The hospitality and leisure sectors were without a doubt the worst hit by Covid-19, with hotels, bars, restaurants and health clubs severely affected by the swathe of government restrictions and regulations imposed since March 2020.

Business owners were forced to navigate a plethora of changing Covid-19 rules and regulations, mandating when and where businesses were allowed to open, how services were to be provided and what measures were required to be put in place to protect the safety and wellbeing of staff and customers, whilst also seeking to remain financially viable.

This turbulent period forced many businesses to close their doors for good and countless more just about managed to stay afloat. Due to the importance of Business Interruption Insurance, it is unsurprising that many hospitality and leisure businesses continue to press their insurers for claim pay-outs, even where, upon first reading, the outcome of the FCA Test Case on Business Interruption losses does not appear to indicate there was cover.

The FCA Test Case was intended to provide answers, en-masse, to insurance coverage questions affecting thousands of businesses. Whilst the High Court and Supreme Court judgments went a long way to resolve the coverage debates, quarrels with insurers continue in relation to areas not directly covered by the Test Case, or where the outcome left uncertainties. Notably, Corbin & King, the owner of 9 upscale London restaurants including The Wolseley and the Delauney, recently issued High Court proceedings against AXA for a declaratory judgment that cover is available in respect of each of its premises up to the £250,000 limit of indemnity (a total value of £4.4m).

The question posed to the court was whether a sum insured of £250,000 applied just once to the entirety of the Corbin & King empire or applied to each entity covered by the policy? The court decided in favour of Corbin & King that each restaurant is covered for £250,000.

On 25^th February 2022, The Honourable Mrs Justice Cockerill DBE held that Corbin & King Ltd and its subsidiaries were successful in their claim against AXA for Business Interruption losses suffered as a result of Covid-19.

The case considered two important matters of principle:

the scope of the Non-Damage Denial of Access ‘NDDA’ cover, following the causation analysis of the Supreme Court in the FCA test case and quantum.

• Insurers argued there could only be cover under this clause if policyholders could demonstrate that it was an emergency by reason of Covid-19 in the vicinity, of the insured premises, as opposed to the country as a whole, which led to the actions or advice of the government.  

The judge concluded that the Supreme Court’s approach to causation should be adopted and that Covid-19 is capable of being a danger within one mile of the insured premises which, coupled with other uninsured but not excluded dangers outside, led to the regulations which caused the closure of the businesses and caused the Business Interruption loss.

• The judge also held that the ‘NDDA’ cover provided a separate limit of £250,000 for each individual premises in respect of each claim (rather than a single limit of £250,000 in relation to all of the premises for any one claim).

This judgment is a very important step for Policyholders in their efforts to recover the losses they have suffered, and continue to suffer, as a result of Covid-19.  Policyholders with ‘NDDA’ wordings who have been previously been told by their insurers that there is no cover, should be aware, therefore, that the doors to claiming Business Interruption losses are not yet firmly shut.

Those in the hospitality and leisure sectors have been particularly hard hit, and this decision will be significant for many of them.

As far as Hamilton Leigh’s clients are concerned, only a small number of claims are potentially impacted and we are currently reviewing those claims on a case-by-case basis. It should also be noted that the judgement may yet be appealed. On 23^rd March 2022, the high Court granted Axa leave to appeal the judgement, although it is unclear at this stage as to whether this will be pursued.

Regardless of the outcome, it should be noted that each policy and specific loss circumstances will be different, so each claim will be dealt with on its own merits.

A copy of the judgment can be found here.

One principal matter that remains ongoing is insurers’ treatment of “Furlough” payments, in the adjustment of Covid-19 Business Interruption claims (where coverage is established). While insurers largely agreed that government grants are to be ignored for the purposes of a Business Interruption indemnity, they have generally maintained that any support received in the form of Coronavirus Job Retention Scheme payments (Furlough), and Business Rates Relief, should either be accounted for as turnover or as a saving, thus reducing the value of the covered claim under the Policy.

