Traditionally, the commercial insurance market would take about seven years to move from ‘hard’ (high premiums) to ‘soft’ (low premiums) through the claims cycle. The abandonment of the tariff in 1984 set off a wave of competition interrupted only by the solvency and capacity crisis following the World Trade Centre attacks of 2001.
Since then, massive premium hikes have stabilised and premiums levels have been uncontroversial, except in industries with specific issues, like solicitors PI or liability for entertainment risks.
Even major natural disasters (Asian and Japanese Tsunamis, New Orleans Flooding) or man-made disasters (Professional Indemnity losses on WorldCom, Enron, Parmalat) have not much interrupted solvency, capacity or premium stability.
More recently, the banking and financial crisis of 2008, which should have increased premiums as interest rates collapsed, forcing a return to underwriting for profit, made little impact as insurers tried to secure cash flow through lowered premiums.
Market Stability Factors
Other factors which influence the stability of the market going forward are:
The elastic supply of capital introducing new entrants.
The variable cost of Re-insurance.
Relentless increases in court awards.
The activities of ‘no win- no fee’ claims companies.
New industrial diseases (like vibration white finger) from ‘old’ industries.
New industrial diseases (like RSI) from ‘new technologies.
Increasingly unpredictable weather patterns, flash flooding.
Attempted use of IT to lower expense ratios.
Loss of investment income through minimal interest rates.
Toughened E.U. accounting and solvency rules
Overall volume of claims in the short term.
2014/2015: Flood & Liability Insurance Hikes in Licensed and Entertainment Premises.
The flooding of the Summerset flats in 2014 brought the flood map out the drawer once more, with both premium hikes and restrictions on cover in flood sensitive areas.
The cost of liability insurance has been gradually increasing overall to reflect the claims culture of modern society. The costs of ever escalating court awards and costs of litigation have had to be reflected in premiums. It is unlikely to reduce. Parity will be an achievement going into 2015.
The has been heightened in the area of Food, Drink and Entertainment and this has been accentuated where security doormen are employed,even on an agency basis.
One insurer has two £5million pound claims where a doorman’s behavior has left a customer very seriously injured, permanently incapacitated and wheelchair bound.
The liability insurance issue has been exacerbated following the “Luminar Leisure” case which concluded there was no protection afforded by sub-contracting to ‘agency doormen/security” rather than conventional staff – the issue hinges on ‘control’ rather than ‘status’.
Therefore, although the premium drift is upwards to deal with rising settlements, city-centre pubs with doormen, nightclubs and entertainment venues are experiencing very severe premium hikes at this time.
If you would like more information or like to discuss commercial Insurance please contact us.