Insurance Market Conditions – Q1 2020

Insurance Market Conditions and How Towergate Can Help You – Q1 2020

Insurance market summary - Q1 2020

The insurance market in the UK is currently hardening at a rate not seen since at least 2001/02. This means that we are in the phase of the market cycle where in general, insurer capacity is withdrawing from the market, competition is reducing, premium rates are increasing, policy coverage is narrowing; and insurers are being highly selective about which risks they choose to insure.

The main drivers of this are:

  • Substantial insured catastrophe losses in recent years, which have increased global reinsurance rates for primary insurers and are ultimately passed on to clients.
  • Claims inflation on damage and injury claims for primary insurers are accelerating across Motor Fleet and Liability leading to continued losses for insurers.
  • Specific sector issues in a number of key areas, including Property, Real Estate, Financial Lines, Construction, Professional Indemnity, Motor Fleet, Marine and Credit.
  • Historically low investment returns on insurers’ retained premium income. Extremely low interest rates are now exacerbated by the stock market losses sustained due to Covid-19.
  • Major market withdrawals both in the insurance company market and at Lloyd’s of London, alongside unprecedented M&A activity has reduced capacity and competition for risks.
  • The specific effects of the emerging Covid-19 pandemic are as yet unknown, but the already very challenging directors and officers' market is expected to be hit hardest. Company directors could be left personally liable for stock market losses and business value erosion and insolvencies, facing legal action from regulators, creditors and shareholders.

These themes are not applicable to every trade sector and insurance product; but are typical of many. A few are experiencing blanket premium and deductible increases, alongside reductions in coverage and limits, but most are still being underwritten on a case by case basis. Although
limited, there is still market capacity and pricing competition available for many industries and lines of business.

How brokers can assist customers during Covid-19

The ability of brokers to differentiate their clients with a depth of knowledge and risk information, supported by proactive risk and claims management, is more crucial than it has been for many years. Long-term, sustainable partnerships with quality and financially secure insurers are strongly encouraged to mitigate the ongoing and predicted market fluctuations.

Innovative and creative programme structures will become increasingly necessary for clients to attract an affordable premium. These can include higher risk retentions by increasing deductibles and reducing limits, scheduled and co-insured placements with a variety of insurers or nonconventional programmes where the premium is adjustable based on claims performance and insurer engagement.

A more detailed explanation of the current insurance market dynamics is provided below, along with a focus on specific sectors.

2017-2020 global reinsurance market

2019’s insured catastrophe losses have surpassed $56bn and are expected to finalise broadly in line with the significantly increased $75bn 10-year rolling average.

Major losses continue to accelerate in frequency due to global climate change, including Hurricane Dorian in the US and Caribbean, Typhoons Faxai and Hagibis in Japan, tropical cyclones in India and Mozambique, monsoon flooding in Bangladesh and Nepal and wildfires in Australia, Indonesia, Siberia and the Amazon region. This follows an incredibly costly 2018 and 2017 (c. $93bn and $155bn) after devastating hurricane seasons, typhoons in the Pacific and wildfires in California and flooding in the UK and Europe.

The majority of the insurance market continues to view these catastrophe losses as events which impact insurers’ earnings and profitability but are not the market-defining or “spike” events required to fundamentally diminish their underlying capital.

Global reinsurance rates continued to rise at an average rate of 5.5% during the January-March 2020 renewal season, with some lines such as UK Motor rising by as much as 35%, and both UK Property and Casualty attracting increases above 10%. These increased costs continue to filter into the primary insurance markets, following on from reinsurance rate increases of 2.5% in 2019 and 7.5% in 2018.

UK insurance market between 2017-2020 

2018’s reinsurance increases have now fully filtered through to the UK market after a disastrous 2017 for UK insurers. Weather losses for storms and floods, terrorism attacks and the Grenfell fire, together with uncertainty over whiplash reforms and the reduction in the Ogden Discount Rate, all had a severe negative impact on UK insurer profitability. Lloyd’s of London insurers lost over £2bn in 2017 and £1bn in 2018. The majority of UK insurers made overall losses (for at least the sixth successive year), posting Combined Operating Ratios (CORs) in the region of 100%.

