So Axa Exel have withdrawn from the professional risks markets: another major player pulling out of an already distressed market.
As we have been saying for some time this market will get worse before it gets better and there are a number of reasons for this.
Firstly, overall insurance capacity has been reduced by a number of years of claims, constrained investment returns, and
Secondly other classes of insurance offer better returns, less volatility, and greater premium volumes – in other words they have a better risk / return ration and plenty of appetite to hoover up available capital.
Thirdly, professional risk claims records have been deteriorating in recent years against a longer term background of persistent soft market conditions of low premiums and generous terms of cover.
So what are the implications?
In the first instance there will be an acceleration in rate increases and further diminution of available capacity for PI and D&O across the entire range of financial services, particularly for perceived risky retail business such as UK IFAs, insurance brokers, and investment managers. This will certainly continue into 2021 and beyond and will be exacerbated further if the expected additional claims arising out of Covid, Brexit and the world economic downturn materialise at levels above current predictions.
Secondly, this is not in our view the hard end of a cycle from which the market will return to the prolonged soft market conditions of the last 20 years or more. Just as the huge influx of new, clean capital has had an extended effect on the last 20 years, so this contraction and re-evaluation of markets and risk is likely to have a sustained impact over the next few years. Radical new thinking will be needed.
These changes are already being observed in the form of new vehicles being established in the wholesale space, renewed interest in corporate risk captives, and the accelerated development of more flexible market models such as MGAs and ILSs.
And what about your D&O? What can you do to get the best out of such a difficult market?
As ever there are no silver bullet solutions. It is good old insurance 101.
Understand your risk environment: your chances of gaining a more sympathetic view from underwriters is much enhanced by providing clarity regarding what they are insuring.
Get the right advisers: off the peg cover is fine for generic risks but unusual risks require a more bespoke approach. As ever with complex purchases, independent, objective, expert advice is essential.
Plan early: inevitably in such a distressed markets, renewal proposals will tend to be delayed as brokers try to chase down enough capacity and negotiate the last ounce of value on your behalf. Contacting them and getting your renewal process underway significantly earlier than previous years will give you more time to adapt and respond to early signs that the process is not running smoothly.
At Thorndon we specialise in providing independent support to directors and boards addressing these issues. For more information contact Jon Bates (JB@thorndon.gg) or Dom Wheatley (dom@thorndon.gg).
