The ongoing corona pandemic also has a lasting effect on the insurance market at the turn of the year and accelerates the hardening of the already tense insurance markets. Covid-19 has had a significant negative impact on earnings on insurers’ balance sheets. A market insight from Ralf Becker in the current edition of the Intermediary.
This is mainly due to the billions in expenses for damage caused by corona-related company closures and event cancellations. In addition, there is reduced income from investments. As a result, there is increasing pressure to act on the part of insurers to improve the results in industrial insurance, which have been in deficit for many years.
At the same time, companies must also find a way to deal with the consequences of the corona pandemic. As a result of the decline in sales and earnings, they are faced with the great challenge of keeping the economic effects of the pandemic small. That is why the focus is increasingly on reducing costs. In this challenging situation for companies, premium increases on the part of insurers naturally come at an extremely inopportune time. In this situation, the insurers must not lose moderation in their claims.
Remind and appeal of the responsibility of insurers
In property insurance in particular, companies must assume that the pressure will remain high in the coming year. The claims expenses here have been higher than the premium income for years. With a few exceptions, the measures taken by property insurers to date have not resulted in a sustained improvement in the earnings situation. This is why many insurers are now increasing their premiums and reducing cover capacities for their entire portfolio – regardless of whether the customer has caused damage in the past or not.
In addition, insurers place increased demands on fire protection and consistently demand the implementation of appropriate measures to improve it. In other words: high quality fire protection or its upgrading has become the necessary condition for successfully placing the risk.
The hardening of the market affects not only the property division, but also, for example, D&O, cyber and credit insurance. There, too, cover capacities are becoming scarce and prices are rising. This is because the economic downturn is leading to more bankruptcies and thereby increasing the risk in the D&O insurance of lawsuits against managers, while credit insurers expect a high increase in corporate insolvencies after the suspension of the obligation to file for bankruptcy has expired.
“It must be made clear that the insurance industry cannot compensate for the entire economic damage of a pandemic, not even through a public-private partnership.”
Ralf Becker, managing partner of the Funk Group
In the current discussion about safeguarding future pandemic scenarios, the idea of a public-private partnership is not new, but it is nevertheless worth pursuing. After the terrorist attacks on September 11, 2001, there was a worldwide emergency coverage for insurance against damage caused by terrorist attacks. As in many other countries, such an instrument was subsequently introduced in Germany
created in the form of the insurer Extremus AG.
Such a model would in principle also be suitable for hedging against future pandemic risks. Companies of all types and sizes as well as the self-employed should have access to this solution. However, it must be made clear that the insurance industry cannot compensate for the entire economic damage of a pandemic, not even through a public-private partnership. Compulsory participation may be necessary for funding.
In view of the challenges ahead, the same applies as in all crises: The best solutions can be found together. Companies, brokers and insurers should heed this principle also in 2021.
Author: Ralf Becker, managing partner of the Funk Group
You can read the full article in the current January issue of the e-sales magazine The mediator.
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