Insurers are being challenged as a matter of common law, that such payments do not go to reduce the policyholders’ covered loss, and as a matter of public policy, government financial support provided to the hospitality and leisure industry and other hard-hit sectors was not introduced for the benefit of insurers.

The underlying question therefore remains: who should stand first in line to benefit from the government’s financial support measures – the hospitality and leisure industries which are still struggling to recover 2 years later, or insurers, who were largely cushioned from the effects of the pandemic?

The issue remains untested in the English courts, although a distinguished panel led by Lord Mance in the Hiscox Action Group Arbitration was reported in July 2021 to have found in favour of the policyholders on this issue.

We expect this subject to come under close scrutiny by the Commercial Court, when the issue falls for determination for the first time in the English courts in the forthcoming trial of Stonegate v MS Amlin in June 2022 and if successful, will be welcome news for many businesses that had ‘NDDA’ policy cover and who’s claim settlements were reduced by ‘furlough’ payments.

Hamilton Leigh will continue to monitor the outcome of these judgements and keep our clients abreast of all developments. Should you wish to discuss your potential Covid-19 Business Interruption claim in the meantime, please contact Jamie Foster (Head of Claims):

e: jamiefoster@hamiltonleigh.com

t: 020 8236 5368

The insurance market is currently going through an extensive period of ‘hardening’. Insurers are driving higher premiums and tighter terms and conditions, with particular emphasis on flood risk. This process will affect all sectors of the economy and it is crucial that business owners understand how this is likely to impact their insurance coverage and cost.

A major contributor to the ‘hardening’ market is natural catastrophe losses, which continue to escalate around the world. The systemic effects of climate change are here. Stronger and more frequent natural disasters, for example, are destroying homes and businesses at record-breaking rates and putting entire flood systems at risk.

2020 was significant in many ways. After three relatively dry years, winter 2019/20 saw major storms causing widespread flooding across the UK. Between November 2019 and February 2020, thousands of homes and businesses were flooded in South Wales, Northern and Central England and the Scottish Borders. These storms, costing in excess of £360 million, were a timely reminder of the challenge’s insurers face from the growing threat of flooding due to climate change. Furthermore, the flooding in parts of south Yorkshire and the Midlands in November last year added an additional £110 million to insurers claims costs.

The impact of climate change will see more than 1.2 million properties in the UK ‘newly at risk’ of flooding and 1.9 million addresses ‘newly at risk’ of subsidence by 2050, leading to a potential insurance liability of £122 billion, based on data from UK Climate Predictions and a 2˚C global temperature rise.

Global warming is already having an impact on our daily lives, but the effects of it will become far more tangible and extreme in the years to come. The reality is that global temperatures are continuing to rise and flooding is becoming more common place. If expected trends continue, a large number of properties will be newly impacted, which is why insurers have completely reassessed their flood mapping data to better manage their flood exposure.

As well as flooding, climate change is also increasing the risk to buildings stemming from subsidence. The dry summer in 2018 saw massive increases in losses and insurers are bracing themselves for a repeat of those losses in 2021/22.

As climate change brings more intense storms and rising seas, Britain faces rapidly growing and shifting flood threats; something few of those at risk are yet to be aware of, potentially facing the prospect of huge insurance premium increases, restricted flood risk cover or being unable to buy flood cover at all.

Insurers are exposed as Britain fails to confront flood risk

This lack of awareness, combined with fast-increasing demand for new housing, limited available land and often disjointed policymaking and regulation mean efforts to keep people and property safe are becoming more and more strained.

About 5.2 million homes and other properties in England are at risk of flooding. Sea levels have risen about 16 cm (6 inches) in Britain since 1990, making coastal areas more vulnerable to storm surges.

Heavier rainfall is degenerating surface floods away from rivers and shorelines, in places where we never previously expected them, as rain cannot run off fast enough. The Met Office has reported that extended periods of extreme winter rainfall are now 7 times more likely than before.

Owners of flood-prone homes in Britain can buy affordable insurance through Flood Re, a government and insurance industry initiative that shares the cost of flood risk across all home insurance policies sold.

