UK INSURANCE MARKET CONDITIONS 2021 UPDATE

UK INSURANCE MARKET CONDITIONS
2021 UPDATE
Summary – Approaching the Peak?                                   AIRMIC’s most recent Pulse Survey supports this
                                                                  conclusion, with 95% of respondents experiencing rate
For the last two years, the insurance market both in the UK
                                                                  increases at their renewal in 2020, 85% facing a reduction
and globally has been hardening at a rate not seen since
2001/02. We are at the peak of the phase of the market            in insurer capacity and 67% observing additional policy
cycle where, in general, insurer capacity is withdrawing from     exclusions (AIRMIC Pulse Survey, 2020).
the market, competition is reducing, premium rates are            2021 Expectations
increasing, policy coverage is narrowing and insurers are being
highly selective regarding the risks they choose to insure.       The significant reduction in market capacity and upwards
This has resulted from a combination of factors including         pricing trend has clearly continued into the first quarter of
insurers and their reinsurers experiencing increased and          2021 although in less distressed sectors and lines of business,
sustained catastrophe losses in recent years, double-digit        the rate of increase has begun to slow. There are certainly
annual claims inflation across many lines of business and         very early green shoots starting to emerge, with some limited
historically low investment returns on premium income             new capacity beginning to cautiously enter the market.
due to extreme volatility in the wider economy. With
premium levels prior to 2018 at a historical low, due to a        There is evidence that pricing in the UK is beginning to
soft and highly competitive market, there was inadequate          plateau for the most attractive and profitable lines of
risk funding to allow insurers to both pay losses and remain      business, now that risks have been through at least one
profitable. We are now experiencing a major correction            renewal in a hardening market. Rates on primary insurers’
of the market, with a severe increase in premiums and             own reinsurance renewals in January did increase, however
reduction in insurer appetite.                                    they are reported to not be as dramatic as widely expected,
Alongside this need for insurers to increase rates to pay         with the majority of changes focused on restricting insurer
for losses, there have been many market withdrawals,              risk appetite, policy coverage and the capacity available for
restructures and consolidations from those insurers unable        them to deploy on any given risk, rather than just pricing.
to underwrite their way back to profitability. Additionally,
a strict Lloyd’s of London performance review has led to          Covid-19
the closure of many Lloyd’s syndicates. Even before the
market began to turn, there was unparalleled M&A activity         The full effects of the Covid-19 pandemic remain unknown.
consolidating a number of major insurers looking to reduce        The Contingency, Travel and Production insurance markets
costs with economies of scale. This has also contributed to       suffered immediate losses in 2020 and subsequently, as the
the substantial reduction in competition and capacity in          economy experiences a severe downturn, markets such
the marketplace, allowing insurers to increase their pricing      as Trade Credit and Surety are expecting a large volume of
further in the majority of insurance classes.                     claims in 2021.

Business Interruption losses in the Property market are likely        The ability of brokers to differentiate their clients in the
to be substantial, either where limited policy coverage had           marketplace by communicating a depth of knowledge of the
specifically been negotiated in advance or more often where           risk exposure and being able to provide quality information
provided unintentionally under the standard Denial of Access          on positive risk management and risk mitigation is absolutely
and Public Authority policy extensions of certain insurers.           crucial. “Especially in a hard market, buying insurance is also
The verdict on the Financial Conduct Authority’s Test Case            about “selling” risk” (Mactavish, 2021). Insurers are continuing
is widely perceived to have supported policyholders and is            to compete for risks which the broker has clearly articulated
expected to equate to approximately £1.2 billion in additional        to be of high quality, proactively risk managed and historically
claims (FCA, 2021).                                                   profitable based on their claims experience. This competition
                                                                      is containing the incumbent insurers’ ability to force through
The already very challenging Directors’ and Officers’ market          severe premium rate increases, where it is not warranted by
is also expected to be impacted. Company directors could              claims performance or trade.
