Globally as well as locally the casualty and specialist liability markets are experiencing a lot of pain – the trends and experiences are being felt by both Insurers as well as reinsurers. There is a continued trend of increase in frequency and severity of claims across all casualty lines.
Globally there is “claims creep” which is driven by a combination of social inflation (multi-media and social media pressure on claims to be settled), development of existing losses on insurers portfolio and where applicable in various territories, increases in jury awards coupled with increased litigation and consumer rights and activism. Given the overall impact of losses and the long tail nature of these classes of business, there have been several carriers in the US and Europe that are either closing their doors or withdrawing from certain line..
One of the most obvious results of the above is the shrinkage of and the active management of capacity with a simultaneous tightening and restriction in wordings. Insurers are becoming far more clearer on what is covered and what is not covered and any ambiguities in wordings are being ironed out.
Historically, extensions that were offered and included without much underwriting thought or being charged for, are being removed or sub-limited in general, for example:
- Cover for fines and penalties and Insured vs Insured being removed,
- Side C cover on D&O policies being sub-limited or co-insurance applied to this section,
- a reduction in discovery periods or removal completely, and no separate towers on D&O – there is a combined limit across Side A, B and C.
Overall, the cost of claims increasing – the cost to investigate a claim being, loss adjusters, legal input, expert opinions all drive the cost of managing a claim upwards. Throw in the final settlement, these all have the effect of ultimately pushing the pricing upwards.
We note that portfolios are reconfiguring themselves, this meaning that insurers are reviewing their exposures and ensuring that there is more balance to their books of business, i.e. there is a more sustainable balance between limits and premiums and sectors (business sectors) – Insurers are focusing on evening their spread of risk so that there is not one main exposure to one sector.
Internationally, there is also a move towards an increase in litigation funding. This is a business model where third party investors finance the pursuit of large claims in the expectation of a claims settlement or pay out and then obtain a meaningful return on their initial funding. We in South Africa are not there yet, but it is a trend that we are watching closely. Similarly, statistics point to increase in Class Actions. Our constitution allows for Class Actions, however through our court system we need to meet a certain application criterion for a court to allow Class Actions – this may take time, but this is a real exposure facing Insurers in SA.
Where we do foresee the next trend of claims emanating from the pandemic is in the Broker PI and D&O arena. We believe that once the dust settles on assets / BI matters, the focus will turn to pursue broker PI and D&O coverages. We need to watch this space carefully and manage our exposures, capacity and premiums now.
On the Financial Institutions exposures, there could be a further spike in circumstances and claims emanating from asset valuations and M&A activity during these times; to a lesser extent possibly Employment Practice related claims that all stem back to how safe of a working environment the directors and shareholders provide for their employees.
Overall, the above factors are part of the continued hard market which we believe will continue for some time.
From ITOO’s perspective, we cannot remove ourselves from what is happening in the local and global market, we are part of it. We do however believe that, when we apply sound underwriting disciplines and apply our #expert underwriting to accounts on a case-by-case basis, we are able to manage the hard market with early engagement with brokers so as to ensure that we manage the current environment and not to apply a one size fit all approach.