Businesses, however, do not have access to this facility and, hit by more frequent and severe flooding, are finding it harder to buy or afford flood insurance coverage, raising the prospect of them being fully exposed to flood losses themselves. It is a sad reality that several businesses have been forced to close in this last year due to them being unable to secure flood insurance cover; required to satisfy their bank/stock funders.

We have huge pressures for growth in this country and government ambition to build more homes, presents us with a real dilemma. According to the Town and Country Planning Association, which campaigns for reforms in Britain’s planning system, increasingly relaxed planning permission rules meant more properties were being built in high-risk zones.

There’s also the added dilemma for many property owners and communities not wanting to discuss climate change and flood risks, fearing it might hurt their ability to get insurance or drive away buyers and investment.

Impact to insurers from losses related to climate change

Where global average temperatures have risen in the past, incidences of climate-related weather events tended to become both more common and more severe. Insurers protect society against these risks, and these events will continue to become more expensive to cover.

The insurance industry is, of course, used to dealing with losses from physical risks. For example, recent research suggests that the frequency of climatic natural disasters has grown as much as threefold since 1980. Despite such an increase, the industry has managed to demonstrate resilience and innovation in diversifying the risk. However, there is now concern whether further deterioration of extreme climatic events might result in an increase in the protection gap.

The first quarter of 2021 has seen many homes and businesses not previously situated in traditional flood risk areas, now affected by insurers’ reassessed flood mapping. This has had a significant impact on their insurance premiums and policy coverage. Hamilton Leigh has designed a Business Flood Plan template, available to all of our clients, in addition to a Flood Toolkit to help our clients proactively manage their flood risk exposure.

Invest in flood risk management

Business owners need to be investing in proactive flood risk management to provide practical and manageable solutions for underwriters to insure them against flood. To position yourself to do this as best as possible, working with knowledgeable partners is a must. Aligning with Hamilton Leigh to provide a united stance on presenting your requirements to insurers in the best and most accurate light is paramount for securing flood risk cover, where many businesses will struggle.

An increased frequency and severity of major weather events means a higher number of more costly claims for insurers to deal with, globally as well as in the UK.

To reduce exposure and resultant interruption to your business, it’s imperative that business owners recognise the need to improve their flood resilience, before the storm clouds gather, not after. 

What Hamilton Leigh can do to help you

• Design a comprehensive and robust Business Flood Plan
• Ensure your Business Flood Plan strategy is communicated throughout the business
• Communicate your Business Flood Plan with your insurers to demonstrate your proactivity
• Help you sign up for advance flood warning alerts in your area
• Create Flood Toolkit templates
• Guidance for the preparation of your property for flooding
• Agree a risk retention strategy that accurately reflects the business’s risk tolerance appetite
• Reassess loss prevention practices

The Environment Agency estimates that with proper flood preparation, most businesses can save up to 90% on the cost of lost stock due to flooding, with a proper Business Flood Plan.

It is now more important than ever to work proactively with Hamilton Leigh to ensure your interests remain fully protected.

For further information and to receive a copy of our Business Flood Preparation Checklist and Flood Toolkit, please contact your Hamilton Leigh client service executive or email floodrisksupport@hamiltonleigh.com.

The insurance market is currently going through an extensive period of ‘hardening’. Insurers are driving higher premiums and tighter terms and conditions, with particular emphasis on flood risk. As there are only seven specialist motor trade insurers operating in the open market, this process will affect all motor dealers. It is crucial that business owners understand how this is likely to impact their insurance coverage and cost.

Drivers of the hardening market 

The insurance hardening market cycle is being exacerbated by falling investment returns, changing legislation, as well as the onslaught of risks associated with the coronavirus pandemic and climate change. Insurers experienced higher claims across almost all product lines in 2020.

Global commercial insurance pricing increased by 20% in the third quarter of 2020; the largest quarterly increase in more than eight years as insurers attempt to reduce their risk exposure and reverse the squeeze on profitability.

A major contributor to the ‘hardening’ market is natural catastrophe losses, which continue to escalate around the world. The systemic effects of climate change are here. Stronger and more frequent natural disasters are destroying homes and businesses at record-breaking rates and putting entire flood systems at risk.

