Uninsurable risks - how can you get ready for the hardening insurance market?
Updated: Dec 2, 2022
With the insurance market now described as “Harsh” by industry association AIRMIC there is a perfect storm now of rising premiums and excesses, tightening terms and conditions, restrictive coverage and limited capacity. A growing reluctance on the part of insurers to underwrite potential losses that are not fully understood is driving large changes in the way business need to prepare for insurance renewal if they don’t want to end up with potentially significant uninsurable liabilities.
The recently published WEF Global risks report 2022, shows there is consensus that we are heading towards more turbulent times. Eighty-four percent were either worried or concerned when asked “how do you feel about the outlook for the world over the next 3 years?” 41.8% expect the outlook to be ‘consistently volatile with multiple surprises’ and 10.1% anticipating ‘progressive tipping points with increasing catastrophic outcomes’.
With Zurich Municipal pulling out of the property sector in Higher Education citing two crippling business interruption claims totalling over £150 million (fires at St Andrew’s and Manchester Universities, both in 2019), brokers and underwriters are right to want to fully understand what exactly is at risk, and how effective contingencies are likely to be in reducing the indemnity period insured. The 'AS IS' insurance model is not sustainable. The 'TO BE' insurance model has growing expectations on resilience and continuity standards. Using recognised frameworks such as ISO 27001 (information security) and ISO22301 (business continuity management systems) will assist in getting ready.
Being able to transfer risk via insurance will become increasingly difficult but eased by having effective measures in place to identify and protect the value chain in your organisation and by having robust contingencies in place. So, what are insurers going to be looking for and how can you prepare?
What do insurers want to see?
1. Greater clarity and understanding around the financial exposure arising from insured property losses.
The business interruption sum insured will see insurers requesting revenue by building, data dependencies, asset information. In other words, Business Impact Analysis information focused on value chain.
2. The period over which this exposure may last.
Quantifying the Indemnity period requires an understanding of how effective contingencies will be in reducing the time to get back to a new normal post incident. Plans that have not been robustly tested and rehearsed won’t provide much assurance.
3. The resilience controls and mitigation in place that underpin responses to losses.
Having properly joined up risk, governance and compliance functions across all areas of the business, and particularly in estates, maintenance management and IT cyber resilience is key. The transparency requirements in the Insurance Act 2015 mean that the data will need to be made available in a format that clearly highlights where the risk is.
For organisations thinking about this and wanting to prepare, the first step is to baseline where you are at with a resilience gap analysis. This will help you understand what is in place and how you can move to rapidly energising your approach to address gaps.
Whether or not you get insurance, this is a prudent course to take to be ready for a more turbulent world.
If you need support or advice on how to avoid uninsurable losses and on building robust and rehearsed contingency arrangements, please do get in touch.