Financial institutions faced an average premium hike of 15 percent in the second quarter of 2009, as insurers seek to make up for underwriting losses resulting from a deluge of credit crunch-related Professional Indemnity and Directors and Officers’ claims, according to a new report from Willis Group Holdings, the global insurance broker.
Premium increases can be dramatically higher, the report said, in cases where underwriters have concerns over exposure or where financial institutions have experienced significant growth.
Willis’ second-quarter Financial Institutions (FI) market update, published by FINEX Global, Willis’ London-based Financial, Executive Risk and Professional Liability business, said that there had been a “notable hardening” of the FI insurance market in the first half of 2009, with the trend set to continue for the rest of the year.
The report, which represents the opinions of 20 leading FI insurers in the London market, noted that, for some financial institutions insurers, the claims they have paid in 2007 and 2008 have exceeded the premiums received, hence the push for rate increases in early 2009.
The report shows that underwriters were taking three different approaches towards mitigating the effects of the financial turmoil on their business, namely:
Increasing premium: Underwriters are looking to enforce premium increases across their entire portfolio regardless of risk profile and are prepared to “walk away” from unprofitable risks.
Reducing exposure: In a very difficult marketplace it is common for insurers to reduce their overall participation on a programme.
Restricting policy coverage: Underwriters are examining existing wordings in detail with a view to restricting various areas.
Commenting on the findings, Duncan Holmes, Managing Director of FINEX Professional Risks, said, “Due to the magnitude and long-tail nature of the type of claims financial institutions insurers are facing and the continuing climate of economic uncertainty, we expect to see the market hardening further. That being said, we have not seen a widespread withdrawal of insurers from this sector and there is still a surplus of capacity for certain risks. In these conditions there are still opportunities for specialist FI brokers like Willis to drive competition and dilute premium increases. While negotiations are getting more difficult, the market is still flexible.”
Financial institutions are likely to face increased due diligence from underwriters, the report noted, and as a result, clients are advised to begin the renewal process early and to be pro-active in responding to underwriter queries, to secure coverage at the best possible terms.
