Covid and social inflation “accelerating” need to tighten T&Cs
Covid-19 and social inflation concerns have “accelerated” the need for reinsurers to tighten terms and conditions in liability and casualty lines, according to Christopher Donelan, CEO, Global Reinsurance, Sompo International.
Speaking to The ReInsurer, Donelan said that while the underlying primary P&C business has seen rate increases and tightening of terms and conditions, more needs to be done to address rising loss costs.
In particular, he noted liability and casualty lines remain at the “forefront” of the (re)insurer’s thinking with Covid-19 and social inflation accelerating a need for tightened terms and conditions.
“Reinsurers have been pushing in the liability lines. Social inflation and the market cycle has pushed this to the forefront of people making adjustments,” he explained in a video interview.
“Terms and conditions in liability, casualty lines for the last couple of years have been pushed where needed so if companies have issues with experience in their book of business we’ve seen the pricing mechanism of a quota share pushed down over the last couple of years.”
He added: “Covid-19 and social inflation have accelerated this process. Having said that we’ve already been adjusting a lot of those terms for the past 24 to 36 months.”
One thing that reinsurers are concentrating on is the need to reduce overall limits, Donelan said, pointing to an increased focus amongst carriers on risk selection.
“That’s relatively different for each company but overall as an industry conservatism and limits is more important than pricing,” he added.
Outside of property cat lines, Donelan forecast that Covid-19 will act as a “trigger’’ to drive changes in more specialty focused reinsurance markets such as marine, energy, and aviation.
“Some of those lines of business have been in a soft market for many years and again Covid-19 has been a trigger to accelerating some of the changes in this marketplace,” he explained.
The pandemic saw global trade “come to a halt” in many markets which has created uncertainty over losses in lines such as aviation and trade credit, he added.
“Specialty products have had some issues. It’s not only trade credit. Unfortunately, the general theme is that Covid-19 has accelerated a lot of the softer products that we need to get our hands around.”
One source of concern remains the uncertainty of the ultimate impact of Covid-19 on the industry.
“It’s something that’s uncertain so there’s always going to be a concern as to whether we’re reserving properly as an industry for Covid-19. Having said that, I give a lot of credit to those trying to get their hands around it at this point in time,” Donelan said.
“I think we’ll get into some sort of a landing space at some point in time but it’s been pretty remarkable that companies have been able to address this in the relatively short period.”
He added: “No one went into this year thinking that we have an issue of a pandemic and asking how we would reserve for it. The story is left still untold but overall the industry has done a relatively good job in trying to get their hands around it.”