Whilst it had previously been possible for insurers to tolerate a lack of profit in the short term due to lucrative investment returns on premiums, this became increasingly difficult over this extended period. Insurers are operating in volatile financial markets with historically low interest rates reducing investment yields which further impacts their profitability.

This is in addition to the ever-increasing regulatory costs across the financial services sector, specifically those anticipated during and after Brexit in 2020 and the as yet unquantified impact of the emerging COVID-19 pandemic, which has obliterated insurers’ own market value, along with their investment returns at an unprecedented rate.

With a clear lack of profitability on investments and increasing costs including reinsurance, UK insurers had to look to make a return on underwriting activity alone in 2019. Many continue to impose blanket rate/premium increases across product lines, with insurers withdrawing from specific sectors or entire markets altogether, where claim payments are exceeding premium income.

Those insurers who could not make a profit in 2019 have withdrawn from key sectors of the UK market including MS Amlin, Beazley and Tokio Marine. Of the 84 Lloyd’s of London syndicates in 2018, five have now ceased trading entirely and the sale and consolidation of many others includes Barbican, AmTrust, Pembroke, Aspen, Advent, Navigators, Chaucer, Pembroke, and Novae.

Along with market and capacity withdrawals, those insurers who remain active are targeting pure underwriting profit over revenue for investment. These insurers also continue their drive to increase scale in order to reduce their costs and therefore return to profitability.

This has created an exceptional five years of high-profile insurer consolidation in the UK and globally, with the Chubb/ACE, AXA/XL and Allianz/LV mergers reducing competitive tension further for specific lines of business.

In 2019, the most well capitalised markets which did survive the losses, have reduced their capacity and appetite for risk, increasing their pricing and withdrawing from many sectors.

This has returned most to borderline underwriting profitability with CORs between 95% and 100%, but often with a significantly reduced portfolio of risks, each paying a higher rate of premium.

Through a combination of these factors, the market continues to harden in many sectors at a rate not seen since 2001/02 (immediately after the 9/11 terrorist attacks and the collapse of Independent Insurance Company).

These sectors include Financial Lines, Haulage and Logistics, Self-Drive Hire, Construction and Professional Indemnity and (higher-risk) Property including Food, Waste/Recycling, Timber and Real Estate, especially on those with inferior construction methods (polystyrene or ACM cladding), inadequate sprinkler protection or a significant flood
risk exposure.

Fortunately, insurer capacity continues to exist in other sectors with some new insurer capacity entering the marketplace, for example Berkshire Hathaway, Convex, Protector and a handful of others. This is restraining the incumbent insurers’ ability to force through severe (double-digit) premium rate increases where not warranted by claims performance or trade.

Rate reductions do still exist for well-managed Casualty, Technology and Life Science risks, highly-protected Property risks of non-combustible construction and lighter Fleet risks (cars/vans) with a profitable claims performance with strong and proactive Risk Management standards.

Insurers are continuing to compete for risks that can be demonstrated by the broker to be of high quality, proactively risk managed and performing well from a claims perspective. Brokers’ ability to provide this Claims and Risk Management support to clients and crucially to use and articulate this depth of knowledge and information effectively, to differentiate them in the marketplace, is now more important than ever.

Where competition and capacity does not readily exist, brokers and clients must create innovative and creative programme structures, in order for risks to attract an affordable premium. These can include higher risk retentions by increasing deductibles and reducing limits, scheduled and co-insured placements with a variety of insurers, or non-conventional programmes where the premium is adjustable based on claims performance and insurer engagement.

Insurance sectors with recent and specific changes

Long-term distressed sectors continue to attract rate increases unless outstanding risk management and claims experience can be demonstrated by the insured’s broker.

