The COVID-19 pandemic may lead to a reduction in the insurance budgets of many insurance buyers in 2020 and 2021. As the insurance market continues to harden, the terms and conditions may also be made more stringent with capacity getting constrained in some areas.
In an interview published in www.commercialriskonline.com Aon global chief broking officer Hugo Wegbrans said, “The market is clearly hardening. Initially, the market hardened for property and directors and officers insurance but this has expanded to other lines of business and geographies.”
Mr Wegbrans said some clients will struggle to afford insurance premiums and companies are surviving with the help of government support but as that support is withdrawn, insurance budgets will come under increasing pressure.
“Insurers argue that rates are not adequate but many clients might not have the money to pay for the rate increases. Some already say they have only 75% of their insurance budget and ask what we can advise they purchase, rather than just propose a renewal. This economic impact (of the pandemic on budgets) will play out in 2020 and into 2021,” said Mr Wegbrans.
According to the commercialriskonline.com report, buyers during the past decade have enjoyed rate reductions, broadening cover and, potentially, lower retentions as well as high limits of cover. That situation is now reversing. Many buyers hit by the economic consequences of the pandemic will face decisions about whether to reduce overall cover, increase levels of self-insurance, reduce the number of lines of cover, or not to insure certain risks at all.
Mr Wegbrans said, ”Next year will be a hard market but it will also be unpredictable. The market in 2021 will depend on what happens with the coronavirus pandemic and whether there are any large catastrophe losses for insurers. At the same time, insurance budgets will be affected by the economic impact of COVID-19.”