What are the top 5 risks to insurers?
The top 5 risks to insurers – From an Insurance Brokers perspective
We asked our Sales & Development Director – Daniel Abbott what he expected would be the most dangerous risks in the coming year.
With a coronavirus ‘lockdown’ in effect across the UK, various countries in Europe and around the wider world, many of us now find ourselves working from home. This change has no doubt had a profound effect on businesses. Beyond the economic impact to businesses, we’re also beginning to see an increase in cyber-attacks aimed at employees working remotely, which can have devastating effects.
For example, Phishing attacks have increased 667% since February with increases in scam emails and texts from organisations such as the CDC and WHO containing; malicious links or attachments, requests for charity donations, communications which purport to have information on coronavirus cases in your area containing dangerous links.
02 Director's & Officers Liability
The risks for Directors and Officers increased in recent years, and in response policy wordings have evolved.
However, market conditions have been hardening for over 12 months, with Insurers now more cautious than ever when underwriting D&O risks during this unprecedented time, due to the potential risks of losses arising from the pandemic. Underwriters renewing policies will need to investigate how businesses have managed the crisis operationally, in terms of managing its cashflow, their activities, furlough and any potential redundancies, as well as how the business is prepared for any future crisis.
These sorts of policies customarily cover “loss” resulting from “claims” against an “insured” “for a wrongful act. Applying the traditional definitions of these terms, the foreseeable COVID-19 D&O claim would fall within the insuring agreements, thus being potentially covered and subject to the policy’s remaining terms and limitations, in the event that a claim was brought against an organisation for not having implemented comprehensive enough procedures, drafting and managing them or adhering to them.
03 Pricing & Hardening of Markets
The insurance market is presently seeing a hardening to its rates across a number of classes of Insurance as underwriters are showing unprecedented discipline in its deployment, especially for risks they find perilous.
Over many years insurance buyers have been benefitting from rate reductions, increased sub-limits and enhanced cover, driven by an oversupply of capacity in the market. Competitive premiums and broad coverage have left insurers unable to absorb an increase in claims frequency and severity. A low interest rate environment has reduced returns on investments, further squeezing insurers’ financial performance. This has seen some smaller insurers and Lloyd’s syndicates put certain lines of business into run-off.
04 The MGA Sector
COVID-19 has not only changed the way the industry works but also seen a general hardening of rates across all classes. It has challenged both MGA owners and their capacity providers to review their current businesses and their future strategies.
There have number of announcements over the past few weeks which have related to MGA’s having their capacity withdrawn as providers look to other options. The hardening rates have seen some take a view that their capital can be more profitably used elsewhere or be focused on new areas of risk which have the potential for higher returns.
There are clearly some MGA’s that have fallen victim to timing, having launched with every hope and expectation of a certain level of premium income for the year, only to face the unprecedented issue of a global pandemic. There is little doubt that the MGA sector will remain a popular and successful route to market for many. The responsiveness of the model and the ability to increase or withdraw capacity will always be attractive to Insurers who are seeking to make a limited entry into a chosen class. For the owners, the opportunity to build the business is increasingly appealing.
However, given the dynamic nature of the industry and the global economy at present, there is always the need to ensure that plans are in place if the operation finds itself without the capacity required to continue, which can cause problems at all levels and result in Brokers having to find last minute replacements and often struggling to find comparable pricing or coverage.
05 Internet Of Things
IoT is a fast-growing area of insurance for both providers and consumers. Insurers are starting to look at how they would be best placed to utilise the technology, for example, a sample home built by American Modern Insurance is being used to assess how best to monitor risk and claims in the home. The technology also presents possibilities for policyholders, for example, John Hancock’s Vitality program deploys FitBit to help policyholders adopt better habits, with the aim of helping them change their insurance premiums.
Similarly, these devices collect a substantial amount of personal data, as well as ‘big data’, meaning that there is a potential privacy issue – how will this data be used? What if it falls into the wrong hands?
If you can unlock your door from an app, would it be possible for a burglar to do the same? If a hacker ‘took over’ your fridge, would you pay a ‘ransom’ to regain control?
There is also an ethical issue – when is it inappropriate to use these devices? Who is responsible if the device makes a decision which breaks the law or causes injury? Questions once the subject of science fiction books, are becoming today’s issue. IoT’s biggest asset for the insurance industry is data. Underwriting is founded on assessing risk – risk based on data and patterns – meaning that these policies have the potential to become hyper-personalised to individual users.
The cyber security implications however will be a significant issue for the insurance industry. Where a device is connected to the internet it has the potential to be hacked, meaning insurance policies will need to cover IoT tech in the event of malfunction or malicious takeover. As these devices become so integrated, they are practically ‘invisible’ within our lives, a whole new type of insurance will need to emerge to plug the gap and cover users and businesses in the event that things go wrong.
Have you got the right insurance for your business? Talk to me for a free review.
Sales & Development Director
029 2062 6226