Insurance Rates and Underwriting 2020 /2021

Lloyd’s of London Chief Executive John Neal has said that the coronavirus pandemic is likely to be the most expensive market event in history dwarfing other major disasters such as Hurricane Katrina in 2005 and the 9/11 terror attacks.

There were several factors coming together even before Covid-19 that, now being exacerbated by the pandemic, which has now been described as a perfect storm affecting the insurance industry, including:

Solvency II has taken much of the spare capital out of the marketplace

Insurers’ spare capital requirements due to legislation have more than doubled. This has caused a number of insurers to leave the market whilst others have significantly reduced their capacity.

The Ogden Rate

Set by the UK Govt., the Ogden rate is used to work out the size of the lump sum payouts to complex personal injury liability claims. Recent changes has meant that insurers had to pay out significantly more on larger personal injury claims and revise claims reserves on existing claims. The effect is an increase in premiums on motor and liability classes.

Property Rates pre 2020

Most insurers had begun to lose money out of the property class of business following years of low premium rates and the incidence of large losses having steadily increased over time. At least twenty £10m + fires occurred in tower blocks in Q3 of 2019 alone. In the run up to 2020, property rates had been earmarked for significant increases.

2020 Storm Losses

With the property insurance classes already under pressure, the country was hit by storms Dennis and Ciara. Estimates of the losses on the insurance industry are in the region of £400m.

Reinsurance rates will rise significantly, and capacity will reduce

Reinsurance is a key component of an insurers pricing model and rates will rise significantly come the renewal time for treaties. Insurers will have no option other than to reflect these increases in their underlying premium rates.

Low interest rates

Insurers will not have the luxury of investment earnings to cover underwriting losses so insurers will have to price accordingly. Again, this will feed into increased premiums.


As the CEO of Lloyd’s said, this pandemic will have an unprecedented effect on the industry. It is estimated that the combination of insurance claims and investment losses will cost the worldwide industry in excess of £200 billion.

So, what does this mean for businesses and how should they prepare?

  • Budget for insurance premium increases when business planning. Premium rates have been “soft” for over 15 years, expect a correction at very least through to the end of 2021.
  • You should be discussing renewal of your policies 2-3 months before they expire particularly if you are in high risk sectors.
  • Policy wordings may be altered by insurers as they come to terms with the impact of Covid. Particularly, business interruption extensions will be reviewed. Your broker should explain how any changes might affect you.
  • Embrace risk management options and work with your broker to help sell the measures you take to existing or potential insurers. Differentiate your risk from a standard in your sector. If you have a poor claims record being able to demonstrate new risk mitigation measures will be essential.
  • You may need to consider higher excesses/deductibles and self-insuring some risks to balance overall premium spend.
  • Post Covid, despite having to accept increased premiums, you may need to consider buying additional covers. For example, the cyber crime threat has increased sharply. Buying cyber insurance should now become a standard consideration. Similarly, given the pressures facing directors, every business should be considering purchasing Directors’ and Officers’ Liability cover.
  • Quality and financial security of your insurer is key. Discuss in detail your broker’s recommendation. Avoid non rated insurers.

Elements of this article were printed in The Bay Magazine Swansea which can be viewed via the link below.

For a confidential discussion on any of the issues raised, Julie Heatley-Thomas will be pleased to hear from you @

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