be left personally liable for unprecedented stock market
                                                                      In sectors where competition and capacity does not readily
losses, business value erosion and insolvencies, facing legal
                                                                      exist, innovative and creative programme structures are
action from regulators, creditors and shareholders. There has
                                                                      becoming increasingly necessary for clients to secure
also been an upsurge in litigation brought against companies
                                                                      optimal cover and pricing. Strategies include retaining
and their Professional Indemnity policies, where they may
                                                                      higher risk exposure by increasing deductibles (supported
have acted in error or provided negligent advice to other
                                                                      by cost benefit analysis) and reducing limits, scheduled and
businesses, extending to the Employment Practices markets             co-insured placements with a variety of insurers or non-
in relation to employment law, redundancies and wrongful              conventional programmes where the premium is adjustable
dismissal throughout the pandemic.                                    based on claims performance. Long-term, sustainable
                                                                      partnerships with quality and financially secure insurers are
Almost all lines of business are expected to be negatively
                                                                      important to mitigate the ongoing and predicted market
impacted by Covid-19 in some way, with “few classes                   fluctuations.
expected to emerge unscathed” (Insurance Times, 2020).
For example, the insurance market is experiencing increasing          Alternative routes to managing and transferring risk are
cyber, crime and political violence activity, fraudulent and          becoming increasingly popular including annual aggregate
exaggerated personal injury claims in the Casualty markets            deductibles and captive insurance companies. These can
and property losses arising from unoccupied buildings                 provide businesses with greater control by allowing them to
throughout continued government lockdowns and with                    retain additional risk exposure, reduce pricing volatility and
large swathes of retail, leisure and entertainment premises           potentially mitigate premium increases. Captives can also
not expected to reopen.                                               provide access to reinsurance for exposures where specific
                                                                      coverage is not widely available in the Primary market, which
With insurers and brokers working remotely, the ease                  may eventually include a pooled and/or Government-led
of reviewing risk information, visiting sites for surveys,            “Pan Re” solution to pandemic exposures.
communicating with insurers (especially in Lloyd’s), presenting
clients to the market and so on is more challenging.                  Property and Real Estate
Technology is adapting quickly, but these changes to working
                                                                      UK Property rates are again expected to rise at more than
practices are restricting brokers’ ability to negotiate effectively
                                                                      20% on average in 2021 but for lower hazard risks, the rate
in an already very challenging market.
                                                                      of increase is beginning to stabilise, with clients having been
Mitigating Increases - Differentiating from                           through at least one renewal already in this environment
                                                                      and with a number of new insurers very tentatively entering
“the Market”                                                          the market. Insurer appetite continues to diverge, with risks
                                                                      deemed to be lower hazard (non-combustible construction,
For some lines of business and clients in specific trade
                                                                      non-hazardous processes, adequate sprinkler protection)
sectors, insurers are looking to apply indiscriminate
                                                                      seeing some insurer competition and limited rate increases of
and blanket rate increases across their portfolios, often
                                                                      10%-25%. For those with higher hazard exposures or claims
withdrawing capacity and/or reducing coverage. Alongside              activity, rates are continuing to surge, often by 50% or more.
the wider economic difficulties caused by Covid-19 for
many businesses, this can be disastrous for clients, who              Property insurers continue to dramatically reduce the
may ultimately have to pay more premium for less cover.               capacity available for clients in very high risk sectors, either
Fortunately, these themes are not applicable to every trade           due to their construction materials (combustible composite
sector and insurance product; there is still insurer appetite,        panels, eg. expanded polystyrene, polyurethane or ACM
market capacity and pricing competition available for                 cladding), heat processes (welding, drying, cooking, frying),
certain industries and lines of business.                             combustible materials (timber, plastics, chemicals, rubber,

waste/recycling), lack of adequate protections (suppression/        and complex litigation continues to arise from security class
sprinklers) or where there is a high flood exposure. With           actions, IPOs, cyber breaches, the #MeToo movement in
these specific sectors suffering from major losses in recent        2019 and the Black Lives Matter protests in 2020.
years and/or attracting a particular focus from reinsurers, the
rating increase is often over 100%, with some of these risks        Insurers’ selectivity and scrutiny on each risk has increased
seeing their policies expire without an offer of full cover from    massively as over half of all UK D&O capacity has withdrawn
the market (at any price). These include some food, timber          from the market, including AXA XL in 2020 (previously the
and waste/recycling risks and many of the residential tower         UK D&O market leader with over 30% share), following
blocks and high-rise hotels constructed using combustible           AXIS, Argo, Neon and Pioneer in 2019. This has rapidly
composite panels.                                                   reduced competition on both pricing and policy coverage.

