UK property insurance; understanding the risks and moving forward

December 20, 2022

By Richard Brown, Head of Property (Retail) Sompo

For UK property clients, a variety of macroeconomic factors are likely to have an effect as we enter the year-end renewal season. Hardly anyone can fail to have noticed the impact that inflation is having on our daily lives. And in the UK property insurance market inflation is having an acute impact. The combined effects of the conflict in Ukraine, the overhang of the COVID-19 pandemic and its impact on supply chains and the availability of goods and materials, and other economic pressures mean that replacement costs for property damage have increased substantially.

This cost inflation means that valuations for replacement and reinstatement have increased, in some cases quite substantially – among our clients an increase in these valuations of between 5% and 20% is about the norm. We are working hard with our clients to ensure that, as we approach the year-end renewals, they are comfortable that they are adequately declaring their property values correctly. We want to ensure that they understand the impact price inflation might have on reinstatements, and we’ve been exploring the steps they have taken to understand this issue and to present representative valuations to ensure that there are no nasty surprises if an unfortunate loss event occurs.

But inflation isn’t the only factor that our property clients have to consider as we approach the busy year-end renewal season. The increased frequency of weather events around the globe has been having an effect on pricing for property insurance coverage as insured losses have ticked up.

Hurricane Ian, which struck in September this year, was a category 4 storm that caused devastation and tragic loss of life in parts of the south-eastern United States – notably Florida and South Carolina, as well as in Cuba. The deadly storm caused widespread property damage, principally from flooding and storm surge. Various catastrophe modelers’ estimates put insured losses from Hurricane Ian at as much as $74 billion.

While Hurricane Ian is the largest storm of this year to date, a number of other natural catastrophe events have caused significant property losses from secondary perils around the world this year. One of Australia’s worst ever flood events occurred between February and April in the south east of the country, with insured losses topping A$6 billion. And a series of windstorms – Dudley, Eunice and Franklin – that struck central Europe in February also caused large-scale damage and insured losses estimated at about €4 billion.

A magnitude 7.3 earthquake off the coast of Japan in March caused about $2 billion in insured losses, and the country has been hit by three other quakes of greater than 7 magnitude this year. Extreme rainfall in South Africa in April resulted in one of the country’s worst-ever natural disasters, with thousands of people forced from their homes and many hundreds losing their lives. The list of weather-related events goes on, and climate change appears to be affecting the frequency of adverse weather losses. It’s again vitally important, therefore, that insurance clients have a good picture of their underlying risks.

Market dynamics are also having an effect on property insurance in the UK and adding to the impetus for clients and brokers to begin renewals discussions early and armed with as much accurate information as possible.

In the property reinsurance market, rates have begun to move upwards – sometimes by large percentage points – in response to the inflationary environment, more frequent natural catastrophes and the war in Ukraine, among other factors. This, naturally, is having an effect on the primary insurance market too; the January 1 reinsurance renewals look likely to be challenging for many cedants. This pressure on rates for property reinsurance will inevitably mean that prices for some primary coverages will increase.

We, however, look at our clients’ risks on a case-by-case basis. We will continue to be transparent, pragmatic and look to provide continuity. As we approach the January 1 renewal period, the earlier our clients can come to us with their risk information – and the more accurate and detailed that information – the better. This gives us the chance to work out the best coverage and price, in communication with those clients.

As we look forward to 2023, Sompo will be able to offer lead service capability for UK corporate clients. In the UK they will have access to our multinational platform and claims and risk control capabilities which we have been enhancing and developing.

We are excited to work with our current and future clients to offer an alternative to the established players. Our doors are open to talk about this somewhat challenging environment and the ways in which we can help clients navigate the year ahead.

A version of this article was first published in Insurance Day on 12 December 2022

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