Huge uncertainties enter industrial P&C insurance coverage market


Prior to the outbreak of the pandemic, 2020 was a challenging year in the long-tail businesses, particularly in the accident, financial and specialty products segments, where the adverse claims trend from previous accident years continued to negatively impact insurers’ balance sheets and Portfolios. In recent years, insurance carriers have responded to the increase in the frequency and severity of claims in product lines – such as: B. First-casualty, casualty, environmental, health, directors and officers, and liability for employment practices – by increasing rates and limiting capacity, tightening terms and conditions and enforcing stricter underwriting policies.

Shorter businesses such as first-party real estate have also been called into question in recent years due to an above-average number of catastrophic weather events in the United States (USA). As early as 2020, airlines were talking about the need to increase property insurance premiums in light of the recent loss activity last year, and these talks were urgently started throughout the year in response to the 2020 CAT events. According to the National Oceanic and Atmospheric Administration (NOAA), the US was hit by 16 weather / climate catastrophe events between January and October 2020, each with losses of more than $ 1 billion. These events included a drought, 11 major storms, three tropical cyclones, and wildfire – and they have proven that traditional losses will always occur regardless of a public health crisis.

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Then overlay the COVID-19 pandemic, which according to Chris Sparro (pictured), CEO of US Insurance, Sompo International, has brought “a whole new level of uncertainty” to the market for commercial P&C insurance carriers. Some industries, such as travel, entertainment, real estate, and hospitality, were immediately hit by travel bans and local lockdown regulations that caused mass disruptions and dramatic declines in their businesses. Throughout 2020, entrepreneurs have been looking to their insurers for some sort of redress for COVID-related losses, as well as receiving financial support from the government, and as a result, there is more eyes on the industry.

“The pandemic is certainly having an impact on the commercial insurance industry. Government regulators and customers are scrutinizing product coverage, contract language, terms and conditions and premiums, ”Sparro told Insurance Business. “Everyone in the industry will tell you that contract security is preferred. We want to keep the words within the four walls of the insurance contract and there are numerous discussions that tie in an insurance offer between the customer, the broker and the insurer to ensure clarity about the wording and scope of the insurance cover.

“What we have seen as a result of COVID, especially in real estate primary insurance like Business Interruption (BI), is that customers are looking at policy language related to the pandemic to better understand whether coverage is triggered. This situation is unique for every customer. Therefore, the directive needs to be thoroughly reviewed in order to draw a conclusion. Some of the discussions have resulted in contract disputes, and customers have filed lawsuits in state and federal courts to resolve the disagreement. Each lawsuit is unique and the court’s interpretation of the underlying pattern of facts in relation to the coverage provided depends on a review of the policy language, which is often specific and tailored to each client. What one court determines for one client may not apply to another client, depending on the differences in the insurance forms and manuscript notes used. “

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Then there is another subset of products that carriers have received notifications of potential COVID-related claims. This applies in particular to liabilities to third parties, particularly in industries such as healthcare where the effects of the pandemic have not yet been determined. This notification of a potential claim creates the potential for policies and portfolios to be compromised and places insurers in the difficult position of having to incorporate potential impairments into their underwriting models for decision making.

The pandemic will continue to create uncertainty in the commercial P&C market and make risk selection difficult in 2021. Sparro emphasized: “There is currently no simple renewal. I think most airlines, including Sompo International, will take things on a case-by-case, customer-to-customer, product-to-product, industry-to-industry and industry-to-industry basis. The further a broker is ahead of a renewal, the better as it currently takes longer to place a program given the landscape of the commercial P&C insurance market and the fact that insurers need more detail and more data to position themselves appropriate. You won’t see “Submit a submission, get a quote, and see what happens”. Customers need to tell their story, carriers want to hear that story, and brokers need to ensure that the story provided by the customer is orchestrated directly to serve the carrier’s primary concerns. This story has to be relevant and meaningful if brokers want to get the best possible terms for their clients in this market. ”

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