Between November 2019 and February 2020, thousands of homes and businesses were flooded in South Wales, Northern and Central England and the Scottish Borders. These storms, costing in excess of £360 million, were a timely reminder of the challenge’s insurers face from the growing threat of flooding due to climate change. Furthermore, the flooding in parts of south Yorkshire and the Midlands in November last year added an additional £110 million to insurers claims costs.

As climate change brings more intense storms and rising seas, Britain faces rapidly growing and shifting flood threats; something few of those at risk are yet to be aware of, potentially facing the prospect of huge insurance premium increases, restricted flood risk cover or being unable to buy flood cover at all.

Our businesses are exposed as Britain fails to confront flood risk

About 5.2 million homes and other properties in England are at risk of flooding. Sea levels have risen about 16 cm (6 inches) in Britain since 1990, making coastal areas more vulnerable to storm surges. The Met Office has reported that extended periods of extreme winter rainfall are now seven times more likely than before.

Businesses, hit by more frequent and severe flooding, are finding it harder to buy or afford flood insurance coverage, raising the prospect of them being fully exposed to flood losses themselves. It is a sad reality that several motor dealers faced closure in this last year due to being unable to secure flood insurance cover; required by their bank/vehicle stock funders.  

Invest in flood risk management

Motor dealers need to be investing in proactive flood risk management to provide practical and manageable solutions for underwriters to insure them. Knowledge of insurers’ flood risk strategy is paramount. Insurers’ will focus on external exposures, such as compounds, forecourts and the proximity to watercourses. They will also have to comply with strict accumulation limits within certain areas. Basically, if your insurer has reached their accumulation limit in your area, they will be unable to provide cover.

Insurers’ will need to understand what risk assessments motor dealers have completed in respect of flood exposures? Is there a robust business flood plan in place? Have you signed up for flood alerts? Do you have a contingent plan, should you need to move vehicles quickly?

Most vehicles will have low seals. Water only needs to reach around 30cm deep for these to be penetrated. Once a seal is broken, the vehicle is likely to be written off. There is also the need to consider the enhanced technology and complex electrics within vehicles; again, if water enters the electrics then the vehicle is likely to be written off.

These factors explain why vehicle water damage claims are getting more expensive and likely to get worse too, with the move to electric and hybrid vehicles.  

Working with knowledgeable partners is a must. Aligning with an experienced, proactive insurance broker to provide a united stance on presenting your flood exposure to insurers in the best and most positive light is crucial for securing flood risk cover.

To reduce exposure and resultant interruption to your business, it’s imperative that motor dealers recognise the need to improve their flood resilience, before the storm clouds gather, not after. 

What your broker should be doing for you now

There are numerous practices, such as designing Business Flood Plans, helping you sign up for flood alerts, create Flood Toolkit templates and guidance for the preparation of your property for flooding. Click Here for Hamilton Leigh’s – Major Changes to Flood Risk in the UK bulletin.

The Environment Agency estimates that with proper flood preparation, most businesses can save up to 90% on the cost of lost stock from flooding, with a proper Business Flood Plan.

Your approach to your insurance renewal can also make a difference. Start your renewal process early; insurers are becoming more selective about the risks they choose to write. Agree your renewal strategy with your broker; devise a plan to reflect your risk tolerance appetite. Be prepared to provide additional information as insurers now require more detailed underwriting information to demonstrate your risk management controls.

Hamilton Leigh has designed a Business Flood Plan template, available to all motor dealers, in addition to a Flood Toolkit to help proactively manage your flood risk exposure.

For further information and to receive a copy of Hamilton Leigh’s Business Flood Preparation Checklist and Flood Toolkit, please contact Lee Cohen on 07980 606886 or email floodrisksupport@hamiltonleigh.com.

As the third national lockdown continues, many are still unable to use their business premises. This may mean your business or your tenants have vacated the premises entirely or there is a change to the pattern of occupancy. In the past, the premises may have been occupied daily, whereas now they are only occupied on a limited number of days each week.