More recent and specific changes to the market in 2019 are affecting the motor fleet, financial lines, professional indemnity, property and marine insurance markets for 2020.

Motor fleet and haulage insurance

In 2019, the UK Fleet market (one third of all UK premiums), experienced increased underwriting losses of 5.7%. Claims inflation is in double figures for the Motor Fleet market, with inflated costs of parts from Europe (due to the relative strength of the Euro and Brexit fears), additional in-built vehicle technology including LIDAR and RADAR bumper sensors and the increasing complexity of vehicle repairs for hybrid and electric vehicles. Personal injury claims costs also continue to rise, as do vehicle thefts, especially of keyless entry vehicles.

After the haulage and logistics insurance sectors felt the full force of the 2017 changes to the Ogden Discount Rate with significant rate increases, premiums are now beginning to stabilise at this higher level, but insurers know that this is not enough to return them to profitability in 2020.

They are forcing rate increases on customers who cannot demonstrate a commitment to improving Fleet risk management or have had a volume or size of claims in recent years, especially if this trend is deteriorating.

Motor fleet and haulage insurance from Towergate

Despite this challenging period, we can continue to offer commercial vehicle insurance, including fleet insurance and truck insurance for drivers of single trucks or small haulage HGV fleets.

Financial lines (management liability, employment practices liability and commercial crime insurance)

Directors’ and officers’ liability insurance

2017 and 2018 has seen directors' and officers' liability (D&O) losses across the market from class-actions, an increasingly regulatory environment, various corporate scandals and the collapse of Carillion. Margins were already tight after years of reducing premiums and widening coverage. Over a third of all D&O capacity has been withdrawn, reducing competition on pricing and policy coverage with increasing retention/deductible levels.

More frequent, expensive and complex litigation continues to arise from security class actions, IPOs, Cyber breaches and the #MeToo movement in 2019 and this trend continues into 2020. Insurers’ selectivity and scrutiny on each risk is increasing as capacity withdraws rapidly.

In an already challenging market, there is also now the potential for fallout from the COVID-19 pandemic in 2020 and its catastrophic impact on the stock market and business insolvencies. Shareholders, creditors and regulators are already suggesting that company directors could be held personally liable for how businesses have prepared for and responded to the emerging crisis.

Commercial crime insurance

Crime losses, especially those resulting from Social Engineering, have caused some insurers to exit the market completely (Axis, Navigators, Sompo) and other traditional markets (AIG, Zurich, Chubb) to dramatically restrict coverage, reduce limits, increase premium and excess levels. This is a far smaller section of the market than D&O and the combination of regular, large and complex claims is having a significant impact on the capacity and coverage available.

Although typically a relatively small proportion of overall premium spend, Financial Lines saw some of the most severe increases in premium rates and reductions in cover in 2019, with insurers being highly selective about which trade sectors they choose to insure in 2020; and at what price.

Directors’ and officers’ liability insurance from Towergate

Our directors and officers insurance gives you the protection needed for the possible repercussions of acting on behalf of your company. Ask for a quote online today.

Professional indemnity insurance in the construction industry

The UK PI market, especially for the construction sector, has deteriorated significantly over the last three years, and it continues to do so at pace.

There has been continued dramatic fallout following severe losses including the Grenfell Tower tragedy (2017) impacting building regulations, fire safety procedures and the risk exposures of architects and cladding contractors. The complex disputes across large infrastructure projects, (especially in the waste-to-energy sector), has been exacerbated by the potential lack of insurer recoveries and supply-chain resilience driven by such fine profit margins and highlighted by the demise of Carillion (2018). A tough contracting environment, with intensely competitive procurement processes and onerous contractual obligations being forced on contractors, is causing serious concern for professional indemnity insurers into 2020.