An extremely disciplined underwriting approach is being             Rate increases for renewals in both 2019 and 2020 have
applied to Property risks by insurers, irrespective of claims       almost always exceeded 50% per annum, with larger and
performance, and it is imperative that brokers are able to          publicly listed businesses, either with a higher perceived risk
differentiate their clients’ exposures to insurers based on the     exposure or claims activity, often seeing pricing increases in
quality of their construction methods, risk management              excess of 200% alongside increased deductible levels and
and mitigation standards, business continuity/resilience            imposed reductions in cover. In AIRMIC’s 2020 survey, 20%
and ongoing investment in risk improvements including               of respondents experienced a price rise of more than 400%.
installation/upgrade of fire protection (sprinklers and
suppression), composite panel removal and flood protections         In an already very challenging market, there is now the
where necessary.                                                    expected fallout from the pandemic and its catastrophic
                                                                    impact on the stock market and global economy.
Increasing numbers of risks now require a co-insured                Shareholders, creditors and regulators are already suggesting
placement, rather than being covered in full by a single carrier,   that company directors could be held personally liable for
as underwriters look to limit their exposure to any one loss.       how businesses have prepared for and responded to the
This can increase the overall premium but also rewards              crisis, with widespread business insolvencies forecast and
quality risks that are able to consider higher deductibles and      an expectation of a systemic impact on claims in the D&O
fixed loss-limits and work with insurers towards best-in-class      market. Insurers’ underwriting focus is now on liquidity
risk management and mitigation.                                     and an understanding of risks resilience to the pandemic,
                                                                    alongside their future business plans. Insurers are responding
Communicable Disease exclusions are now market-standard             by offering very restrictive terms for businesses that have
on Property and Business Interruption wordings, with insurers       been heavily impacted by Covid-19 (eg. blanket Insolvency
scrutinising any cover they are providing for Non-Damage            Exclusions) and in some cases, certain industries are simply
Business Interruption (eg. Civil Authority and Denial of            uninsurable There is also increased scrutiny on businesses’
Access) after the uncertainty of pandemic coverage under            Environment, Social and Governance (ESG) reporting.
these extensions and the result in favour of policyholders in
the FCA Test Case.                                                  Additional capacity is on the horizon, with the entrance
                                                                    of Convex, expansion of Berkshire Hathaway and Beazley
Financial Lines (Management Liability,                              into the D&O market and smaller new entrants including
Crime and Employment Practices Liability)                           Mosaic, SCOR and Arcadian, but this is minimal compared
                                                                    to the capacity that has been lost. There are no signs of the
Although historically a relatively small proportion of a            market softening in 2021, although the rate of increase is
company’s overall premium spend, Financial Lines saw a              expected to slow down slightly relative to 2020.
number of market withdrawals and consequently some of
the most severe increases in premium rates and reductions           Crime losses, especially those resulting from Social
in cover in 2019/20, even before the impact of Covid-19.            Engineering, have caused some insurers to exit the market
Insurers that remain in the market are now being highly             completely in 2020 (AXA XL, AXIS, Navigators, Sompo)
selective regarding which businesses and trade sectors they         and more traditional Crime markets (AIG, Zurich, Chubb)
choose to insure in 2021 and at what price.                         have dramatically restricted coverage, reduced limits and
                                                                    increased premium/excess levels. The total premium volume
The Directors’ and Officers’ Liability (D&O) market has             in the Crime market is far lower than for D&O and the
experienced consistent losses since 2017, from high profile         combination of regular, large and complex claims is having a
class-actions in an increasingly regulatory environment with        significant impact on the capacity and coverage available.
ever more claim notifications, various corporate scandals and
fallout from the collapse of Carillion. Insurer margins were        Employee Dishonesty and Theft losses are rising and Cyber
already tight after years of reducing premiums and widening         Crime losses continue to become more sophisticated and
coverage, even prior to Covid-19. More frequent, expensive          expensive. Social Engineering fraud has been a key cause of

losses in recent years and increased deductibles, co-insurance      The complex disputes across large infrastructure projects
and reduced limits are now commonplace for this specific            (especially in the Waste-to-Energy sector) has been
coverage. Insurers are requesting more detailed underwriting        exacerbated by the potential lack of insurer recoveries and
information regarding vendor controls and accounts                  supply-chain resilience driven by such fine profit margins
processes and companies are finding it difficult to complete        and highlighted by the demise of Carillion (2018). A tough
proposal forms accurately.                                          contracting environment, with intensely competitive
                                                                    procurement processes and onerous contractual obligations
Crime pricing is increasing across all risks by a minimum           being forced on contractors, along with the delays,
of 50%, but often over 100% or more depending on risk               cancellations and uncertainty caused by the ongoing
exposure, claims experience and the risk management                 pandemic, is causing serious concern for PI insurers.
