Lawyers remain relevant

Looking back, Covid appears to be a watershed moment and reset for the insurance and reinsurance market’s relationship with its lawyers.

In the years immediately before the Covid pandemic in 2020, it was soft cycle profit management that exercised the market and the need often to balance trade-offs between increased retentions and decreasing reinsurance costs.

That invariably led to a focus upon shaving expenses and reserve releases?to offset low investment returns and low technical pricing of all direct classes of insurance.

A changing landscape

Well, that environment suddenly changed post-Covid. The market is no longer soft. As a major counter-factor, it has had to deal with?the well-publicised major?economic headwinds generated as a result of supply chain pressures caused by Covid, along with the energy crisis and corresponding inflationary price pressures and heavy squeeze on profitability derived from the Ukraine war.

Specifically, the reinsurance market has grasped the nettle on pricing and underwriting for profit to eschew unprofitable lines of business and to be able to consider and to discuss the hardening of rates.

On the other hand, lawyers became necessarily relevant, and it is very noticeable how busy and engaged external lawyers are by the insurance and reinsurance markets. Covid generated this immediate need, being a novel and unprecedented event, and with the economic cost of the lockdowns imposed by governments across the globe not only being unpredicted but leaving the insurance market with a potentially crippling unforeseen exposure.

Following this, the Ukraine aviation war leasing claims arose, generated by political decision taking and the implementation of sanctions.

Legal spend increases

What was also not considered in pre-pandemic modelling would be the pressures applied to the direct market by regulatory authorities, with or without direct government pressure to come to coverage determinations quickly (and policyholder-friendly ones at that).

Throw into the mix then, that court systems in many countries were?eager to make clear that they would facilitate the speedy resolution of coverage issues, if possible, on a market-wide basis,?then the environment was created?for a sudden exponential burst of legal spend – as happened and is continuing to happen.

Have spending appetites changed?

No amount of modelling can predict what, looking back, were politically-driven claim events, and when those do happen how lawyers are going to be required at all levels to address how that claim allocation is to land.

The question remains whether the renewed appetite for engaging lawyers leads to a wider deployment of?legal cost spend as a mitigation tool to counter and manage higher claims costs more generally.

This was generally eschewed as a tool for profit management during the soft market cycle, but has the appetite for such focus now changed??

The market, one senses, would be reluctant to reverse that approach when perhaps disciplined underwriting and pricing, allied to use of AI, might well achieve that fiscal outcome.?

Lawyer support is vital

The answer to how engaged lawyers will remain, and at the current levels of activity, is likely to depend on the reason for such spend. What the past couple of years have shown is that where policyholders and the markets need legal guidance on coverage outcomes, particularly where the regulatory authorities are driving a policyholder-friendly agenda, lawyer support is vital.

At the reinsurance level, similar demands for coverage clarity exist around these same major market issues – the principle of response per se with the Ukraine aviation war leasing claims, and issues of intra-market loss sharing and the applicable principles of aggregation with respect to Covid losses.

Unlike the direct market, at a reinsurance level there is not necessarily?the same pressure imposed by the regulators as policyholders are generally not directly affected by these disputes (it may be rightly pointed out that the Ukraine war’s leasing claims do involve direct policyholder claims, but these policyholders are not individuals or SMEs, which do attract a heavy regulatory focus).

Lawyers on speed dial

So, there is perhaps no decision taken directly to use lawyers as a means to taking a?harder view on claims cost and cost management.

However, the now recognised interventionist appetite of regulators, allied with the Courts’ willingness to facilitate speedy case management of?market-wide issues, likely means that lawyers are moved up clients’ speed dials as significant claims management continues to be faced by the market.

Certainly, lawyers will remain relevant for the foreseeable future, in a way not seen before the pandemic, and likely for very many years.

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