2020 has been a tough year for everyone, especially businesses that have felt the full force of Covid-19, from the strict government restrictions placed on them with how they trade to full-on closure of their business by the government. One thing in particular that has been affected significantly by Covid-19 is the insurance market.
Insurance Market Issues
Over the past 2 years there have been several factors that have contributed to the changes in the insurance market. In the 2018 Lloyds of London report (for 2017), the insurance market as whole reported a £2bn loss. The majority of the claims came from natural catastrophes and professional indemnity incidents. Consequently, insurance premiums increased steadily across the insurance market to counteract these losses. Furthermore due to the effects of Covid-19, the premiums have dramatically increased more last year, with some professions, particularly firms in the financial and construction sectors, seeing the steepest premium rise.
The start of 2018 was the last time the insurance market was a 'soft market'. Premiums were low due to the fact that there were many insurers in the market with a high capacity to write business. Thus competition between insurers was strong, which in turn ensured premiums were driven down and the insurance cover being offered was wide. However, when Lloyds of London suffered significant losses in the 2018 report, a decision was made by Lloyds of London to carry out a performance review and so removing £3bn written premium on poorly performing business. This consequently resulted in fewer insurers in the market and so reduced capacity. The consequences of all this was less competition from insurers, premiums increasing, indemnity limits being reduced, excesses increased, cover being withdrawn, exclusions being applied, limits of indemnity being placed on an aggregate basis as opposed to an any one claim basis and less negotiation of terms by brokers. In addition to this, the insurers that were left willing to write insurance operated under stricter underwriting principles and these remaining insurers also aimed to recover some of their previous losses. What ensued was a 'hard market' and premiums increased further with cover being restricted even more.
During 2018 Lloyds continued to perform poorly, following a volatile investment environment and another costly year for natural catastrophes in which the market paid £19.7bn in claims. Unfortunately, Lloyd's reported a further aggregated market loss of £1bn for 2018. This resulted in 2019, with the insurance market continuing to harden, even more insurers driving premiums up further and more restrictions on cover being applied. However, things started improving towards the end of 2019 and Lloyds reported an annual profit of £2.5bn. With this good news, we all anticipated in the near future more competition from insurers and hopefully a reduction in premiums. However due to Covid-19 over the last year this has not happened.
Covid-19 Effect on the Market
There is no doubt that Covid-19 has had a significant impact on the insurance market. Due to the financial challenges in the economy and potential claims as a result of Covid-19, insurers have been increasing their premiums substantially as well as applying a number of exclusions to their policies to protect their future positions. As discussed, one of the main factors affecting insurances have been claims or potential claims which in turn has resulted in the hard market continuing and coronavirus exclusions being added to policies. Some of the claims that the insurers are experiencing due to Covid-19 are:
·Business interruption claims, driven by the forced closure of businesses by the government, as businesses attempt to recover their lost earnings.
·Future potential liability claims (both public and employers liability) as people alleged that they have contracted Covid-19 in the workplace.
·D&O claims as companies come under financial pressure and also possibly do not follow correct accounting procedures which could result in claims from other parties such as shareholders, creditors etc.
These challenges have resulted in premiums increasing more, insurer capacity being withdrawn further, exclusions applied to policies and clients unable to obtain renewal terms or if they do receive renewal terms, these are not palatable to them.
Has all of this Affected Recruiters?
Whilst other industries have been affected by the hardening market, it has been a different story for recruitment agencies. Due to the low number of claims, the fact that a significant amount of recruitment insurance is on a contingency basis as well as the healthy competition between insurers recruiters have not felt the effect of the hardening market with premiums for recruitment agencies remaining low.
Having said this, despite the avoidance of the hardening market on the recruitment industry to date, it appears that the insurance market for recruitment agencies is starting to become harder. In the last few months, we have seen some recruitment agencies renewal premiums begin to increase as well as exclusions being applied to policies in relation to Covid-19. Some risks have been difficult to place, for example care home agencies are being declined renewal or at the very least premiums increasing dramatically due to the fear of potential Covid-19 and liability claims. Recruitment agencies are also seeing their directors & officers liability insurance becoming increasingly difficult to renew without either cover being withdrawn or premiums being increased.
In summary, the insurance market has been a volatile place for the past 2 and a half years and this looks to continue. Lloyds of London is predicting further losses is 2020 having already reported a pre-tax loss of £0.4bn for the first six months of the year. This has primarily been driven by £2.4bn of COVID-19 losses. More Covid-19 claims are likely over the next year this will further fuel the hard market. Whilst recruitment agencies so far seem to have weathered the storm, it looks like in the future the insurances for recruiters will become more expensive with premiums increasing and cover being withdrawn or exclusions being applied.
In this current market, a pro-active approach to your renewal always works best as the hard market is likely to continue. Our advice is:
·Start your renewal process with plenty of time,
·Return any renewal forms swiftly,
·Review your financial information and provide realistic figures for the next year,
·Seek alternative quotations to ensure you are receiving the most comprehensive policy at a competitive premium