14 May 2024
Financial Institutions Market Conditions Update
Over the past 18 months, the insurance market for financial institutions has shifted from stable to a more favourable pricing environment. Gallagher Re data tracks a median rate change for Q3 2023 of -8%; Gallagher Specialty is pleased to have successfully leveraged this to our clients’ benefit by achieving reductions in both premiums, excesses and product enhancements. Looking forward, we expect this trend to continue and strengthen, leading to significant reductions by the end of 2024. Financial institutions that are able to make effective use of insurer competition and differentiate themselves may well be able to secure even greater reductions. In addition, we expect Directors' & Officers' insurance to experience a greater decrease in rates compared to Crime and Professional Indemnity insurances.
We have taken full advantage of this market cycle by introducing several products which offer Gallagher clients unique coverage benefits. These include the Crypto Pro product, which, as of August 2023, was the first crypto insurance policy which explicitly provides affirmative coverage for digital assets and access to a dedicated asset recovery specialist.*
In addition, new coverage is emerging with regard to remedial costs following professional indemnity claims, ESG-specific coverage, and additional costs for responding to activist shareholder actions.
*Details correct as of August 2023. Product underwritten by London Insurers. Asset recovery provided by Gallagher Specialty Crisis Consulting.
Unfortunately, the benefits of a soft market have not been enjoyed universally. We have found that some financial institutions have not benefited from the current market climate and are prejudiced by a hangover from the previous market cycle in the form of excessively high premiums and/or restrictions to cover.
We are pleased to have partnered with several new financial institution clients in 2023 and Q1 of 2024 and have applied our expertise to ensure they receive the best possible results for their policy renewals.
Navigating the softening marketplace
A frequent query from our clients is how best to navigate the softening marketplace to secure the best terms whilst being mindful of existing relationships. In our experience, this can be especially pertinent when the marketplace is transitioning as there is less cohesion between insurers than normal. We would advise that some standards remain constant:
· Start the renewal process early with a clear and agreed plan in place with your broker.
· Ensure disclosure is effective and allows insurers to get a thorough understanding of your business.
· Manage competition between insurers in a clear and transparent manner.
Tackling a transitioning market
In a transitioning market, several additional factors become relevant, and consequently, your broker ought to:
· Demonstrate a clear understanding of what is achievable in the market in conjunction with your risk exposures i.e. what the true best terms available from insurers are.
· Leverage the softer market dynamic with financial institutions to better harness insurer capacity in order to complement the risk management strategy.
· Thoroughly assess insurers’ claims-paying ability and willingness, paying particular attention to the quality of policy wording to ensure they meet your needs.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.