By Ranamita Chakraborty
The COVID-19 pandemic has thrown a spotlight on the London insurance market’s modernisation efforts and could possibly accelerate some long-awaited changes to the way business is transacted in the market – revealed a new report from credit ratings agency AM Best.
According to the agency, the impact of the pandemic on the global economy will have significant consequences for London market insurers including on their claims experience and assets as well as their day-to-day operations.
From a claims point of view, AM Best said that event cancellation is currently a major affected line for London market insurers. However, exposures depend on policy wordings specifically whether cover for pandemics is excluded and on whether events are cancelled or merely postponed.
Over time, the agency also expects losses from trade credit, surety and mortgage reinsurance to emerge but the level of losses in this space will only become clear when the financial impact of the pandemic begins to be fully felt.
The report therefore considers the expense and distribution pressures that are forcing London market insurers to adapt their operating models in order to remain relevant in a competitive marketplace.
There has been evidence of such radical action at the individual company or managing agent level as well as at Lloyd’s.
Commenting on this development, AM Best senior director, analytics Catherine Thomas said, “The London market deals with complex and bespoke business with transactions often negotiated on a face-to-face basis. However, the current situation is forcing individuals and companies to be more thoughtful about the circumstances where in-person interaction might not enhance value and could be done much more efficiently electronically.”
Performance in the London market has already been under pressure for a number of years due to a combination of catastrophe losses, soft market conditions and lower reserve releases.
While many London market participants began 2020 generally optimistic on the back of signs of pricing improvement, COVID-19 has cast a shadow over performance expectations for the rest of the year.
However, progress made by individual insurers in terms of their modernisation efforts could be a real differentiator during this pandemic.
According to AM Best, London market companies and individuals will need to think about an evolution that allows the industry to operate both digitally and in person interchangeably, to get maximum value for both these elements.
“It is clear that some in the market have been much more able to make a seamless transition to the new way of working. Remote working is forcing a long-needed culture change in the acceptance of digital solutions,” said Ms Thomas.
Asia Insurance Review