controls in place. The majority of risks are now placed on a
co-insured or layered basis, with single insurer limits of £10m     The previously benign market for Solicitors’ PI has also
and above increasingly rare. Insurers are restricting coverage,     hardened rapidly in recent years and this is expected to
often by replacing “any one claim” limits with “aggregate”          continue in 2021, with insurers projecting average rate
limits and imposing large deductibles, policy exclusions            increases of 20-30% on both Primary and Excess business
and minimising sub-limits offered for coverage extensions.          on 1st October. There are a number of insurers still actively
Businesses are often choosing to reduce the overall limit they      writing business, but they are looking to minimise their
purchase due to the prohibitive costs.                              exposure to any one firm by reducing limits and restricting
                                                                    any coverage which goes beyond Minimum Terms. They
The Employment Practices Liability (EPL) market has also
                                                                    are able to be highly selective of the profile of firm they
been shocked by the mass redundancies expected from
                                                                    wish to insure based on the type of work they undertake
Covid-19. Standalone EPL coverage with new insurers is
                                                                    (with a high percentage of conveyancing work being viewed
effectively unavailable and must be packaged with wider
                                                                    negatively, for example), claims experience and how their risk
Financial Lines programmes, although with increased
premiums and reduced coverage, along with smaller limits            management standards are implemented and articulated.
and higher risk retentions. Some insurers have stopped              The pandemic is encouraging questions from insurers
offering “Entity EPL” cover altogether, thus the choice of          on how businesses have maintained their risk mitigation
insurers is severely limited.                                       standards with remote working.

Professional Indemnity                                              Independent Financial Advisors are being viewed as a
                                                                    particularly high risk after the fallout of poorly performing
The UK Professional Indemnity (PI) market has deteriorated          pensions, endowments and investments, especially for those
significantly over the last four years and continues to do so       exposed to Defined Benefit pension transfers. Accountants
at pace following the mass exit of insurers (either voluntarily     are also seeing rate increases where they are conducting
or as a result of the Lloyd’s 2018 Thematic Review) from a          work considered to be higher risk, with the Financial
previously oversaturated and unprofitable market. As a result,      Ombudsman now able to make awards against regulated
insurers are looking to reduce their exposures by reducing          firms of up to £350,000. Insurance Brokers themselves are
capacity and offering much smaller limits, increasing premium       also seeing highly selective underwriting, restricted capacity,
rates, challenging low deductibles and enforcing coverage           onerous policy conditions and severe pricing increases.
restrictions.
                                                                    This overall trend in the PI market is only expected to
Construction PI underwriters, especially in relation to the         continue, with very little new capacity on the horizon and a
“Design & Construct” sector, have made consistent losses,           wider economic recession as a consequence of Covid-19 only
with many leading insurers withdrawing from Construction PI         likely to increase litigation against professionals.
and/or the UK PI market entirely. There has been continued
dramatic fallout following severe losses including the Grenfell     Employers’ Liability & General Liability
Tower tragedy (2017) and Bolton student accommodation
fire (2019) impacting building regulations, fire safety             The UK Casualty market generally experienced rate increases
procedures and the risk exposures of architects, consulting         across all sectors in 2020, but certainly not of the same
engineers, surveyors and contractors. The market is especially      magnitude or consistency as in the Property and Financial
difficult in sectors involving the advice, supply or installation   Lines markets. Capacity and therefore insurer competition
of cladding materials, with the availability of cover all having    has reduced, but ultimately remains adequate across the
disappeared and professional bodies (eg. RICS) organising           market and this is limiting insurers’ ability to demand
emergency market facilities to provide a limited amount of          rate increases where they are not justified, eg. due to loss
cover for the short-term where necessary.                           experience.

