WTW’s Swift: “Unpalatable” rates and conditions forcing some business out of the market

Buyers are expressing increasing irritation and frustration at the current state of the insurance market as rate hikes and tightened terms and conditions risk becoming “unpalatable”, WTW’s Alastair Swift has warned.

“I think [buyers] are pretty irritated,” Swift, WTW’s head of global lines of business within the corporate, risk and broking division, told The Insurer TV.

“They look at the sub-95 combined ratios that insurers are delivering year-on-year, while at the same time they're having their terms and conditions reduced, and rates increased in certain lines of business. That starts to become quite unpalatable to certain clients.

“So there's quite a bit of frustration with the market and how it's responding at the moment in certain areas of the business. We've got to be very mindful, as an industry, that we don't push clients away from actually transferring risk into the insurance world,” he warned.

Speaking on The Insurer TV’s Leading Voices programme, Swift said the current market dynamics have, in part, been shaped by the somewhat disorderly 1.1 renewals at the start of the year, which had repercussions for the direct market.

The lateness of the buying cycle created a “mass of uncertainty” towards the end of 2022 regarding individual insurers and what they could actually offer to clients, he explained.

In addition, the impact of the Russia-Ukraine war began to appear on marine policies at the end of the year.

Swift noted that while this had already been articulated by reinsurers in the 1.7 treaties and at the Monte Carlo Rendez-Vous, there was general consensus in the market that reinsurers would continue to impose this on insurers at year-end.

“There was a bit of a scramble from that perspective but – as it always does – the insurance market adjusted quite rapidly and some saw it as an opportunity, whilst others had to cut back,” Swift said.

In its results commentary, Lloyd’s noted the market continued to see risk adjusted rate increases on renewal business across most classes, with the 20th consecutive quarter of positive rate movement being reported in the fourth quarter of 2022.

Risk adjusted rate change accounted for 7.7 percent of premium growth.

Buyers looking to self-insure D&O or take lower limits

Swift noted that as long as uncertainty and “frustration” lingers, buyers will seek out alternative solutions, citing what the market has witnessed following significant changes in the D&O market as an example of this.

Following several years where limits were reduced for buyers given the pricing trajectory - in some cases seeing hikes north of 21 percent - more clients made the decision to self-insure or buy lower limits, explained Swift.

“The crazy thing is, all the insurance market has managed to do through that process is now create a far more competitive landscape, because actually clients aren't all of a sudden coming back and deciding that they want to buy bigger D&O limits,” explained Swift.

“Τhey’ve got comfortable with the limits that they're buying, and now we see the insurers all of a sudden decide that this is a business that they want to write again, overcapacity leading to rate reductions, which just seems totally illogical if you're a client. Insurers need to be very careful in what they are forcing clients to retain.”

Swift identified the protection gap and increasing exclusions for ‘big’ risks as the key drivers of the wider trend of buyers considering alternative solutions.

“You will see more clients self-assume risk and, when they do, it doesn't naturally come back into the market, because people get comfortable with assuming that risk against their balance sheets where they can,” he explained.

“In all of this, what we need is to create a market where insurers have a viable return for their capital providers, but also clients have a product that they think is viable for them to buy. When you get this type of imbalance in the market at the moment, I'm afraid it leads to that protection gap increasing from a market perspective,” Swift concluded.

The Insurer TV talks to WTW’s head of global lines of business CRB division, Alastair “Swifty” Swift

Watch the 15-minute interview with Swift to hear his thoughts on:

  • How reinsurance dynamics are impacting the end client and relationships in the market
  • The impact of Russia-Ukraine more than a year on in aviation and marine
  • Whether the industry needs to be worried about business leaking out of the market as clients explore more self insured options
  • WTW’s bullish growth plans for 2023, with a focus on cyber
  • Whether a re-entry into reinsurance is on the cards