Underwriting professional indemnity insurance in construction, especially in relation to the ‘Design & Construct’ sector, has therefore proved far from profitable for many insurers, with various insurers withdrawing from the UK PI market entirely, and several others ceasing underwriting Construction PI. A 2018/19 Lloyd’s of London crackdown targeted lossmaking syndicates, culminating in Lloyd’s restricting how much PI business syndicates are permitted to underwrite; no syndicate was allowed to increase the amount of PI premium they underwrote in 2019, with Lloyd’s making a net loss of £435m on PI over the preceding 6 years, with the aim of profitability in 2020.

As a result, insurers are looking to limit their exposures by reducing capacity, increasing premium rates, challenging low deductibles, and enforcing coverage restrictions. This underwriting strategy is especially extreme in sectors involving the advice, supply or installation of cladding materials, with this market all but disappeared and clients having to self-insure their exposure.

Professional indemnity insurance from Towergate

Despite the tough marketplace, we can still offer professional indemnity insurance for a wide range of professions in the construction industry and other trades. Find out more and get a professional indemnity insurance quote online.

As a member of the Construction Plant Hire Association we can also provide competitive tradesman and contractors insurance deals for our clients. See our crane and plant hire insurance.

Higher-risk property insurance

Since the reinsurance renewal season in 2019, primary insurers have begun to reduce the capacity available for clients in higher-risk property insurance sectors either due to their construction materials (polystyrene combustible panels or ACM cladding), heat processes (welding, cooking, frying), combustible materials (timber processing, waste/recycling), lack of protections (suppression/sprinklers) or significant flood exposure.

At least 20 major (£10m+) fires occurred in tower blocks in Q3 2019 alone, including the Premier Inn in Bristol, Holiday Inn in Walsall, a school in Dunfermline, a retirement complex in Crewe and multiple residential and commercial buildings. These are almost exclusively of timber-frame construction and/or including expanded polystyrene or ACM composite panels, similar to the combustible materials involved in the tragedy of Grenfell Tower.

The trend shows no signs of slowing with hotel fires in Q4 2019 in Eastbourne (Claremont, November) and Brentford (Travelodge, December). These high-rise fires are in addition to major food and beverage losses, including Ocado (Andover, February - over £100m), Masons Gin (April) and Omega Ingredients (August) and waste/recycling fires at a rate of more than one per day.

An extremely disciplined underwriting approach is being applied irrespective of claims performance and it is therefore imperative that brokers are able to differentiate their risks to insurers based on the quality of their construction methods, risk management and mitigation standards, business continuity/resilience and ongoing investment in risk improvements, including installation/ upgrade of fire protection (sprinklers and suppression), composite panel replacement and flood protections etc.

Higher-risk property insurance from Towergate

Even in these challenging times, Towergate can continue to offer property insurance for a broad spectrum of owners, from major property investors and pension funds to private landlords.

Find out more on our property owners insurance page.

Marine insurance

The withdrawal of insurers in specific, unprofitable sectors has disproportionately affected the severely underfunded marine insurance market. Beazley was a major UK insurer in this area which no longer insures freight liability, cargo or hull risks in the UK and many of the Lloyd’s syndicates which have been under pressure have chosen to withdraw from the UK marine insurance market.

The remaining syndicates were asked by Lloyd’s management to provide business plans with a strategy for profitability. These developments have already resulted in a tightening of pricing, which likely will continue into 2020.

There will be specific pressure on premium rates, with less capacity available and insurers being highly selective of risks, based on trade, premium and crucially their risk management standards, after multiple large fire and theft losses in the marine cargo market in 2019.

Marine insurance from Towergate

We can continue to offer marine insurance to meet your needs. Please contact for information about our product.

Other insurance available from Towergate

For more information or for a full review of your insurance needs, please see our insurance specialisms, contact your usual Towergate Insurance Brokers adviser or email

About the author

Oliver ButterworthOliver Butterworth ACII is an emerging industry leader, Chartered broker and Associate of the Chartered Insurance Institute (CII) with over 10 years’ insurance broking experience, negotiating the placement of major UK and global risks into both the insurance company markets and Lloyd’s of London.

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The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers adviser.