Financial Services 05/2020 Insurance Market Update

Back in February we reported that despite many financial services firms facing insurance premium rate increases, opportunities still existed for firms to differentiate their business and secure favourable insurance terms. Since then the global health and economic crisis that is COVID-19 has taken grip creating uncertainty, volatility and unprecedented risk.

In this rapidly evolving climate, we wanted to share some early themes that are emerging to help financial services firms achieve the best possible insurance renewal outcomes.

Insurers asking for more Information

The main impact we’re seeing is that insurers are seeking more detailed information about the exposure to COVID-19 losses, for example:

• Confirmation of the business continuity plan (BCP) in place and to see a copy.
• Whether the BCP had been tested prior to the pandemic and actions that resulted.
• If it is possible to maintain the ‘lockdown’ operations indefinitely or if this can only work for a limited time.
• If it has been possible to maintain standard risk and operational controls and, if not, what changes have been made.
• Plans that are in place to mitigate IT or operational control weaknesses.
• If a firm advises on specific investments, the degree to which they have been affected by COVID-19.
• Any disclosures made to shareholders during the pandemic and any communications or feedback that have been received from shareholders.

Five-point guide to securing the best renewal terms

One of the main questions clients are asking is whether premium rates will increase. It’s really too early to say, but even before COVID-19 we had reported evidence of insurers seeking premium rate increases and scrutinising cover and deductible levels.

The advice we gave in February to combat this hardening market is more relevant than ever. Financial services firms need to be better prepared and this five-point guide will help secure the best possible insurance renewal terms:

1. Proactively manage and allow more time for the renewal process. Rushed or incomplete submissions stand out (for the wrong reasons) and are more likely to be deprioritised or overlooked. This also means engaging your broker early, we’d recommend at least three months before renewal.
2. Get an early indication of your current insurers’ underwriting appetite and how that is potentially going to affect their renewal terms. How has their underwriting criteria changed and what sort of terms are being imposed on businesses like yours?
3. Help your broker to understand your business especially changes in the past 12 months, any planned changes in the forthcoming period, and the impact of COVID-19 on your business.
4. Understand the broking exercise being employed by your broker. Are they approaching select insurers or carrying out a more complete market exercise? And how are they approaching alternative insurers? Different methods can produce very different results. 
5. Make sure you’re using a specialist insurance broker as they will be more likely to have the broad market relationships and knowledge required to get you the best possible renewal terms.

Why might rates increase?

COVID-19 has profoundly affected financial services firms and not just having to adjust to new ways of working. In the UK, the Financial Conduct Authority has ramped up their regulatory oversight with one leading compliance consultancy recently suggesting that the number of advisory notices, changes and updates has doubled. This is just one sign of a host of new management and professional liability exposures related to COVID-19.

We doubt it will be of any surprise that insurers are bracing themselves for a deluge of claims. Directors’ and Officers’ Liability claims relating to shareholders who are unhappy with the way companies planned for and responded to the pandemic; Professional Indemnity claims as a result of customers alleging financial loss from poor financial advice; and an uptick in Crime and Cyber Insurance losses as a result of increased criminal activity and many people now working remotely are just a few examples.

It’s far too early to make any accurate predictions about the level of claims, as the bulk of these claims won’t be brought to the table until businesses return to normal and, even then, may take a year or longer to emerge. As we mentioned in our February article insurers had already been struggling to make underwriting profits, so this is going to put further pressure on their balance sheet.

How Protean Risk Can Help

Protean Risk continue to be open for business, fully connected to our systems and actively managing the relationships we have with insurers that are now more important than ever for our clients.

We are a Lloyd's Broker that specialises in insurance solutions for firms in the investment industry, financial services, fintech and technology sectors. This means that we have excellent relationships with a broad range of insurers that have the right underwriting capabilities and products best suited to the specific needs of our clients.

We know getting the right result often takes more time in a harder market as insurers are more selective. It’s by being pro-active in our market approach and working extensively for our clients that we have time and again bucked the market trend and challenged underwriting rate increases:

• Taking time to understand our clients’ individual businesses and risk exposures. Having a pre-renewal discussion to assess any changes to your business or insurance needs puts us in the strongest position when presenting to insurers and negotiating quotations.
• Agreeing a robust insurer engagement strategy and presenting our clients in the most compelling way. By keeping abreast of market developments and changing insurer risk appetites we can adapt our strategies and deliver more successful results for our clients.
• Ensuring our insurance discussions are focused on industry risks and exposures specific to individual clients, rather than generic solutions. Our long-term relationships and specialist reputation often enable us to create competitive tension between sector specialist insurers, providing our clients with choice and helping us outperform our competitors.

Please speak to your Protean Account Manager for more information or call us on 020 3763 5340 to find out more about our approach and how it can help you.