What might happen to insurance premiums post Covid-19

No-one really wants to hear this, but my personal feeling is that we are in for a very tough time in 2021 and onwards.

I do not want to be the bearer of bad news, and I could be completely wrong, but I have a very bad feeling about what will happen to the insurance market in the future. Whatever the case, please don’t shoot the messenger!

As many of you know I have been in the industry for many years, so I have experienced what we know as ‘hard and soft’ markets. A ‘hard’ market is where there are circumstances which means that insurance capacity is often limited, claims statistics are awful or any event, or series of events, occur resulting in premium rates increasing. A ‘soft’ market is exactly the opposite.

It is true to say that the markets that I have traded in have remained soft for well over a decade, although we have seen some changes in the last 12 months with liability capacity restricted and certain sectors suffering major losses, resulting in the need for large hikes in premiums.

The last time I experienced a massive change in the market was immediately post 9/11. That one incident unfortunately changed the insurance landscape forever and premium levels increased, almost without any limits or controls. Many clients saw their premiums double, and 2, 3 and 4 fold increases were the norm. This hard market probably only lasted 2-3 years, but it took many years to recover from that and see premiums falling again. Now we have Covid-19!

The market has predicted that the pandemic will result in one of the largest pay-outs ever, and states the estimated underwriting losses covered by the industry will be up to $4.3billion in 2020. This apparently is on a par to the payments made as a result of 9/11. Combine this figure with the disastrous hurricanes in 2017 (these will only now be recorded) of Harvey, Irma and Maria, the market expects to post underwriting losses of $107bn.

If that isn’t bad enough, many leading Insurers rely heavily on ‘investment income’ to ‘prop-up’ their losses, but the dramatic falls in investment income as a result of the investment market collapse increases the negative affect to $203 billion!

Unfortunately, losses like these need to be addressed by the industry and the suspicion is that premiums will be hit hard. It may be very specific relating to the event industry, but I suspect they may apply these increases across the board. I know we are seeing certain Insurers ‘handing back premiums’ on Motor insurance as the losses have reduced owing to less vehicle usage, plus there is talk about ‘silent risks´, those not presently trading and the reduced risks this brings, having reduced rates. However, my prediction is that we will see some very substantial increases and that Insurers will buy into this. Why wouldn’t they?

Of course, certain countries, certain markets and sectors, may not slap on automatic increases, but I do think we need to prepare ourselves for some more tough times.

If you have any questions related to any of the above please email us on pink@jwseagon.com or call us on 254 (0)709 445 000.