In June 2024, Lockton’s Private Clients team were thrilled to host a bitesize breakfast market update, bringing together professionals from across the Private Clients space for food, coffee, and industry insights.
At the event, Lockton specialists provided a 60 second update on the current state of affairs in the household, renovation, aviation, yacht, and fine art markets.
Read on for a small summary of each update.
Property insurance
The last two years have seen unprecedented levels of inflation, driven by a series of economic and geopolitical shocks – notably, the COVID-19 pandemic and the war in Ukraine. The consequences for homeowners have been significant, with rebuild values increasing by around 15–20% per year. Despite UK inflation easing to 2.3% in April, however, many underwriters are still applying indexation increases of 8–10%.
Climate change is also set to be a major factor in the future of property-related claims. Insurers paid out a record £573 million since data collection began seven years ago. Changes in the UK climate patterns have increased both the frequency and severity of extreme weather events. London has been particularly affected – the capital’s clay soil foundations are a major subsidence risk, intensified by the high proportion of below ground extensions seen in recent years.
For further information, reach out to Chyna Kenward (opens a new window).
Renovation and construction insurance
The high-end construction insurance market is relatively stable with plenty of capacity. Appetite is reasonably broad – markets to which Lockton has access can provide cover for thatched or timber frame homes, for example. By contrast, there is limited appetite for these in the wider household market.
When looking at risk precautions, insurers are more focused on contract and risk management. In the case of site inductions, insurers will need to know who is carrying them out and who is controlling health and safety on site. Fire risk and water management reports are also in focus. In the last 5 years, escape of water during pressure-testing has been the biggest cause of issues within construction projects; insurers now see this as high severity.
Project delays remain an issue. Stats from insurers show 92% of all projects run over time, as construction firms struggle with material and labour shortages.
For further information, reach out to Charlie Hannington (opens a new window).
Aviation insurance
The aviation insurance market has experienced growth in recent years, largely due to 5 years of a hard market with high rates and expensive premiums. A considerable number of airplanes were grounded during the COVID-19 pandemic, yet continued to pay premiums. This situation led to lower claims, allowing the market to expand with reduced costs and increased profitability.
As air traffic began to recover post-pandemic, the aviation industry saw a resurgence in activity. This, coupled with the overall normalisation of global activities, further fuelled market growth. Several sectors have also seen increased demand for aviation services, including private travel, cargo operations, firefighting and agricultural work, surveillance, and electric aircraft.
The resulting competitive environment, alongside the 35+ active insurers leading or supporting businesses in the London aviation insurance market, has now driven rates and pricing down to the benefit of insurance buyers. This market is projected to grow from $4.3 billion in 2023 to approximately $4.6 billion in 2024.
For further information, reach out to Scott Smith (opens a new window).
Marine insurance
The yacht market is currently in a stable position as insurers have seen profits return after years of a challenging market. However, there are signs the market may be heading into a softening period. Insurers have faced a hole in their income since the Russian invasion of Ukraine, which forced underwriters to stop writing Russian-owned yachts. This, along with the emergence of a couple of new markets, drove competition among underwriters to replace that income. This is now driving premiums down.
Elsewhere, a lithium and battery clause is now being added to London market policies, which looks at how the batteries are stored, charged, and cared for. A series of high-profile claims thought to be caused by improper care of lithium-ion battery fires are now being addressed – something crew and captains should be aware of when renewing or taking new policies.
War rates are at an all-time high due to ongoing world conflicts, specifically the Houthi attacks in the Red Sea. This is making it very expensive for yachts navigating between the Mediterranean and the Middle East or Indian Ocean to keep their policies active. If the yachts are US- or UK-owned, cover for transit through the Red Sea likely won’t be granted at any price. Alternatively, owners can transit around the west coast of Africa. However, the cost of fuel, provisions, and lack of bunkering facilities makes this a largely impractical option.
For further information, reach out to Fraser Wilkinson (opens a new window).
Fine art insurance
As always, transit is one of the principal areas of risk for the fine art insurance market. Insurers remain selective around risks with previous claims, but rates are otherwise stable for clients using a professional packer and shipper. There are exceptions, however. Sea shipments still attract an increased rate in premium, and will require specific sea transit clauses. Particular routes and territorial requests can also produce higher premiums than those normally quoted by underwriters.
Premiums for terrorism remain flat, thanks in part to insurers’ capacity. Earthquake premiums also remain stable. Elsewhere, exhibition rates are holding stable, but insurers are increasingly aware of vandalism – the ‘Just Stop Oil’ protests, for instance – and will sometimes request additional protections. The accumulation of risk in large storage facilities – such as the Geneva Free Ports – is still of concern for insurers. If they have the financial capacity to underwrite the risk, insurers may request higher premiums for those locations.
Finally, insurers are now seeking additional information on state of condition reports, with mode of transport and security playing a key role in insurers’ premium calculations. For lenders, condition checking should be included within standard operating procedures. Professional fine art packers and shippers are typically required for any one transit more than GBP 20,000.
For further information, reach out to Charles Hamilton-Stubber (opens a new window).
Contact us (opens a new window) for more information, visit our Private Clients (opens a new window) page.