This could have implications for your insurance as most property insurance policies only provide cover where the premises are unoccupied for no more than a period of 30 days. Beyond this cover may be reduced or even automatically excluded. These conditions apply to both Building and Contents insurance.

During the first national lockdown, most insurers granted extensions to the 30-day limit, however, insurers’ have since ended these special arrangements. 

Given the current national lockdown, there is some uncertainty as to what stance insurers will take now if properties are vacated or unused or are only partially used.

The one known fact is that insurers must be advised where the occupancy has changed.

What you must tell us now:

If we arrange Business Insurance (Buildings and/or Contents) or Property Insurance for you as a property owner, please contact us if the level of occupancy has changed.

Examples of these changes include:

• Part occupancy or complete vacancy of the premises during the working week
• Significant changes to the opening times of business premises
• Changes to physical, intruder or fire security (perimeter fencing/gates, alarms or CCTV)
• Weekend occupancy (if not disclosed already)
• New subletting to a third party
• Change of tenants
• In the case of multi-tenure properties, details of any vacant units or properties.

Have you changed your business activities?

You must also inform us if you or your tenants have either changed or diversified your business activities so that we can inform your insurer. This also applies to any business activities that you may have ceased.

What Happens Next

Once you have contacted us, we will notify your insurer of any changes to your property’s occupancy or security. This will mean you are meeting your obligation of ‘disclosure of information that your insurers need to know’. Policy terms may change but we would expect sympathy from insurers where you are meeting this obligation.

Should you wish to discuss this in more detail, please contact your Hamilton Leigh Client Service Executive.

The Supreme Court handed down judgment on the FCA Business Interruption Insurance test case appeal on Friday 15^th January.

This largely agreed with the High Court ruling, in favour of the FCA and those policyholders with Non-Damage Business Interruption policy wordings. 

The case was brought forward by the FCA to appeal certain issues on which it did not succeed in the High Court. Six insurance companies also appealed certain decisions made by the High Court and responded to the FCA’s appeal. The insurers were Arch, Argenta, Hiscox, MS Amlin, RSA and QBE; all of whom had their appeals dismissed. 

The Test Case was designed to achieve clarity for policyholders, by seeking a binding court decision on the meaning and effect of the twenty-one sample policy wordings, provided by eight defendant insurance companies, albeit only six insurers appealed the High Court decision.

The sample wordings were chosen to be representative of those in the market that provide coverage for:

• Infectious and notifiable diseases (except where the policy contains a list of diseases or includes a limited number of notifiable disease).
• Official actions or advice which affect a policyholder’s ability to access or use the insured premises.

The Supreme Court also considered the issue of causation and the basis on which successful claims might be quantified.

As previously explained, the vast majority of insurers were not party to the test case, nor are their policy wordings impacted by the Judgment. This is because physical damage to property is required by the majority of policies in order for there to be a valid Business Interruption claim or the list of diseases for which cover is provided is an exhaustive list and COVID-19 is not included.

The Judgment document consists of 114 pages, therefore, the FCA will publish a set of Q&As to assist brokers and their clients in understanding the test case ruling. The FCA will also publish a definitive list of Business Interruption policy types that potentially respond to the pandemic based on data that we will be gathering from insurers.

We welcome the clarity that the Judgment provides and we expect any issues not addressed by the Judgment will be assessed on a case-by-case basis as part of the normal insurance loss adjustment process. This should apply to all government restrictions, whether national or local, provided that a relevant policy was in force at the start of the relevant lockdown period.

Although the judgment establishes a number of points of principle on policy wording interpretation, the key point to keep in mind is that each policy and claim will need to be considered on its own merits, guided by points made in the judgment.

The Supreme Court’s judgment will be condensed into a set of declarations. The FCA and all defendant insurers are working as quickly as possible with the Supreme Court to enable the Court to issue these declarations.  

While there may never be a way to completely make up for the financial losses that the pandemic wreaked upon businesses, the Supreme Court ruling is one of the most significant for business in modern times. The result should leave the insurance industry in no doubt that they should immediately start doing the right thing and settle valid claims.

