Initial conservative estimates put the cost of Covid to the global insurance market at c$107bn, making it the largest event in insurance history.
This is already having a significant effect on the UK business insurance market with a general trend of “more for less” when it comes to premiums and cover. In particular, 3 major market trends can be seen in:
- Large exposure property insurance (high sums insured)
- Professional Indemnity Insurance
- Directors and Officers Insurance
In our short blog series we will explore these trends, how they affect your business and how you can put yourself in a stronger position with the insurance markets.
In our first article we will explore how the market is reacting to businesses with large exposures.
What is a large exposure risk?
Exposure is the total value of all a businesses’ sums insured. This would usually include the total value of adding together Buildings, contents, machinery, computers and the business interruption cover.
As a rough guide, insurers would usually consider £50m of exposure as large, although this could reduce if your business activity was considered to be higher hazard, for example, £25m might be considered large for a woodworking or foundry business.
What actions are insurers taking?
The first major trend we are seeing is that insurers are now far more reluctant to provide 100% of the cover for a particular risk, preferring instead to offer “lead lines” of 50% of the cover, which means your broker has to find other insurers to provide “follow lines” until 100% of the exposure is covered.
It used to be the case that “follow line” insurers would replicate the rating and cover structure of the “lead insurer” but we are increasingly seeing different rating structures and different requirements from each carrier. This has the potential to add lots of complexity to the cover which may cause problems in the event of a claim.
What effect does this have on business insurance premiums?
Property rates in general have been increasing by c5% every year for the last couple of years but we are seeing this accelerate in the Covid era to a new normal of c10% or more if your property has any kind of combustible panelling or cladding in the construction.
For programmes that now require several insurers to cover 100%, it is not uncommon to see increases of 30% or more, put simply, more insurers means more administration and costs and therefore more premium.
What are the 3 top tips to control your business insurance costs?
Every insurer is trying to “out select” the market to pick up as many “quality” risks as possible. It generally does this by reviewing and analysing data – insurers are the hungry hippos of the data World!
Our 3 top tips for controlling your business insurance costs are:
1. Ensure the risk presentation sent to the insurers by your broker is as comprehensive as possible. Provide full details about the construction, paying particular attention to the specification of any external or internal composite cladding panels. Many insurers will not even provide a quotation unless they have this information and less markets means less competition and higher premiums.
2. Have a full risk management programme and tell the insurers about it. Anything you can do to reassure insurers that you have analysed risks in your business and have robust processes to control them will count in your favour.
3. Consider the amount of risk you are prepared to retain. If you would not normally claim for anything less than £10,000 then don’t buy cover with a £250 excess. There are very reasonable savings to be made by taking a larger excess commensurate with your “risk tolerance.”
Understanding and assessing risk in your business
The lack of any kind of meaningful Covid cover means businesses are now having to understand and assess risk in their business in much more detail than before, especially in areas such as their supply chain and business continuity plans. This can often be a daunting project so businesses are well advised to enlist professional help.
We are also seeing insurers being far more willing to contribute to these costs so it’s well worth asking the question.
Why has my business insurance premiums increased?
If you have seen your business insurance premiums increase or would like to better understand risk in your business and how this could reduce long term costs then we would be delighted to discuss this with you. A trusted second opinion is often worth having.