A newly-released industry report suggests some businesses operating in high-risk areas may benefit from early renewal as capacity within both the international and domestic markets continues to shrink.
Gallagher’s latest market overview report discusses a range of topical industry issues – among them, the current state of high-risk property insurance following several costly incidents.
“Property premiums are rising rapidly after several years of stability,” practice leader Adam Sulway writes in the report, Trust & Data: Into the Breach.
“While this is causing some concerns for businesses, it’s really just Insurance 101: there has to be enough premiums paid in a given market to cover the losses of claims.”
However, Sulway says this is no longer the case for high-risk property.
“With large claims that arose after devastating blazes, such as those at SunPork in 2016 and Thomas Foods in 2018, the domestic market can no longer cover the losses of the few with the premiums of the many,” he writes. “Some domestic insurers are retreating from certain segments of the market, while others are raising premiums considerably – some by double or more – to try to cover potential claims.”
While clients with a better claims history will see lower premiums compared to their riskier counterparts, Sulway says even those with the best reputation are likely to see a big jump.
It’s a situation which will push many businesses into obtaining coverage from international markets, which, historically, has been more expensive. However, Sulway warns that capacity is limited so businesses should think ahead, while there’s still an overseas appetite for high-hazard property risk.
“For those businesses with a renewal later in the year, there may not be the capacity within the market to take on that portfolio and the risks presented will be spread across a much greater number of insurers operating in the international insurance markets,” he writes. “As a result, it may be prudent to try to bring renewal dates forward to secure the optimum program at more accessible rates.”
Sulway also warns that, for clients operating in these high-risk areas, structural changes to insurance programs may be necessary.
“Aside from more insurers being present on an insurance policy, clients may have to carry more risk, either through higher excesses or via self-insurance,” he writes. “It is better to start preparing for these changes earlier in a bid to minimise their impacts.”
Released just yesterday, the report also recommends that businesses in high-hazard industries embrace data in order to foster trust with their insurer.
“The use of data absolutely helps build trust between the insured and the insurer,” it reads. “Compliance data, for example, allows insurers and their engineers to check through a list of safety measures a business already has in place.”
Thankfully, the report did highlight some possible benefits for high-hazard property businesses that now find themselves operating in a particularly challenging market.
“Working with international markets helps to build a long-term relationship between an underwriter, broker and their client,” said Sulway.
“Articulating the future and strategy of the business is key because underwriters – particularly in London – are prepared to come along for the journey with you,” he continued.
“Safer, more risk-conscious businesses are better for all involved. Increased premium costs may sting a little at first but they can help lead to a greater long-term stability, placing businesses in a strong position to benefit from lower premiums when the market turns.”
