Now, with a looming recession, explosion in malicious cyber activity and prolonged political and financial market instability, there is little cause to be optimistic.
It means the insurance market is going through the longest ‘hard’ phase in history, with prices spiking, cover being withdrawn and dispute rates soaring.
While some reporting around the issue has predicted a softening of market conditions, the seriousness of risk is being immensely underestimated and it is likely that buying insurance is going to remain challenging for a lot longer than anticipated.
These problems were explored in detail in the World Economic Forum’s latest 2023 Global Risks Report, which notes that everyone is being hit by the problems facing the global economy, meaning risks are on the rise and rewards are becoming harder to secure.
The insurance market is broken, and the old-fashioned way of buying insurance will not get businesses the outcome they need in this environment.
According to our analysis of data from the world’s largest broker, Marsh, since 2018 premium rates for commercial insurance have risen inexorably to reach a 100 per cent cumulative increase by Q3 2022.
This masks a far worse picture for some classes, such as cyber insurance or financial lines overall, which have risen by more than 250 per cent over the same period.
As a result, businesses should be well braced to tackle a challenging market and know what to expect.
This includes continued, albeit slower, increases in insurance rates. While serious increases have already occurred, businesses can expect a slowdown in increases in some areas such as D&O or PI which were severely hit early in the hard market but also a worsening claims environment.
Policy quality
Just as insurance rates will continue to increase, businesses should be aware of a sustained and serious erosion of policy quality.
In any hard market, insurers often look to subtly alter the policies they write in order to withdraw swathes of cover and mitigate their exposure to an increase in claims costs. We have seen this extensively throughout this hard market, including the very public and ongoing conflict around Covid business interruption policies.
It is also the case that definitions in policy wordings are narrowed and exclusions broadened while the legal terms governing how policies operate get tighter and more difficult to negotiate.
Given the reduction in cover and spiking of insurance rates, it should come as no surprise that we have also seen a major increase in claims disputes.
There have been several high-profile cases where knee-jerk reactions to amend policy wordings and exclusions have worked against policyholders.
