Looking back at 2018

This year has been marked by M&A activity - both market and brokerage, the continuing evolution of cyber insurance, and major changes to cost, capacity and coverage from the insurance market. In the first of two blogs, Kyle Nichols, President Hugh Wood Canada Ltd, looks back on the most important developments in the industry during 2018.

What were the most important moments/developments in the insurance industry in 2018?

During 2018, five key events or developments really stood out. The industry has always experienced catastrophe losses, such as wind, rainstorm, and earthquakes, but these are now occurring with greater frequency and severity. Combined with a soft market that has been providing more broad coverage grants than previously -  for example overland water, sewer backup -  there are now larger insurable losses compared to five or 10 years ago.

Cyber is still having an impact on the industry as cyber threats invade all industry sectors and there has been a marked increase in public awareness following media coverage from large data breaches, such as the recent Marriott breach. Despite cyber threats effecting all aspects of life, cyber insurance is still misunderstood and undersold by the industry. The market is still treating it as a transaction, not a solution. We have seen cyber insurance evolve over the past year due to the expansion of markets with attractive options and simplified underwriting, creating a more mature ecosystem of service and support advisors through the insurance product. Having a dedicated Cyber Insurance Practice at Hugh Wood International (HWI) is a differentiator for us and an asset to our clients. 

During 2018 we saw an emphasis on profit rather than growth for underwriters, which we expect to continue into 2019. It is clear that underwriters with particularly challenging results will be retrenching even more than they have been this year. Already we are experiencing underwriters walking away if realistic pricing and conditions cannot be obtained. Some classes and risks will see some level of rating action and a lot less flexibility in the market; this will be more extreme in under-performing areas that have been the subject of corrective action, but not enough to correct the problem. As a broker, our greatest challenge and opportunity is to assist our clients in understanding this market shift. But most importantly, to explain to clients what it means from a cost, capacity and underwriting information perspective. HWI’s international reach provides global insight and solutions to assist our clients in understanding these shifts and in taking proactive measures in managing their insurance portfolio.

Possibly the biggest development in 2018 has been the concerted shift towards a hard market for the first time in 15 years. There is a feeling that the hardening has definite staying power, due to the withdrawal of some capacity, as well as rising prices. We are seeing efforts in all areas to ramp up pricing using increased actuarial and risk assessment tools rather than cashflow/opportunistic underwriting. For example, Canada automobile coverage is highly political and public awareness of increasing rates is high. Other niche areas, such as Professional Indemnity, have had a sudden swing in cost and capacity as Lloyd’s is aggressively targeting the profitability of this business as the long tail nature of this risk has begun to manifest itself through claims activity. What does this mean? Well, for the first time in a long time, we now can anticipate rate increases on clean accounts in these niche areas. HWI’s dedicated Professional Indemnity practice is actively assisting clients in obtaining the coverage and capacity in such difficult market conditions.

Beside the hardening market, the other most notable development in 2018 has been the increased consolidation of both the market and brokerage community, which reduces competitive options; moreover, this will impact service and expenses once the acquisitions are over and staffing and other assets are rationalized. Being a privately held and independent broker, Hugh Wood is uniquely positioned and firmly insulated from these M&A forces. 

In summary: The market will continue to harden manifesting itself as increased cost, restrictive coverage and a crunch on capacity; felt more in under performing industry and coverage lines. The M&A activity will impact the ability of the insurance industry to deliver its true value proposition to stakeholders through service delivery and competition. And cyber insurance will continue its relevancy pivoting as a client solution rather than a transaction. HWI will continue to deliver on our values to our clients, colleagues and trading partners around the globe!

Thank you and happy holidays; all the best for a productive and positive 2019!