Insurers are successfully carrying single digit increases across   in hybrid and electric vehicles, is increasing the cost and
the majority of their risks and renewal marketing exercises        complexity of vehicle repairs. There is still limited availability
are not achieving the dramatic premium savings they once           of parts (including batteries and associated electronic
were, even for the very highest quality risks, as insurers         components) for hybrid and electric vehicles and the
prioritise rate adequacy over premium volume. Similar to           knowledge and expertise in repair networks is not growing as
other classes, this market has not been widely profitable in       quickly as the numbers of these vehicles, especially with the
recent years, predominantly due to the increasing frequency,       Government’s tax incentives and target for all new vehicles
complexity and severity of losses, a lack of investment returns    to be electric by 2030.
on premiums and the rising cost of reinsurance.
                                                                   Personal injury costs per claim continue to rise and whiplash
Following on from more dramatic rate increases in the              reforms have recently been delayed again until at least May
US and Europe and with the economic turmoil from the               2021. Vehicle thefts also remain high, especially of keyless
pandemic expected to reduce total premium income,                  entry vehicles.
insurers are expecting more upward pressure on rates to
follow in 2021 and this is demonstrated by a lack of Long          Marine Cargo, Freight Liability & Stock
Term Agreements being offered at level rates, with in-built        Throughput
increases now the norm for the majority of these proposals.
                                                                   The withdrawal of insurers from unprofitable lines of business
In specifically challenging sectors with relatively high risk      in 2019 and 2020 has disproportionately affected the
exposure to frequent and/or large claims, rate increases are       severely underfunded Marine market, which had previously
being seen well into double-digits and larger companies seem       made consistent losses for at least five years. Similar to
to be suffering disproportionately, with slightly less insurer     the Property market, catastrophe claims caused losses for
competition available relative to the SME and mid-corporate        insurers covering storage locations, with prior premium levels
environment. Similarly, risks with a poor claims performance       barely able to cover attritional Goods in Transit losses for fire
or those unable to demonstrate and articulate a continuous         and theft.
improvement in risk management are experiencing the most
severe premium increases.                                          Beazley was a major UK insurer in this area and is no
                                                                   longer offering cover for Freight Liability or Marine Cargo
Motor Fleet                                                        risks in the UK. Many other Lloyd’s syndicates that have
                                                                   been under pressure have also decided to withdraw from
In 2020, the UK Motor Fleet market (one third of all UK            the market. The remaining syndicates provided Lloyd’s
premiums), unexpectedly returned to profitability with an          management with their strategy to achieve profitability,
estimated positive return of 6.2% (Ernst & Young, 2021).           which has inevitably resulted in underwriting discipline and
Reduced exposure over the past 12 months due to the                upward pressure on pricing.
Covid-19 pandemic (fewer vehicles, lower mileage, less
congestion) resulted in a much reduced accident rate, with         There has also been less capacity available, with insurers being
some estimates of accident frequency falling by up to 50%          highly selective on risks they choose to write. New capacity
since March 2020, leading to a subsequent boost to insurers’       began to enter the market in late 2020 which should reduce
underwriting performance.                                          the level of pricing increases in 2021, especially for clients
                                                                   that have been differentiated by their broker based on trade,
Fleet insurers are no longer looking to force through              exposure and crucially their risk management standards.
double-digit rate increases across their books on a consistent
basis, other than where warranted by claims performance            Construction and Contractors All Risks (CAR)
or in higher risk sectors such as Haulage, Courier/Delivery
fleets and Self-Drive Hire. The positive claims impact from        The Construction market has experienced rate increases
the pandemic is welcomed but the benefit is likely to be           since 2018 along with the majority of other classes of
temporary and has not improved the overall trend, therefore        business. Like the Property market, the Construction market
insurers are approaching renewals and new business with            has been impacted by catastrophe losses globally (eg.
caution. The market is already forecasting a loss of 3.7%          hurricanes and wildfires) against a backdrop of historically low
for 2021 based on underlying trends and single-digit rate          premiums and widening policy coverage. The UK market has
increases are typical.                                             also seen high profile project failures especially in the Energy
                                                                   sector, with significant attritional claims activity from water
Claims inflation remains in double figures for the Motor           damage and fires, particularly for projects using timber-
Fleet market, due to the inflated cost of parts from Europe,       framed construction and high-rise residential buildings.
given the relative strength of the Euro and the implications
of Brexit. In-built vehicle technology including LIDAR and         Alongside premiums, deductibles are increasing and limits are
RADAR bumper sensors and the exponential growth                    reducing. Cover is also narrowing, for example, restrictions to

Consequential Loss cover, sub-limits applied to storm, flood       market. The standalone Political Violence market has the
and escape of water coverage, conditions applied to heat           capacity, appetite and expertise to underwrite this specific
work, exclusions for Cyber cover and increased premiums for        risk exposure on a bespoke basis.
project extensions. Insurers are requesting more information
and a deeper understanding of construction methods and             Security Risks
risk mitigation.
