result. As capacity remains fairly abundant, we do expect a tightening of cover and a more selective approach to underwriting.
Cyber Insurance
The demand for cyber insurance in Asia, whilst not traditionally strong mainly due to weak data protection regimes, has seen resurgent interest as businesses adjust to the new normal of life during the pandemic. Awareness around the benefits of cyber insurance has been increasing over the last few years due to heavy investment in education and training but this has not always translated directly into companies purchasing policies. However, since the lockdown we are seeing a demand from first-time buyers as they adopt to working from home and have a greater reliance on online channels to generate sales and manage clients. Whilst companies are seeking to preserve cash flow the take up of a new policy such as cyber will be balanced against existing traditional cover such as property and casualty.
Crime Insurance
Crime insurance premium rates are also on the rise as criminals exploit new opportunities created by the pandemic. Commercial crime insurance protects policyholders against financial losses from both “internal” and “external” fraudulent acts. However, insurers’ appetite for this type of risk has been falling in recent years as the underlying frequency and severity of claims rose, particularly from impersonation and payment diversion collectively known as “social engineering”. The reduction in underwriting capacity has been reflected both in pricing and in terms and conditions of policies.
Medical Malpractice
London and European healthcare liability market conditions remain stable, with marginal (5%+10%) uptick in rates compared to 2019. However, we have observed a more fragmented picture in Asia where rates have increased in excess of 20% on primary layers. There has also been a withdrawal of capacity in Asia with CNA Hardy, ACR and Argo all pulling out. The main drivers to this are a period of chronic under-pricing, increases in claims severity and medical inflation; we anticipate this to continue and buyers need to consider what would happen to pricing if there was further withdrawal of capacity and/or a continuation of high severity losses.
Summary
Whilst the impact of Covid-19 on the financial lines market in Asia will take more time to play out, we do expect the environment to get worse before it gets better. The industry is now suffering from the triple blow of historical underpricing, broad policy wordings and increasing long tail claims.
That said insurers are trying to adapt to the needs of their policy holders by increasing flexibility and being more engaged with clients in respect of renewals. As brokers we are working hard to push them to meet the demands of our clients, many of which are going through unprecedented times.
About Lockton Global Professional and Financial Risks
Lockton’s Global Professional and Financial Risks (ProFin) is our international practice devoted exclusively to the management of regulatory, operational and financial risks. We are part of global team of more than 100 experienced and specialized professionals that helps clients manage boardroom and financial risk. Our role is to help your business deal with these risks; protecting your corporate balance sheet, whilst bringing certainty and peace of mind to executive boards.
For more information please contact:
Rob Russell
Regional Director – Asia
Global Professional and Financial Risks
Mobile: +66 (0) 922 706472