We have studied the judgment in extreme detail and written to those clients with policies which we believe to be affected, albeit we are still awaiting the definitive list from insurers. Should you have any questions that you would like to discuss or require any additional support, please do not hesitate to contact your Hamilton Leigh Client Service Executive.

Please click on the link for the Supreme Court judgment here.

A summary of the ruling from Herbert Smith Freehills can also be found by clicking on the link here.

The Trade and Cooperation Agreement (TCA) signed by the UK Government and the EU on 24^th December 2020 ensures tariff-free trade for goods will continue as before. The agreement stipulates how the two economies will interact on a vast range of issues but it does not currently provide access for UK insurers or brokers to the EU’s single market from 1 January 2021. This will impact the arrangement of insurance for businesses, people or property situate in the EU. It does not however impact the insurance of businesses that simply sells their goods into the EU.

Both sides agreed during the negotiations to discuss financial services separately. In a document published on 24^th December, the UK. government said the agreement includes provisions to support trade in services, including financial services and legal services.

From 1^st January 2021, UK financial services firms (including insurance companies and brokers) no longer have automatic passporting rights. Passporting previously allowed firms to sell their services into the EU from their UK base without the need for additional regulatory clearances.

In order to continue to access the single market without passporting, UK based financial services firms will have to rely on ‘equivalence’ decisions, currently being negotiated between The Treasury and their EU counterparts.

The UK has implemented a Temporary Permissions Regime to support EU based firms operating in the UK with passporting rights but currently, there is no equivalent EU wide scheme for UK firms operating in the EU. We are hopeful an agreement will be reached during the first quarter of 2021. As Britain’s Services sector accounts for 80% of our economy and employs over 1.1 million people, this has now become a priority.

We have been taking proactive steps to provide our clients with compliant insurance solutions in a post-Brexit trading world.  Over the last year we have been engaging regularly with insurance companies and our EU broking partners, preparing for this eventuality and to identify and mitigate any potential risks to our clients and their businesses.

Hamilton Leigh is committed to ensuring we continue to provide our clients with EU cover solutions, with continuity of service for their risk and insurance needs in the EU and has formed an alliance with an associated partner brokerage; Crotty Insurance Brokers Ltd, based in Dublin and regulated by the Central Bank or Ireland. This alliance enables us to continue supporting our client relationships and to provide a practical solution for those clients with businesses, people or property situate in the EU.

With regards to existing insurance contracts, EU coverage remains in force up until your renewal, at which time we shall agree a strategy for the year ahead. Please rest assured we will do all we can to ensure any changes are as seamless as possible.

We shall be in touch with you over the next few weeks to discuss your EU cover requirements in more detail but should you require more information in the meantime, please contact your Hamilton Leigh Client Service Executive.

The UK formally left the European Union on 31 January 2020. Whilst we now have a Free Trade Agreement, uncertainty remains on whether this will be extended to facilitate access to the EU’s single market for UK financial services.

From 1st January 2021, UK motorists including road hauliers driving in the European Economic Area, Andorra, Serbia and Switzerland will need physical proof of motor insurance when they travel; commonly referred to as a Green Card, until such time as the EU Commission agrees that the UK can remain part of the Green Card Free Circulation Zone. The Green Card requirement will also apply to motorists in Northern Ireland driving across the border with the Republic of Ireland.

All European Economic Area (EEA) countries (EU countries, and Iceland, Liechtenstein, Norway) are part of a Green Card free circulation area, meaning that motorists based there do not have to carry Green Cards when visiting other countries in the area. UK motorists will be required to carry Green Cards for driving in the Republic and other EU states, until such time as the European Commission agrees that the UK can remain in the Green Card Free Circulation Zone.

Motorists failing to carry a Green Card when one is needed, risk having their vehicle seized and facing prosecution.

What is a Green Card?

A Green Card is an international certificate of insurance that proves you are insured to drive in the EU. They’re issued and signed by your vehicle insurer, and include your vehicle and registration details. You’ll need to have one with you if you’re driving in Europe and you’ll need a second one if you’re towing a trailer or caravan.

