Implications & considerations for Insureds

The increase in competition has created a particularly problematic environment for incumbent insurers. Whilst they must try to maintain rate adequacy, competing insurers can rate a risk with a blank slate, rather than a comparison to prior years and without the same underwriting restrictions of recent times. As the recovery from the pandemic continues, we have seen revenues increase for many of our clients, which is the principal metric upon which premiums are rated. As such, where a holding insurer may look for a premium level in line with revenue growth, a new insurer has greater flexibility in terms of pricing, enabling them to attack business.

As brokers, we emphasise to clients the value of the continuity of an insurer, particularly where they have supported an Insured throughout a difficult period. Continuity can lead to more favourable claims outcomes and stability in pricing over a more extended period, even if insurers pay losses. Nevertheless, SMEs remain largely cost-focused, understandably after a period when many will have seen premiums multiply and company directors can redistribute cost savings to other areas of the business. Similarly, where firms have not had claims and do not expect to, the continuity argument carries less weight. Conversely, larger firms and/or those who may have had more claims activity throughout the years are more likely to have experienced the advantages of loyalty and have the financial means to accommodate this. Furthermore, this loyalty is more likely to be reciprocated by insurers where there are larger premiums at stake.

Whilst premium savings are of course attractive, Insureds should be conscious of insurers ’buying-in‘ business at rates that are not sustainable, particularly where that insurer does not have an established track record in the PII market. The prime example of this is the Solicitors’ PII market, which has had a history of unrated insurers entering the market for a very short period and causing huge disruption, only for these carriers to go out of business shortly thereafter.

Insureds should be wary of any change in coverage when moving insurers in pursuit of a lower premium. For example, for construction-related professions, there can be considerable discrepancies in cover surrounding Fire Safety and Cladding, as well as restrictions relating to other types of work such as basements.