The London insurance market is at the eye of the storm when it comes to major claims arising from the pandemic. From event cancellation through marine and aviation to the thorny issue of business interruption cover the sums being talked about run into hundreds of millions.
The major ratings agencies have been quick to note this and have rushed out a series of downgrades for the entire London Market.
Dave Matcham, chief executive of the International Underwriting Association of London, told the Insurance Investment Exchange that the market had to take this on the chin.
“It isn’t really a surprise. There is so much uncertainty. There are a lot of very large claims that are not contestable. Many others are in a grey area where policy wordings are unclear and likely to be subject to litigation”.
Even in the face of this uncertainty and the prospect of having to pay out on some of the high profile claims that have hit the headlines, he felt the market was in a good position.
“The industry has massive solvency strength. Solvency II ratios are well above what they need to be. That’s a positive aspect to the market”.
He also pointed out that most firms are now diversified across many lines with many fewer monoline insurers than previously. This puts them in a much better position to ride the storm, especially as many are subsidiaries of major global groups with deep pockets. He feared for some of the smaller, less diversified insurers who could be over-exposed to the worst claims arising out of the pandemic.
The downside of globalisation is that it is no longer clear where the leadership should be coming from. He said the IUA was a good example of the challenges this poses.
“We are all populated by global companies and it is not easy to get majority decisions because of the need to bring in people in New York, Zurich, Paris and Munich which is where a lot of the key decision have to be made”.
Regardless of where decisions have to be made, Matcham said there are some clear trends emerging on the asset side with insurers already making some significant changes to their portfolios.
“Cash is king at the moment. Some London Market insurers were sitting on cash and others moved early when they could see the big claims coming – in the contingency market for instance – to turn as many assets as they could into cash”.
Looking ahead, he said that as the world recovers from the initial shocks and impacts of the COVID-19 crisis, insurers will need to keep a clear focus on clients, something he acknowledged will be a challenge as sensitive issues of affordability and availability of cover will be at the fore.
“The market has been hardening. That is likely to continue although it will be a mixed picture. We have declining investment income and increased claims.
“We need to think about clients’ ability to pay. Some sectors are going to be very badly hit – travel and aviation for instance – and we need to see how these powerful forces work their way through”.
A key issue in many major lines written in the London Market will be how to meet the expected demand for financial protection against future pandemics. This is not something commercial insurers are going to be able to offer and he welcomed the discussions taking place in the UK and in other major markets about creating solutions that have state backing.
“We’re all standing ready to help in these big initiatives”, he said.
“I think it is inevitable given the nature and scale of the risk and its global nature. The government is always going to be the insurer of last resort for big risks like this. I would welcome that.
“The risk associations are pushing hard for state backing and that pressure is only likely to build as their members look for cover in the future. It is a massive gap that needs to be filled”.
While the pandemic is very much the dominant issue of the moment, Matcham said that a survey he was carrying out among the CEOs of IUA members was showing that corporate agendas look little changed from before.
“Asked about biggest challenges, they have seen the pandemic as a short term disruption. Key issues remain poor regulation, lack of choice among brokers as they consolidate, competition for talent, climate change”.
The issues that engaged boardrooms before the crisis have not gone away, but merely been temporally eclipsed.
Interview by David Worsfold