You also need to take your vehicle registration document (V5) to prove you own the vehicle and have a GB sticker on your vehicle and any trailer. In some countries you’ll need an international driving permit (IDP) Check if you need an IDP.

How long do they last for?

A Green Card can last for up to 90 days (or until you’re due to renew your motor insurance, if your renewal date is less than 90 days away), but you should check your policy booklet for details on how long you’re covered to drive in a single trip abroad.

What happens if my insurance renews whilst I’m driving abroad?

When you renew your insurance you’ll need a new Green Card for your new policy, even if you keep your insurance with the same insurance company. If you decide to switch to a new insurer, you’ll need to ask them for a new Green Card.

If you plan to be driving your vehicle abroad, please make sure you apply for a Green Card at least 3-4 weeks in advance of your trip as some insurers require a minimum of 3 weeks’ notice in order to produce the document.

What will happen if I don’t have a Green Card when I travel abroad?

You could be breaking the law, be refused entry into the European country, receive a fine and/or have your vehicle seized. Motor insurance policies do not cover loss or damage caused by the legal confiscation of your vehicle by HM Revenue and Customs, the police, a local authority or any other government authority – check your policy booklet for full terms and conditions.

What happens if I’m driving with a trailer or caravan?

You’ll need to inform us when you ask for your Green Card as you need a second Green Card for your caravan or trailer.

If you plan to take a commercial trailer weighing over 750kg or a non-commercial trailer weighing over 3,500kg, you must also register it with the Government before you can travel to, or through, most EU and EEA countries.

Summary

Although talks remain ongoing for UK financial services firms to replace passporting rights to offer insurance coverage in the EU, an agreement is unlikely to be reached for several months, if at all. If you are planning on driving abroad in 2021, we strongly recommend planning in advance to ensure you have the correct documentation.

For more information, please contact your Hamilton Leigh Client Service Executive.

Here are the key reasons why this will be the hardest insurance market in a generation:

For the past 16 years, UK businesses have benefited from the longest period of ‘Soft Market’ conditions on record; this side of the market cycle is characterised by low rates, high limits, flexible contracts, and high availability of coverage.

Soft market characteristics

In soft market conditions, insurance companies often try to expand their market share. They enter growth mode, offering cheap rates, attractive policy terms, and, when allowed, discounted coverage. In the most extreme cases, the soft market resembles a bidding war, to offer the cheapest deals. Brokers should have proactively shopped around for their clients but as more businesses moved to new insurance companies offering lower rates, profits for the entire industry began to reduce. On top of that, when focusing on growth, market share and share price, insurers relaxed their previously stringent underwriting attitude, resulting in rising loss ratios. A correction to this unsustainable situation (reduced profits and rising loss ratios) was necessary, forcing the insurance market to harden.

What is a ‘Hard Market’?

In the insurance industry, a hard market is the upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases. This can be caused by a number of factors, including falling investment returns for insurers due to low interest rates, increases in frequency or severity of losses, EU & regulatory intervention deemed to be against the interests of insurers and increased reinsurance costs.

Hard market characteristics

In a hard market, there’s less desire for growth and more of a restriction in the marketplace as insurance companies re-evaluate their books of business, their risk appetites, and how much capacity they want to present in the marketplace. In hard market conditions, underwriters often adhere to stricter standards in an attempt to correct any adverse loss ratios developed during soft market conditions. As a result, insurance rates often go up, the indemnity limits insurers are willing to provide decreases, and the number of players in the market reduce. This makes it harder for brokers to find coverage options, which means the insurers that are offering coverage can increase their rates.

Several factors have caused this rapid hard market? 

• launched in 2016, Solvency II which applies across the whole of the EU, placed a requirement on UK insurers’ to more than double their spare capital requirements. This has led to a number of insurers leave the market whilst others have significantly reduced their underwriting appetite and capacity

• The Ogden discount rate is a calculation used to determine how much money insurance companies should pay as compensation to people who have suffered life-changing injuries so that it will cover all their predicted future losses. When the Minister of Justice changed the Ogden table rate in December 2016, it meant that insurers had to pay out far more on larger personal injury claims. This figure shocked the insurance world, as reserves on catastrophic injury cases had the potential to double or worse.

