We all knew that a pandemic would come one day – even though there had not been one for 100 years – and it is fair to say the world was not really prepared. The past year has in fact been one like no other and has brought many challenges for us all at a personal level.

However, that said, from a purely specialty insurance business perspective, it has been a fairly benign ride. Most lines that we operate in, including aviation and first party motor, have seen vastly reduced claims helping to balance out reduced premium volumes in those lines of business, and the pandemic has, and is, driving a long overdue hardening of the market overall.

The one major exception has been contingency lines, with major and minor events across the globe being cancelled – from the Ice Hockey world cup to the postponement of the Euro 2020. No surprise then that Lloyd’s recently reported a £3bn hit across contingency lines. However, even in contingency lines, the future is brighter and, as we move forwards, there will be higher deductibles, stricter terms and conditions, and premium increases.

The main change, however, across all the lines and across all the geographies that we operate in, is market hardening, as insurers look to make up for (in some markets and lines of business) 15 years of a soft market. In Australia, for example, we have seen a second year of 2 to 3 digit percentage increases in financial lines, and now – for the first time since long - the market is getting premiums above the technical underwriting profit levels.

Hard market, hard conversations

It has been a long time coming. As a market, for many years, we have all had to accept the soft conditions, and the reality is that most carriers have not been delivering the margins they should have, which has resulted in some Lloyd’s syndicates closing down or reducing the lines they cover.

The move from a soft to a hard market creates volatility in pricing and coverage, which is hard for businesses that like consistency, and hard for brokers looking to help them cover their risks. Throughout the soft market, we at HDI Global Specialty have tried to keep our powder dry and not be dragged too far down in price, deductibles and extensions in coverage, but we have also had to remain competitive in our chosen markets.

Our business was, and is, founded on a desire to work in partnership with our brokers and our clients; to be there, for the long-term, in both soft and hard markets. This philosophy is in our DNA and has been ever since our formation by German industry more than 100 years ago. And that is why, now that we are seeing sharp market corrections, we are working hard with our brokers to help them and their clients find cover for their risks.

Brokers are on the front line and have to pass on this market volatility to clients and explain why - why the market was too soft and why some of the corrections are very substantial. But, unlike some insurers, we are not going to just pull up the drawbridge or profiteer by putting prices up too high too quickly; we are here for the hard times as well as the good times and our doors will remain open in the lines that we have chosen to operate in.

Finding a work around

Our approach to risk is to listen, to be honest and to work hard in partnership with brokers to find a solution for clients. In the hard market there is a lot of work to do to find a middle ground, to work on terms and conditions, in order to find an affordable solution for clients. It is about dialogue, transparency, and honesty. So, if a risk is not for us, we will say so straight away and not waste anyone’s time.

Working in the new normal

The Covid-19 pandemic has, I believe, changed working practices for good; and, as an industry, the importance of digitalisation has increased, and will continue to, as we look at a new world of work with its mix of remote and office working. This will also lead to a change in the need for office space and the ratio of desks per number of staff. Business trips will return, but they will be more targeted and virtual meetings will become a permanent feature of normal business.

As a part of this new normal, there will continue to be an ever-greater reliance on technology, and the cloud. And with this reliance of course comes increased risk, and cyber insurance will become increasingly important. In fact, the cyber insurance market has already seen a dramatic shift, and we are seeing a substantial hardening with increased deductibles, greater self-insurance levels and premium increases.

As we all look to work our way through to the other side of this pandemic, we believe our ability to listen and work with brokers to find solutions for clients in challenging market conditions is the right path, and one that we will not waiver from.

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