Replay (US): Insurance and Risk Management Strategies for COVID-19 and beyond

The ongoing COVID-19 pandemic is having an effect on the insurance market, but is not the only reason for the current difficult conditions for buyers, Marsh colleagues said during the ninth installment of Marsh’s COVID-19 webcast series.

Other threats, including those posed by natural disasters and significant unrest in many parts of the country, are likely to make an already difficult insurance market more challenging for buyers, said Chris Lang, Marsh’s Global Placement Leader for the US and Canada. Lang noted that the market was already challenging even before the coronavirus pandemic, mainly due to the increasing frequency and severity of claims coupled with insurers’ perception that rates had hit rock bottom following several years of soft market conditions. Globally, commercial insurance pricing increased by an average of 14% during the first quarter of 2020, according to the Marsh Global Insurance Market Index, the largest increase observed in the index since its inception in 2012.

In the US, property rates shot up by 21% in the first quarter. Insurers are closely scrutinizing a variety of terms and conditions and taking increasingly firm stances, with little room for negotiation. And while it’s too early to determine the effect of recent unrest in many cities, property insurers are likely to look even more closely at relevant terms, conditions, and language in policies as a result.

Lang noted that while workers’ compensation pricing dropped marginally in the first quarter, this was offset by an increasingly challenging liability landscape. While market surplus is strong, interest rates have been low and frequency and severity of claims has increased. COVID-19 has led insurers to introduce communicable disease exclusions and underwriting appetite is waning at the same time that insureds are finding it more difficult to forecast their exposures.

Directors and officers (D&O) liability pricing for total programs increased by 44% in the first quarter, with 95% of Marsh clients renewing with rate increases on total programs and 89% renewing with increases on primary programs. While COVID-19 exclusions are not yet widespread, some insurers are introducing insolvency exclusions and some are also presenting buyers with warranty letters.

Pricing for cyber insurance is increasing modestly, but competition and capacity remain strong, with 42% of Marsh clients renewing flat or with a decrease in the first quarter. However, the ongoing pandemic is leading to greater underwriting scrutiny around cyber risk, including remote connectivity processes, business resilience, and business continuity planning.

Lang noted that the ultimate impact of COVID-19 across the market and on individual lines remains to be seen, but the market is expected to remain challenging. And while it may be difficult for buyers to achieve a rate decrease in many lines, they can take four steps to keep increases smaller, including:

• Start early and be prepared for questions around COVID-19 as well as other exposures.
• Have a strategy, with clear goals regarding what you want to accomplish from your renewal and consider changes to your program structure.
  
• Ensure your underwriting submissions are robust and focus on differentiating your organization using solid and concrete data.
• Provide specific examples and highlight risk mitigation strategies.

Finally, Lang said carriers’ risk appetite is evolving and the current losses will likely lead to carriers tightening their risk appetite not only in connection to pandemics, but also other exposures.

Aside from the challenging insurance market, organizations are currently operating within an uncertain landscape. Allison Pan, a senior vice president within Marsh Risk Consulting’s Emerging Risks Group, noted that although the process of economic re-opening has given many senior leaders a sense of comfort and control, the re-reopening of the economy is not equal to a full pandemic recovery. Thus, senior leaders need to find a balance between the optimism of recovery and the realism necessary to prepare for the next pandemic wave, the next challenge. This includes building strategic agility into the organization’s decision-making cycle.

The webcast dedicated a portion to audience Q&A. Paul McVey, Marsh’s US Property Claims Leader, noted the effects of COVID-19 will make it more difficult for organizations to measure any possible business interruption losses from the present riots. Laurence Pearlman, senior vice president in the Workforce Strategies Practice within Marsh Risk Consulting, said that employers need to understand the change in potential hazards that’s come with more employees working from home. And Sarah Downey, directors and officers product leader in Marsh’s FINPRO Practice, stressed the importance that companies focus on strengthening their relationships with carriers during a difficult insurance market, including through off-cycle calls with underwriters.