UK – EMERGING IMPACTS OF A HARDENING MARKET ENVIRONMENT FOR INSURANCE BROKERS

As explai­ned in our article, The dan­ger for insu­rance bro­kers with the UK Pro­fes­sio­nal Indem­ni­ty mar­ket, the UK mar­ket has been har­de­ning since 2018, which could gene­rate risks for insu­rance bro­kers. This situa­tion can be explai­ned by a series of para­me­ters, as natu­ral disas­ter losses, low prices, low inter­est rates, and the COVID-19 pandemic. 

This is a chal­lenge for all players invol­ved : under­wri­ters are res­tric­ting their appe­tite and increa­sing pre­miums ; SMEs are facing higher pre­miums than they bud­ge­ted for, and bro­kers are caught in the cross­fire, trying to meet the demands and needs of their clients in a mar­ket where insu­rance capa­ci­ty is in decline. 

CASH-STRAPPED SMEs CUT BACK ON INSURANCE

Accor­ding to an article from the Insu­rance Times, 51% of UK SMEs cut back on busi­ness insu­rance poli­cies, as Employers’ lia­bi­li­ty insu­rance, busi­ness pro­per­ty cover, pro­fes­sio­nal indem­ni­ty or cyber insurance.

Indeed, the Insu­rance Index research from Pre­mium Cre­dit high­lights the fact that 19% SMEs have stop­ped paying for busi­ness inter­rup­tion (BI) insu­rance ; 42% of them said they had suf­fe­red damage or losses in the past five years, but they could not make a claim because of not being insu­red or being unde­rin­su­red ; and around 24% said they were unde­rin­su­red, while 18% did not have the appro­priate insu­rance. The Insu­rance Times Pre­mium Credit’s chief sales and mar­ke­ting offi­cer Owen Tho­mas explai­ned to the Insu­rance Times that : “SMEs have had to bat­tle to stay afloat during the pan­de­mic, which makes it unders­tan­dable that they have cut back on insu­rance and taken out more credit.

Neces­sa­ry, often legal cover such as employers’ lia­bi­li­ty is like­ly [to be] cut as firms reduce num­bers of staff and wage rolls as a result of Covid-19. Cut­ting back on cri­ti­cal insu­rance can, howe­ver, be a mis­take as not having the appro­priate cover or being unde­rin­su­red can be a serious risk for SMEs. We would advise SME owners to speak to their insu­rance bro­kers for advice on how best to fund the appro­priate level of cover for their busi­ness”.

THE FCA CALLS ON INSURANCE BROKERS TO EXPLAIN AND EDUCATE CLIENTS ON THE IMPACTS OF A HARDENING MARKET ENVIRONMENT

This situa­tion could gene­rate risks for cus­to­mers, and for insu­rance bro­kers. That’s why the UK’s Finan­cial Conduct Autho­ri­ty (FCA) has recent­ly publi­shed a ‘Dear CEO’ let­ter addres­sed to Lloyd’s and Lon­don Mar­ket inter­me­dia­ries and MGAs, high­ligh­ting the key risks of a har­de­ning mar­ket envi­ron­ment for cus­to­mers. This let­ter out­lines the impor­tance of the role that insu­rance inter­me­dia­ries must play in this hard mar­ket envi­ron­ment : “Where this is the case, the inter­me­dia­ted mar­ket will need to (re)acquire the skills to explain and edu­cate clients about why their pre­mium is rising, while cover may reduce.

This includes requi­re­ments on asses­sing cus­to­mer demands and needs, pro­duct over­sight and gover­nance, acting honest­ly, fair­ly and pro­fes­sio­nal­ly in the customer’s best inter­est and pro­vi­ding appro­priate pro­duct infor­ma­tion to address the risk of cus­to­mer harm that may arise from a har­de­ning mar­ket.”

WHAT DOES IT MEAN FOR INSURANCE BROKERS ?

The­re­fore, as explains Richard Webb, Direc­tor at Man­ches­ter Under­wri­ting Mana­ge­ment (MUM), exclu­sive part­ner of CGPA Europe in the Uni­ted-King­dom, Bro­kers will need to take cer­tain steps to reduce the risk of being confron­ted with dis­sa­tis­fied clients : “Mana­ging clients’ expec­ta­tions is the first step and that involves mana­ging time and com­mu­ni­ca­tion. Steps such as iden­ti­fying the risks that will be pro­ble­ma­tic to place. If high limits of indem­ni­ty are requi­red or if the expi­ring mar­ket is with­dra­wing, then access to capa­ci­ty is key. That may require access to the who­le­sale mar­ket in Lon­don. So the rene­wal pro­cess needs to start ear­lier and the retail bro­ker needs to form a good wor­king rela­tion­ship with their who­le­sale bro­ker. Lea­ving it late sim­ply means the cur­rent poli­cy will expire and then it becomes a much har­der posi­tion for the bro­ker and posi­ti­ve­ly dan­ge­rous for the client.

Being open and rea­lis­tic with a client about the cover avai­lable in the mar­ket is the best pro­tec­tion for a bro­ker. Clients who receive bad news late in the day will never react well. The client may not be keen to hear that their pre­mium is going up or limits are coming down but it is bet­ter to be open with a client about the rea­li­ty rather than pre­tend that the mar­ket hasn’t changed”.


Sources : https://www.insurancetimes.co.uk/news/51-of-smes-cut-back-on-business-insurance-policies-amid-pandemic-says-premium-credit/1435250.article?adredir=1

https://www.reinsurancene.ws/brokers-need-to-explain-the-hardening-market-to-clients-fca-warns/