                                                                   The pandemic has prompted businesses to review their crisis
Communicable Disease exclusions are being applied for              escalation procedures. Security Risks cover allows customers
cessation of works and there is increased scrutiny on the          to build a robust approach to their people risk, including
coverage provided for Delayed Start-Up (DSU), especially           emergency evacuation, international medical, complex
for Non-Damage triggers (eg. Civil Authority, Enforced             Personal Accident and Travel, Kidnap, Ransom and Extortion
Shutdown and Denial of Access).                                    exposures. With the fluidity of border closures and disruption
                                                                   to business operations, the market in this space has become
Accident & Health                                                  adaptable to providing solutions for challenging requests,
                                                                   including for Covid-19 coverage. The market remains stable
Those insurers with a large proportion of Travel business          with signs of a hardening, as insurers are tested in the current,
within their A&H portfolio have suffered severe losses             complex environment.
due to Covid-19. This has driven an overall hardening in the
market, leading to gradually increasing rates. The impact of       Contingency (Events, Sports,
the pandemic is expected to be a one-off exception and             Entertainment & Production)
the underlying trend in the market remains profitable, with
plenty of insurer appetite and competition expected in             Losses across the global Contingency market due to Covid-19
2021. Covid-19 exclusions are now market-standard, having          were disastrous and will fundamentally change the entire
been imposed by reinsurers other than for very specific and        market for the future, as huge insured losses are incurred for
expensive standalone products providing specific cover for         cancelled events ranging from Wimbledon to Glastonbury in
pandemics.                                                         the UK alone. Major global events continue to be cancelled
                                                                   or postponed (including Euro 2020 and the Olympic Games)
Cyber                                                              and there is no clarity on when insurers’ losses will materialise.
There has been an increasing take-up of Cyber cover in             Communicable Disease cover is now excluded from policies
the UK/EU since the widely publicised implementation of            in full, with no market available for this cover. Cyber is also
General Data Protection Regulations (GDPR) in 2018 and             now excluded as standard, but with the option for the latter
the subsequent focus on data privacy. This has now been            to be “bought back” for an additional premium. Traditional
followed by a shift to looking at how Cyber policies could         cover for adverse weather, natural disaster, terrorism and civil
respond to Business Interruption and Cyber Crime losses.           commotion remains readily available for any events that can
In the USA, nearly 50% of companies now purchase cover,            take place despite Covid-19.
whereas in the UK the figure has only just exceeded 10%.
                                                                   Product Recall
The Cyber market is seeing notable rate increases for the
first time due to the impact of increasingly frequent and          The market is relatively flat, with insurers continuing to
sophisticated Ransomware attacks and Cyber Extortion               compete on breadth of cover and pricing already at a very
claims. The Cyber and Technology market is also expecting          low level. The most competitive time for buyers is when
more losses due to the vulnerability of the workforce moving       approaching the Recall market to seek terms for the first
to remote-working, which is expected to allow hackers more         time, due to the relatively low take-up of the product and
opportunities to access corporate networks, with a strict          plentiful capacity for Automotive, Food and Beverage,
underwriting focus on maintaining risk controls during this        Aviation, Pharmaceuticals and Consumer Products.
period and into the future.
