How is London reacting to the hard market?
And, is your London Market placement strategy delivering for your business?
The London Market has always been set up to deal with hard-to-place, quirky, and niche risks.
Now, as regional insurers appetites are reducing, many insurers are declining renewals that they would insure in previous years.
How has the London Market reacted to the combination of the pandemic and the hard market?
Due to the hard market and the pandemic, Property, PI, hard-to-place Liability, distressed fleets, and other classes of risk are being pushed into the London Market, creating a challenging and competitive environment for brokers. This is causing the following changes:
- Insurer selection on risks
Usually, there is a balance for insurers through investment returns and underwriting profitability. Due to low investment rates, profit must be sought through considered underwriting. Insurers therefore can and must be more selective with the risks they insure as they are now relying on the profitability of books to a much greater extent than in previous years.
- Insurer pricing
Not only will insurers be more selective with the risks they are taking on, but they have been forced to increase rates due to many brokers looking to London for capacity where it cannot be found elsewhere. We are already seeing this in the market in many classes. Lloyds’s reported rate increases of 10.8% in 2020 which continued into the first quarter of 2021 and for many classes, we have seen much more of an uplift in premium than in previous years.
The previous experience of negotiating price with insurers for risks based on the estimates and exposure attributed to that risk is not the experience you would now receive.
Due to the increased selectivity in the market and reduction in capacity, the market is awash with many similar risks and it’s up to the retail broker to make their particular risk stand out. Brokers are now more regularly competing for capacity and having to use their skills, relationships and experience much more to retain clients and renew policies.
Leaders of retail brokers can ameliorate through considering their London Market broking strategy for all hard-to-place risks before their team approach the market, rather than on a case-by-case basis.
Is your London Market placement strategy delivering for your business?
Leaders of retail brokers should be considering the following points when developing their London Market placement strategy:
- Pick your London Market broker well
In the same way a client needs to pick their regional broker well, brokers should be picking their London Market broker carefully.
London Market insurers supply capacity to brokers they trust. They transact business with them more easily and provide more capacity to their selected London Market brokers.
This is replicated when a London Market broker prioritises a regional broker they have a close relationship with. When there is mutual trust and confidence in the commerciality of that relationship and support from that regional broker, they and more inclined to provide capacity.
- Consolidate your London Market placements
Once you have selected your London Market broker, focus on a strong relationship with one rather than an average relationship with many. We would recommend not getting two brokers involved on specific risks, particularly in a hard market as it may result in the closure of avenues in an already limited pool of capacity.
We have managed to secure deals on cases where the market had already been covered, however, this is not a sustainable strategy and will wear a relationship.
- Build trust
Due to the extended time and effort to quote in a hard market, trust and partnerships are required from the client all the way through to the insurer.
This is so everyone in the chain knows that when they take the time and effort to place a risk, all relevant points about the risk have been communicated and the order will be placed. That gives a whole degree of trust from the insurer down to the client that all these actions and efforts have a bindable opportunity at the end of them. Without that, it is difficult for the London Market broker to negotiate with the insurer from a strong position.
It’s all about trust from the client, all the way through to the insurer.
Challenges create opportunity
The challenges that the hard market and Covid have created are clear, however at Miles Smith and Specialist Risk Group, we believe there is a significant opportunity for brokers to do well and make an impact. On the flip side, there is also a significant risk posed for those who are unprepared.
Brokers who have an understanding of the position of the market and are thinking strategically about their London Market placement strategy will be in a much stronger position to continue to provide solutions to their client base, particularly for those with complex insurance requirements.
Look out for our next blog on our tips on how individual brokers can effectively navigate the hard market or sign up below to our mailing list and receive it straight to your inbox.
Alternatively, if you would like to speak to our Broker Relationship Management Team about your London Market placement strategy, click here.