The 'Hard' Facts of the U.K.
It was a buyer's market for liability coverage in 2005 in the United Kingdom, according to the Marsh country report on the topic. The price of ?1 million of coverage dropped 17 percent on average from 2004.
Clients had more say over cover, retention and limits in 2005, the report concludes. And in product liability, carriers AXA and Gerling returned to the market, boosting capacity.
The softening also resulted in part because of big-picture trends. Insurers were leaping into the liability market before the 2005 hurricanes, "chasing premiums" that they couldn't find in the property market, says Guy Malyon, managing director of Marsh's Placement Solutions Practice.
"We talk about a soft market," explains Kiran Nayee, Marsh senior vice president and head of casualty placement, "insurers kind of were fighting each other to win business." They aggressively reached for new business targets, says Nayee, because they were feeling ambitious after posting underwriting profit for the first time ever in 2004.
But U.K. risk managers shouldn't light a stogie and put their feet up on their desks just yet. Regulations and lawsuits may threaten the rosy state of affairs. The average value of U.K. compensation awards, reports Marsh, has increased by 15 percent to 20 percent annually, despite a lower overall number of claims. Whereas the United States has its litigious society, Great Britain has its own "compensation culture."
"If you look at the levels of litigation in the U.K., and indeed Europe, and if you actually viewed them as the cost of raw materials," says Malyon, "the cost of raw materials in our market has been going up and up every year, yet the prices have been coming down." You only see that phenomenon, he adds, in the insurance and information technology worlds.
In the employee liability market, this inverted reality isn't as obvious, but it's still there. Rates on average leveled off but still rose--7 percent in 2004 compared to 50 percent in 2003--yet awards given for compensation claims increase by 19 percent yearly. This trend tends to leave U.K. employee liability insurers with underwriting losses, reports Marsh.
And thanks to regulation, costs may only increase. The Courts Act 2003, which went into effect on April 1, 2005, endows judges with the power to award periodic payments to claimants, instead of lump sums. "Insurers will never really be able to close their books on a loss," says Nayee.
Additional upward price pressure could come from the National Health Service Injury Cost Recovery Scheme, in which insurers will pay their share of treating workplace injuries to the tune of £200 million to £250 million a year. Employee liabilty prices could shoot up as much as 8 percent after the scheme takes effect in October 2006.
Marsh's conclusion? The soft market may be mighty comfortable now, but risk managers should plan ahead. As Nayee explains, employers may be able to negotiate lower rates by showing they take risks seriously with risk-management strategies such as recording employee absence days, establishing health safety protocols and working on return-to-work rates for injured employees.
Companies with clear and detailed risk-management strategies tend to get lower rates from underwriters, no matter the turn of the cycle.
February 1, 2006
Copyright 2006© LRP Publications