From rising premiums to shifting underwriting standards, it's clear that the industry is facing a number of challenges and uncertainties. In this article, we will examine the various factors that are contributing to uncertainty in the property insurance industry and explore how professionals can prepare for the next major disruptor. From shifts in underwriting standards and changes in policy wordings to the role of External Councils and the importance of effective communication, we will delve into the complex and ever-evolving landscape of the property insurance market in the CEE region.
In the CEE region, property insurance is typically divided into two main categories: residential property insurance and commercial property insurance. While commercial property insurance covers office buildings, warehouses, and other sorts of business assets, residential property insurance covers houses, apartments, and other residential building types.
The cost of property insurance in the CEE region might vary depending on a number of factors. These include the property's location and age, the kind of coverage desired, and the degree of risk attached to the building. For instance, homes situated in risky locations where there is a larger possibility of crime or natural disasters may have higher insurance costs.
In the CEE region, the non-life insurance market is becoming more and more well-liked, notably the motor category. Contrastingly, the life insurance market plays a lower role as a result of a lack of knowledge and a decline in the unit-linked sector. Due to the expansion of the non-life insurance market (6.4%), the overall gross written premium (GWP) for the CEE area increased by 2.0% from 2017 to 2018, reaching its highest level since 2010. However, compared to 2017, the life segment experienced a 5.5% fall in 2018.
Neil Harrison, the Global Chief Claims Officer at Aon, highlights some of the factors that contribute to this uncertainty, including changes in policy wordings, an increase in coinsurance, and the use of quota shares. Additionally, insurers are becoming more focused on the profitability of their books and may adjust their risk appetite accordingly. These shifts in risk appetite can create uncertainty and change the balance of risk and return in the market. It's important for industry professionals to stay up-to-date on these developments and to be aware of the potential impacts on their business.
In the field of property insurance, underwriting criteria are evolving, particularly with regard to business interruption and the caliber of risk data supplied by clients. Lower-quality risk information is becoming more prevalent, which may have an effect on premiums and add to market uncertainty. Professionals in the claims industry should carefully analyze the risk information, exposure values, and policy expectations that are all important aspects of this uncertainty. The speed at which coverage decisions are made and the influence that External Councils, which represent insurers, have in setting the direction of the property insurance market also need to be properly watched because they have an impact on customer satisfaction.
It's important to remember that there is frequently a lot of ambiguity in the communications between customers and insurers, which might increase market uncertainty. This is particularly true in important risk classes where there is market competition, such as property, cyber directors and officers, liability, casualty, and motor vehicle. The director and officer and cyber industries face intense competition on a global scale. In order to minimize risk and lessen ambiguity, it's critical that clients and insurers collaborate to ensure good communication.
The buying and underwriting processes for insurance have changed significantly in the CEE region, which includes a bigger portion of continental Europe. A +1% to +10% boost in property ratings for clients is one of these modifications. Despite the market's current plenty of capacity, underwriting requirements have tightened. In the past, the property underwriting process was lax, which led to cheaper premiums and greater profitability for insurers and reinsurers. This change is in response to such laxity. To mitigate risk and preserve market stability, it's crucial to make sure that underwriting is thorough and competent.
It's important to note that the current property market is characterized by strict underwriting practices. This can be a source of stress for both customers and those submitting risk information, as it requires a thorough and detailed proposal presentation and program design. While this level of underwriting stringency may be challenging, it is necessary in today's market. From the perspective of a client, the sudden shift towards more stringent underwriting practices can be overwhelming, especially if their previous experiences have been relatively straightforward. As a customer, it's natural to feel unsure in this type of environment. However, it's important to remember that these measures are in place to protect against uncertainty and ensure the stability of the property market.
There has been a shift towards asking clients and consumers to bear a larger portion of their own risk. While this approach may be seen as cost-effective, it's important to be aware that deductibles are rising and coverage is becoming increasingly limited. This is due in part to the inclusion of additional limitations and exclusions, such as the ambiguous language around business interruption coverage related to non-physical damage caused by the pandemic in property policies issued around March 2021, one year after the start of the worldwide epidemic. It's important for clients and consumers to be aware of these changes and to carefully review their coverage to ensure that they have the protection they need.
It's possible that some policies weren't written clearly, which caused a lack of understanding and confusion. Businesses are responding by addressing this issue by adding more specific language to their policies. However, this may also lead to the inclusion of language in property policies that is more and more exclusive and discriminatory. From the standpoint of a customer, it can be beneficial to view the market through a customer lens and concentrate on locating policies that offer the required protection and clarity.
Recognizing that business disruption should be regarded as a fundamental component of the industry, just as it was 20–50 years before, is crucial. Nevertheless, thanks to the spreading epidemic, we now live in a global economy where the majority of people work from home. This has caused a variety of supply chain problems and demonstrated that business interruption evaluations and processes continue to be based on out-of-date concepts. Customers may become irritated by this, and it significantly increases market uncertainty for property insurance. In order to better address the needs of customers in the current economy, it is crucial for the sector to adapt and update its responses to business interruption.
To summarize, the property insurance market will undoubtedly continue to have difficulties and uncertainties as time goes on. Industry experts can overcome these obstacles and endeavor to create a more stable and sustainable market, though, by staying informed and adaptable. We can not only overcome the uncertainties of today, but also pave the way for a brighter and more secure future for the property insurance sector in the CEE region by concentrating on offering high-quality risk information, developing strong relationships with clients, and staying aware of the changing needs of the market.
Resources:
Overcoming Uncertainties in Property Insurance, a keynote presentation by Neil Harrison at the Claims CEE Summit on 27-28 January 2022