Martyn Barrett Director of Barrett Corp and Harrington Ltd gives us his thoughts on what 2021 will bring in terms of insurance.
Credit where it is due, looking back at our predictions for 2020, we did get some things right. It has certainly been a busy year, as we thought. We have grown as a business, as predicted. Brexit is still creating as much uncertainty about building costs at the end of 2020 as it was at the beginning but, there was one significant factor that nobody could have predicted: Covid19.
What does the pandemic mean for insurance in 2021?
Within insurance, we are hearing the term ‘hard market’ a lot. The last few years have created a perfect storm of poor trading conditions for the insurance market- more particularly in the niche area of flats. Capacity has shrunk, not only as a result of the impact of the Grenfell Tower Disaster, but also due to successive large water and flood damage losses draining (excuse the pun) the potential for insurers to make a profit on their flats book.
Personally, I think sometimes we lose sight of the fact that insurance is a business, not a public service which we have a right to expect. Insurers are there to make profit for their shareholders.
I recently listened to a podcast in which 2020 was described, by a leading commentator in the insurance world, as the ‘perfect storm’. Citing a culmination of factors affecting general insurers which will lead to a harder market, rising premiums, some insurers withdrawing capacity and a tougher stance on claims, much of this is coming to pass in late 2020 into 2021.
The main factors were underwriting losses due to major flood and storm incidents, bigger pay outs on personal injury claims, low return on insurers own property portfolios (just look at the empty units in shopping centres and offices- many of which sit in insurers investment portfolios) and high mandatory liquidity ratios imposed by regulators.
Unlike in previous hard times the ability for a general insurer to ‘rob Peter to pay Paul’ is almost impossible to sustain….and then came Covid 19!
So, what does this mean in practical terms to us as policyholders?
Well, it will mean that Insurers will be taking a tough stance on claims. This is a way that they can control costs, in that part of their business.
Here at BCH, we can confirm a surge in interest from Brokers and Insurers in our service aimed at making sure property is correctly insured. Insurers want to pay valid claims, but, if there is underinsurance it is equitable that they don’t pay more than they are contractually obliged to. We are being called in post loss to check adequacy of sums insured.
If underinsurance is found at the time of claim, then policyholders need to prepare themselves for a possible tough ride. There is a real possibility of claims being reduced or in a worst-case scenario, there not being enough to repair or fully rebuild.
We all know there is a problem of underinsurance out there and there is enough education by insurers and brokers to their customers that it is very important to get this right at the time of purchase of the policy….so we as policyholders can’t argue ‘we didn’t know’.
2021 is going to be a hard market for flats insurance, the hardest for decades.
Yes, rates are probably going to increase and yes, there will be fewer insurers to shop around with but, buyers of insurance need to be aware that it is foolhardy to attempt to keep premiums down by reducing or not maintaining insurance values at their correct level. The financial impact of this action at the time of claim will be exponentially greater than the modest saving on premium at the time of renewal.
It is a terrible enough experience to suffer a major loss in your block but, if this is then exacerbated by the effects of underinsurance, then a drama very soon becomes a crisis.