                                                                   Aviation
Terrorism & Political Violence
                                                                   After a lengthy period of intense competition, reducing
Terrorism and Political Violence in one of the few markets         prices and surplus capacity, major losses in recent years were
which remains competitive, especially for UK and US risks          expected to lead to steady premium increases in 2020 and
moving away from Pool Re and TRIA into the open market             2021 even before Covid-19. Given the catastrophic decline
for the first time. Property losses for Strikes, Riots and Civil   in revenues across the aviation and airline market due to the
Commotion (SRCC) have been triggered by Covid-19 and               pandemic, these rate increases suddenly became massive in
political and ideological protests, such as the Black Lives        percentage terms, but were mostly masked given companies’
Matter movement in the USA and UK, leading to exclusions           extra low revenue projections, with minimum premiums
becoming increasingly common in the international Property         being applied depending on risk exposure. With fewer losses

in 2020 and new capacity entering the market ready for the                                                                    to increased claim notifications. Communicable Disease
aviation industry to begin its recovery, rates should eventually                                                              exclusions may eventually become standard, but this has not
reduce again to pre-pandemic levels.                                                                                          yet been seen (other than in specifically affected markets
                                                                                                                              such as Retail and Travel) due to the sheer volume of insurers
Environmental Impairment Liability                                                                                            chasing fewer deals.
Pricing remains steady in what is a highly competitive market.                                                                Trade Credit
Much of the take-up of Environmental coverage (other than
contractual, regulatory or sustainability requirements) occurs                                                                Due to the pandemic and ensuing economic crisis across
alongside M&A activity or during the redevelopment of                                                                         the world, the Credit market has seen major losses in 2020
land, with insurers offering innovative Pollution coverage to                                                                 and this is expected to continue in 2021. Whilst the major
dovetail with existing Warranty & Indemnity policies during                                                                   primary insurers have taken drastic action across their
Real Estate transactions.                                                                                                     portfolios in terms of rate increases and capacity reduction,
                                                                                                                              the reinsurance market for Credit is much more fragmented
The requirements for extensive soil and groundwater                                                                           and the impact to reinsurers of losses is expected to be
investigative reports is reducing as this was seen as a barrier to                                                            manageable and the market should return to normal
entry for some clients. Policy periods are generally reducing,                                                                after the pandemic. In the interim, temporary reinsurance
with 10-year policies less frequent and 3-5 year policies                                                                     guarantee schemes have been established by governments
now more typical. Specific sectors (eg. Mining) have seen a                                                                   across the world, including in the UK, to prevent a
withdrawal of appetite.                                                                                                       widespread withdrawal of cover until at least June 2021.

Financial Institutions                                                                                                        Emerging Risks
The Financial Institutions (FI) market has seen some                                                                          As the availability of “non-damage” Business Interruption
rate increases in line with the general insurance market,                                                                     coverage reduces across the market, insurers are looking
especially where warranted by risk exposure or claims                                                                         to innovate to provide creative solutions to emerging
experience. This is certainly not to the levels of other                                                                      risks that businesses are facing. Exponential growth in the
comparable Financial or Professional Lines because the                                                                        availability and quality of data is providing an opportunity
market has not experienced the same level of losses                                                                           for more insurers to provide parametric insurance solutions
or the subsequent capacity withdrawals. There are                                                                             to climate risk. New products continue to be created to
concerns about the breadth of policy coverage and much                                                                        cover reputational risk, particularly online. Supply chain risk
of the hardening in the FI market is around tightening                                                                        across the world is in the spotlight due to the pandemic
underwriting appetite, restricting policy extensions and                                                                      and bespoke products for manufacturing, technology and
imposing conditions, especially due to the impact of the                                                                      automotive companies are being created. Cover is now also
pandemic, instead of applying significant rate increases.                                                                     available for a loss of operating licenses, intellectual property
                                                                                                                              and royalty income, for instance in the Pharmaceutical,
Transactional Liability                                                                                                       Biopharma and Medical Devices sectors. Cryptocurrency
                                                                                                                              products are also beginning to emerge to fill gaps between
The Warranty & Indemnity (W&I) market has seen an influx                                                                      Crime, Cyber and FI policies due to the unique and rapidly
of capacity, with insurers looking to establish market share in                                                               evolving nature of blockchain infrastructure.
a rapidly growing line of business. There is less M&A activity
on the horizon given the uncertainties around lending and
business solvency due to Covid-19, with premiums expected
to continue to decrease. Investments may suffer from the                                                                      Oliver Butterworth ACII
pandemic and ensuing recession, with buyers looking to                                                                        Broking Director, Specialty & Risk, Towergate
recoup their losses in any way they can, potentially leading                                                                  oliver.butterworth@towergate.co.uk

Insurance Market Conditions 2021 written and published by Towergate, March 2021
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.
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Registered address: 2 Minster Court, Mincing Lane, London EC3R 7PD. Authorised and regulated by the Financial Conduct Authority.