Times are still tough for the public sector insurance market, with some insurers reviewing their strategies for 2019 and beyond. Bill Sulman, Public Sector Chairman at Aon, provides an update on tenders for April 2019 renewals and his views on how the market is changing.
It’s a challenging market for public sector insurance. But, with plenty of competition for well managed risks, demonstrating robust risk control measures and good claims experience can help secure cover.
Generally, rates are being maintained and, in some cases, bettered for public sector organisations but only where the claims experience and risk controls measures are viewed as acceptable.
There are still plenty of insurers happy to compete for business. While tenders for liability classes have become less competitive, there is room for savings on property risks, providing the claims picture is an improving one.
Surveys remain vital for properties with sums insured of £25m or more and for unusual properties such as museums and listed buildings. Providing insurers with an external report that helps to identify the type of construction and maximum possible loss can greatly improve the chances of a competitive rate.
As always, it’s essential to allow plenty of time for the tender. This eases the situation a little for insurers, especially at times when they’re under pressure.
In the motor market, the new insurer Edison Motor has had some successes in the public sector but is maintaining a conservative outlook, as motor accounts can deteriorate very quickly without good risk management.
It’s still possible to secure some minor savings, especially where the fleet is well managed.
Competition in the liability market is still reasonable, although some insurers are reviewing their underwriting book overall and finding that it has become too heavily weighted towards liability business. As a result, some insurers are either not quoting; offering premiums that are much too expensive; or attempting to link liability with other risks where they have a lower percentage of premiums.
Professional indemnity remains a very difficult market. Mainly, this has been caused by consultants and main contractors buying much higher limits as a result of Grenfell. This is leading to higher premiums and less capacity for the lower limits as well.
We recommend that clients review limits of indemnity under employers’ public liability and officials’ indemnity for the same reason.
The very welcome decision on Poole means that insurers should be looking to reduce reserves where the claims for failure to remove children are based on negligence. While there is still the possibility that some claims will be brought under the Human Rights Act, the wards are much lower. Please watch this space!
Discount rate decision
Some welcome certainty is expected later this year when the Lord Chancellor unveils a new discount rate. The rate was cut from 2.5% to -0.75% in March 2017, pushing up settlements for personal injury claims.
Although the government moved quickly to assure public sector organisations and insurers that it would review the rate, this was rolled up into the Civil Liability Bill. With this receiving Royal Assent in December, the timetable for a new rate kicks in.
Under this, the Lord Chancellor has 90 days from the Bill receiving Royal Assent in which to start the first review, with a rate to be determined within 140 days of this point. This means a new rate, which is widely expected to be between 0% and 1%, should be in place by August 2019 at the latest. This is a more realistic figure for the investment return claimants can receive on their settlements and should take some pressure off motor and liability insurance premiums as well as those public sector organisations that pay compensation.
It appears that the LGA Mutual was “open for business” as at end April 2019 but we have not as yet seen any authorities obtaining underwriting terms. No doubt there will be more activity towards the end of 2019.
GDPR and cyber risk
We are still seeing more requests for cover as well as requests for discussions on the risk protections available, including breach response as mentioned in our last bulletin.
Tenders and renewals
Although the market is challenging, there is still plenty of competition for the right risks. Starting renewal negotiations as early as possible and providing all the necessary information for insurers is key to success.
The state of the market means it’s also necessary to be prepared for insurers to look to link certain classes of business, or even provide package quotes only where they feel the balance of their book is not to their satisfaction. In particular, we’ve seen examples of insurers linking liability to say property, motor or crime covers. You need to be prepared for this response and know how to evaluate or deal with it.
Fund audits prior to the 2020 tenders (or late 2019 tenders) will definitely help to produce the best result. When we produce a tender document, we want to be sure that adequate work has been done on alternative deductibles in particular. Without this work it is very difficult – if not impossible – to evaluate the alternative deals. An approach of Total Cost of Risk, not external insurance alone, is the answer.
As we said last time, these reviews can mean additional initial expenditure, but always pay for themselves many times over.
For more information about any of the topics in this market update, contact Bill Sulman or speak to your account team.