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16 December 2021

Webinar: Commercial lines insurers need underwriting discipline post-pandemic

Ahead of releasing the full results of our research into underwriting in UKGI we wanted to facilitate a wider discussion into the latest trends and developments in the sector, including how the Covid-19 pandemic has affected underwriters.

That is why we invited EY General Insurance Market Lead Tony Sault and Insurance Times Content Director Saxon East to join our co-founders Dan King and Matt Scott in our latest webinar.

The discussion covered everything from the impact coronavirus has had on claims through the role of technology to the future of emerging risks such as cyber insurance, and you can watch the full recording below.

The webinar kicked off with a sneak preview of the findings of our upcoming Underwriting Performance Report, in which we have ranked the 25 largest insurers in UKGI on their underwriting performance over the last three years. 

The report also includes a detailed summary of market performance across all the main business lines in UKGI, as well as in-depth profiles of each of the 25 insurers ranked in the report. You can download a free abridged version of the report here.

Commercial Lines Hit Hard

One of the key findings of the research is the negative impact the pandemic has had on commercial lines, which becomes particularly apparent when the performance of commercial lines insurers is compared against those operating solely in personal lines.

Indeed, commercial lines insurers received an Insurance DataLab Underwriting Rating of 61% for 2021, down from 63% a year earlier, whereas personal lines insurers received a score of 69%, up from 65% in 2020.

And speaking on the webinar, EY’s Tony Sault said the results of the research clearly showed the impact the pandemic has had on commercial lines insurers, particularly in the property market where insurers have been hit hard by a surge in Covid-19-related business interruption (BI) claims.

“It’s not really a surprise that personal lines has performed better than commercial lines,” he said. “Part of the reason for the commercial lines performance is clearly the BI claims coming through on the property lines, but if you go back to when the premium was actually written, we were operating in a softer market to what we are now.

“So that premium coming through in 2020-21 was probably less than the claims that we're starting to experience, and no one predicted the issue we would be having with these Covid BI claims coming through.

“But clearly things have moved on now, and we are in a much harder market in commercial lines, and the market is exercising underwriting discipline to correct rates and get back on a better footing.”

Motor Does Well But Tough Times Lay Ahead

In personal lines, it was motor insurance that was one of the lines most affected by coronavirus, with a reduction in driving miles leading to less claims filtering through to insurers.

But while this has helped motor insurers to receive the second highest rating in our research with a score of 64% for 2021 (2020: 58%), there were warnings from our panellists that these changes could be short-lived.

Insurance Times’s Saxon East re-iterated this warning, citing the impact claims inflation is having on the market.

“There has been some impressive claims inflation [in the motor market], and that has led to a deterioration of some of the underwriting results,” he said. “The reason for this is the cost of imports going up, Brexit and other supply chain issues, not just in motor, but even in home too – so there’s an inflation across the piece in materials.

“That’s the real challenge for insurers at the moment, and it is also feeding through to the broker too, because, as we know, a massive part of the UK market in motor is still intermediated. So insurers will look to their brokers thinking what can they do to help us achieve better profitability and underwriting? And one of the things brokers will need to have is a very good understanding of their data.”

East said that this better understanding of data can help brokers to select better risks, develop better products, and reduce costs.

“I believe brokers have a very, very important part to play in helping insurers achieve underwriting profitability,” he added.

Indeed, Sault said that much of the innovation seen in recent years has come from outside of underwriting, but that he expects this to change in the near future.

“In the last couple of years, a lot of the innovation has been driven by MGAs and brokers, and that’s because they are entrepreneurial and are closer to the customers so have an early warning system for when things are changing,” he said. “Insurers have been a bit removed from that, but I think the carriers will come back into that next year much stronger.

“Once the General Insurance Pricing Practices (GIPP) are in play, and if the pricing difference isn’t as pronounced as it is now, then how are you going to attract and retain customers? You’re going to have to offer a better and more attractive proposition, and that’s going to put pressure on the insurers to innovate.”

And Sault believes this could also lead to insurers entering new markets.

“If you look at the mainstream insurers, they are all looking to grow, not shrink,” he said. “And the only way they can do that is by moving into adjacent lines. The challenge for underwriters then is to get access to and understand the data needed to underwrite and select risks that they are not familiar with.

“They also need to get much more granular about how they analyse their performance and their book to try and write that business.”

2022: The most dynamic year yet?

Continuing with the theme of looking to the future, panellists were asked by a member of the audience, Ian Hughes of Consumer Intelligence, whether or not 2022 would be the most dynamic year ever for insurance, and how underwriters could deal with that.

The panel was unanimous in agreeing that next year will undoubtedly be one of, if not the, most dynamic year for underwriters, with GIPP, Fair Value, the recovery from the pandemic, and general economic pressures all cited as contributory factors.

And our own Matt Scott had some wise words for any underwriter wondering how they might grapple with all of these different challenges.

“Insurers need to be prepared for the fact that they don’t know what is going to happen, they’re going to have got things wrong, and they don’t know how things are going to play out next year,” he said. “Being nimble, having a backup plan, and being able to change things around pricing and how you approach the market is going to be key.

“Keeping an eye on what your competitors are doing and how you’re benchmarking against them is going to be more important than ever, and having access to that kind of information and insight can help inform the changes that you will need to make for you to plan for next year.”

“I think that's going to be the big thing,” he added. “As well as staying ahead of these changes and being able to react as things become clearer about how these changes are going to play out over the next 12 months and beyond.”

The Insurance DataLab Underwriting Performance Report, out soon, will rank the largest insurers in the UK on their underwriting performance over the last three years.

The report will also contain an in-depth analysis of market performance across all the major business lines in UKGI, and individual profiles of each of the 25 insurers. Download a free abridged version of the report here.

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