Keeping up to date with the latest legal developments impacting the insurance sector is a time-consuming and somewhat daunting task as more court rulings and regulations continually disrupt the status quo of the sector. From assessing the potential litigation faced by insurance brokers following COVID-19 to evaluating whether a Pandemic Re solution might be possible, the question now is how the pandemic may impact the London insurance market through new post-crisis laws and regulations.
Assessing this impact with Insurance Business is Gavin Coull (pictured), a member of London FOIL’s executive committee and partner at Birketts EC3 Legal. Coull touched on the possibility of certain cases being pursued to the Supreme Court and this impacting the London market, and noted that there may potentially be some settlement cases on the reinsurance side.
“In terms of changes to regulation and the Black Letter Law, however, I suspect there is not going to be a huge amount of difference,” he said. “Other than the potential bringing in of new vehicles such Pandemic Re, which may have some regulatory impact depending on how that is funded and operated. And the FCA may take a different view on this, but we will have to wait and see what’s coming out of those test cases.”
Coull believes that the predominant impact will be a lot more hardening of terms and conditions in both direct and reinsurance categories. Ultimately, even in cases where claims are covered or not covered, some policy wordings have an inbuilt grey area and that is not good for insurers and, similarly, that is not good for buyers of insurance. This will no doubt be seen by some as a positive and by others as a negative, Coull said, and he highlighted the role that brokers will have to play in communicating any changes.
“Brokers will see that they are caught in the middle,” he said. “They have a big role in, firstly, saying to their insurers what their clients actually want cover for and communicating that specificity but also in reporting clearly to their clients what insurance is actually on offer, and available to them. And that will include letting them know that times have changed since 2018/2019. The market is its own creature and is ultimately a commercial enterprise.”
Coull outlined how the advisory role of the broker has been highlighted by the pandemic, and the responsibility of brokers to educate their clients on what they can and have purchased is clear. However, the crisis has also highlighted the fact that most buyers, even many commercial buyers in the SME sector are not familiar with the market of insurance products out there. If, as a buyer of insurance, your interaction is simply going to your broker with the details of your company then this crisis should be a real insight into the need for better financial services education for both sides of the buy-sell market.
Noting the profound resilience of the insurance industry, Coull said that, stripped of the headline numbers, it seems that the market is strong and resilient. While this will inevitably be a bad loss year, the market has seen bad loss years before and is more than capable of bouncing back, with capital raising continuing as (re) insurers seek to leverage the opportunities created by the hardening market.
While some insurance companies will need to rebuild consumer confidence following the pandemic, he said, the flip side of this has been the demonstration of the importance of insurance and reinsurance to the economy. This is a helpful realisation for the many who previously viewed insurance as just a “sleep easy” purchase and is a sign of this being a positive moment for the sector.
Assessing the legacy of the pandemic is a difficult if not impossible task but Coull stated that two key takeaways from this crisis will be the recognition that insurance and reinsurance are deeply resilient and that there is likely to be a fundamental change in the way that the insurance markets operate.
“Alongside the significant negatives [of this crisis] for individuals as well as the markets, with this, as with all things, you have to embrace the changes and opportunities that come with this and that’s what the market has always done.”
The pandemic is going to push forward a great deal of modernisation, Coull said, highlighting how Lloyd’s of London has charged ahead with electronic placement development, and there is huge scope for further growth within remote placing and claims handling. This is, however, unlikely to completely take away the core of the London market which is face-to-face relationships as the capabilities of such platforms are founded on the degree of trust that is the product long-term interpersonal relationships.
