Article img

Insider in Full: Contingency market roars back to life after pandemic reckoning

It has been a gloomy three years for brokers and underwriters in the contingency market, characterised by vast losses, market exits with accompanying redundancies and a shrivelling of income...

It is therefore something of a novelty to report that business is booming in the contingency space, with brokers and underwriters racing to secure coverage for a glut of events as the world moves away from a two-year period of pandemic restrictions.

After several years of dejection and uncertainty in the class, market sources speaking to this publication were upbeat and optimistic about the outlook for the sector.

“It is booming,” one broking source said. “It is a little bit crazy at the moment.”

Chris Rackliffe, head of contingency and accident and health at Arch Insurance International, said: “The outlook remains positive after two and half years of substantial losses and a limited flow of underlying business.

“The event industry is recovering and we’re seeing a flow of new enquiries as the sector is largely returning to pre-Covid levels.”

The pandemic catapulted the niche class of business to the top of the insurance industry’s agenda, with the line accounting for vast losses, despite its modest premium income.

"The event industry is recovering and we’re seeing a flow of new enquiries as the sector is largely returning to pre-Covid levels"

In the Lloyd’s market alone, the contingency line of business registered losses of £2.9bn in 2020, close to half the total claims bill from Covid-19.

Not only was the market battered by a huge loss event, it was then faced with an equally pronounced shortfall in income, thanks to ongoing restrictions on gatherings globally.

Even when restrictions began to lift, event organisers were still faced with the possibility that they would suddenly be reimposed, making planning for events a risky gamble, especially as the insurance market was loath to provide any form of pandemic coverage.

  

 

But as the world benefits from mass vaccination efforts, measures to control the pandemic are increasingly being consigned to the pages of history, and event organisers perceive a clear runway for planning and investing in large events.

The sentiment has led to a flood of business into the market, much of which needs to be turned around at top speed as organisers race to put on events at the last minute.

“There is a huge amount of business in the market now,” one broker said.

Sources estimated that market revenue was now likely exceeding pre-pandemic levels, thanks in part to substantial increases in pricing.

Market participants said that the key challenge for the sector now was establishing a pricing model that was both sustainable for market participants and attractive for clients, whose business models have been upended by the pandemic.

Pricing balancing act

The losses inflicted by the pandemic led to an unsurprising desire amongst underwriters to push up rates.

Sources said that rating uplift varied between sub-sectors, depending on their loss activity, and any form of pandemic coverage remains largely unobtainable in the commercial market.

Music festivals can expect rates at least 50%, and in cases up to 100%, higher than before the pandemic.

Meanwhile conferences and exhibitions, which were the source of large pandemic claims thanks to the widespread purchase of disease cover, can in cases attract rating of up to 200% above pre-pandemic levels.

Before Covid-19, the contingency market excluded pandemic coverage, but it was commonly available as a buyback.

One source said that previously it was often offered at a negligible price as a form of competitive advantage to secure business, but that the pain of the pandemic losses had prompted underwriters to tighten their discipline across the board.

"There will be an element that some people choose not to buy because they haven’t got the money"

“It has focused people’s minds about their exposures,” one source noted, highlighting weather risks for outdoor festivals as an area the market was watching closely, especially after the $40mn Bonnaroo loss in September caused by Hurricane Ida.

Underwriters acknowledged that some event organisers would opt to self-insure at current pricing levels, especially given the parlous state of their finances post pandemic.

“There will be an element that some people choose not to buy because they haven’t got the money,” one source said.

Brokers noted that clients were paying far higher prices for what amounted to less coverage, thanks to the lack of available communicable disease coverage.

A transformed marketplace

However, brokers highlighted that clients were now presented with a large spread of insurers willing to offer contingency capacity, with numerous carriers having entered the class of business off the back of the pandemic dislocation.

Amongst the major recent entrants are Arch, Convex, Fidelis, IGI, Castel and Cincinnati Global.

Some incumbent underwriters expressed frustration at the competitive terms being offered by carriers looking to build their books.

"Lack of reinsurance appetite and treaty restrictions have meant that overall market capacity has reduced for most areas of the contingency market"

Arch’s Rackliffe argued that the impact of new capacity on the market had been “limited”, as it had mostly replaced companies that had exited the space.

“New capacity has had a limited impact but has largely replaced capacity from companies that have exited the contingency market,” he said.

“Lack of reinsurance appetite and treaty restrictions have meant that overall market capacity has reduced for most areas of the contingency market.”

Overall, any frustration was tempered by a relief that market activity was roaring back towards pre-pandemic levels, with the future for the sector looking far healthier than at any point since Covid-19 brought the world to a halt.

 

Insurance Insider delivers global wholesale, specialty, and (re)insurance intelligence that enables you to act first. Redeem your complimentary 14-day trial for more premium content from Insurance Insider.

See more
See less
Share fluctuations
Beazley
602.5
GBX
+3%
Hiscox
918.4
GBX
+1%
Aon
301.5
USD
+1.6%
Aviva
467.9
GBX
+1%
Allianz
188.0
USD
+2.4%
Everest Re
275.6
USD
+1.6%
Gallagher
189.4
USD
+2.2%
Chubb
197.6
USD
+1.9%
Munich Re
238.1
EUR
+1.2%
Travelers
171.6
USD
+1.6%
Marsh & McLennan
172.7
USD
+1.4%
The Hanover
134.8
USD
+1.7%
See more
See less
Upcoming events