• The insurance industry has endured persistent high loss ratios since 2013, primarily caused by an increase in frequency of severe property losses. Property rates in the UK were already far too low as we entered 2020 (affecting most commercial insurance policies).  Soft market rating had become completely uneconomic. Even if we ignore the terrible recent events, insurers needed property rates to increase considerably in 2020

• With property accounts already losing money, the last thing UK insurers needed were floods caused by storms Dennis and Ciara, estimated to cost well over £400 million. Climate change is causing insurers to struggle with correctly predicting floods, and they need to build up a pot of money to take care of the next set of bad floods which will inevitably be on their way

• Reinsurance is a key component of an insurers pricing model and rates will rise significantly leaving insurers with no option other than to reflect these increases in their rates and to reduce their market capacity

• When interest rates are high, insurers can get away with a certain amount of underwriting losses as they generate substantial investment income. Unfortunately, this is no longer the case, as the current interest rates are the lowest in the Bank of England near 300-year history. Insurers therefore have no option but to increase rates to balance their books

• Finally, it is estimated that the combination of Covid-19 insurance claims, reduction in business and investment losses will cost the worldwide industry in excess of £200 billion, making it the most expensive insurance event ever. Clearly the current FCA test cases will have a significant bearing on how much the UK insurance industry will have to pay out in Business Interruption losses relating to Covid-19 but this is unlikely to be determined for several months

Holistic View

This leaves us in the midst of rising insurance rates at a time when business risks are seemingly more prevalent than ever. Cyber breaches, climate change, pandemic, trade and professional risks are at the top of mind for most business owners.

Now is prime time for business leaders to take a thoughtful step back and reassess how they view and manage risk within their organisation. Insurers are in the business of risk but given the rapid hardening of premium and terms, businesses with a strong risk management perspective and a track record of low claim activity can avoid the sweeping increases of premiums and terms, likely to affect the majority of UK businesses. 

Taking a holistic view of risk can help identify ways to treat risk beyond just buying insurance. Analytical tools and a focus on total cost of risk can help businesses take a broader approach to managing and financing their overall business risks. Higher excess and/or deductibles are also ways to mitigate the continuing rate increases in the insurance market.

How Can Hamilton Leigh help you?

• Design and introduce a comprehensive and robust risk management programme
• Ensure your risk management strategy, systems & controls are communicated throughout the business to create a strategy of collective responsibility
• Communicate your risk management strategy with your insurers to demonstrate your proactivity
• Agree a risk retention strategy that accurately reflects the business’s risk tolerance appetite
• Investigate alternative risk retention options such as higher excesses and/or deductibles
• Reassess loss prevention practices
• Introduce you to your insurer to develop a strong, supporting business relationship

For further information, please contact Lee Cohen: M: 07980 606886 E: leecohen@hamiltonleigh.com

Throughout this whole period of uncertainty, employers have been required to react and make decisions quickly. Before returning to work, we would encourage businesses to take the time now to consider all options to create a safe working environment as this will be valuable in mitigating any difficulties and potential liability claims further down the line. Managing and overcoming understandable employee and customer concerns as to potential COVID-19 exposure once they are back at work, commuting or visiting places of business, will be far more challenging. To build such confidence, measures may be required which exceed the minimum required by official guidance.

Review the full update and government advice here.

In preparation for reopening your business and asking employees to come back to work, it’s imperative that your company thoughtfully constructs a return to work plan for its employees to keep everyone healthy and safe following the COVID19 pandemic.

A return to work plan is typically created to help reintegrate workers who have been injured or have been on leave. The plan includes details on how the worker will gradually return to work and any job related specifics. Its purpose is to formalise steps for a safe and quick return to work. Download the full guide to explore what your COVID-19 return to work plan should include.

Download the guide here