Most companies have benefited of the stability of the insurance industry for many years until 2020. Higher premium discounts and generous capacity for sums insured were granted in the soft insurance market.
Hard insurance market
The coronavirus pandemic and a spate of natural disasters in recent months have hit the insurance industry hard. Besides high claims payments due to business closures and event cancellations as a result of the Covid-19 crisis, it was also necessary to cover the massive losses caused by recent natural events. Investment income has also fallen. The bottom line is that insurers will be forced to improve their operating profits.
Companies feeling the consequences
Larger companies in particular are feeling the effects of the harsher winds now blowing. They are confronted with a markedly changed risk transfer situation. This ranges from higher premiums to a general loss of access to the insurance market or at least the exclusion of certain forms of cover. How long this situation will last is uncertain. The market correction – the transition from a “soft market” to premiums calculated to adequately price in risks – is likely to continue for a while.
What is the impact of the current situation on individual lines?
The market remains challenging, but initial indications are pointing to stabilisation. But even if there are no claims and the risk profile remains the same, capacity will still be reduced and premiums increased. The reasons for this hardening of the market are ever higher and new and more frequent claims, and the threat of insolvencies as a result of the economic crisis owing to the coronavirus pandemic. But the increasing complexity of risks brought about by global networking, digitalisation, technologisation and data protection is also having an impact. Further market trends are likely to emerge over the next few months.
Cyber attacks have jumped, especially ransomware, where data is blocked until a ransom is paid. As a result, insurers are placing higher demands on their customers’ IT security. Companies must review their risk management and, if necessary, improve it by making the necessary investments, otherwise it is not possible to cover the residual risk with insurance. We believe insurers will systematically reduce capacity and increase premiums and deductibles over the next few years.
With high claims payments due to natural catastrophes and the coronavirus pandemic very much the order of the day, we expect premiums to continue to rise and capacity to fall. Stricter requirements are being set in the area of fire protection. Only if the desired recommendations are consistently implemented can complex risks be placed. Generally, the pressure as contracts come up for renewal is likely to increase. Insurers see climate change and the increasingly devastating consequences of natural events as a fast-moving trend that will probably continue to drive up premium levels in the future.
The liability market has been largely untouched by rising premiums and falling capacity. In the case of complex risks such as automotive suppliers, pharmaceuticals, hospitals and companies with exposure to the US, a hardening of the market had been apparent for some time. Premiums and deductibles for these risks are likely to jump. There is also a greater need for information for insurers to estimate risks.
The personal insurance market has been a very demanding one for years. Rising numbers of claims coupled with unprofitable portfolios are a major challenge for insurers. Many people are unable to cope with the increasing pressure in companies or are suffering from the consequences of the coronavirus pandemic. As a result, the number of those unable to work has been rising. The fall in the size of payrolls has meant lower premium income for insurers, so premium increases are the rule, especially in the case of daily sickness benefits insurance. To continue to receive good conditions, it pays to have a positive risk trend and functioning occupational health management system.
Stv. Leiter Niederlassung Zürich