As insurance prices fell over the course of almost two decades, so did standards of care in underwriting as insurers scrambled to compete to win business at all costs, insiders say.
“The industry works in cycles,” says Catlin. “Broadly speaking, when you’re in a hard cycle [with prices increasing], contracts are tighter and then the market softens so they loosen up. There’s always a price to pay for loosening up, and it’s often an unintended price.”
Insurers are to blame for the appalling quality of policy wordings, says Bruce Hepburn, chief executive of Mactavish, which advises businesses purchasing insurance. Hospitality companies are being offered cover that excludes catering, he says. “The bottom line is, insurers have been caught with their pants down. They don’t do their job.”
Insurers have belatedly launched a rearguard action to close the expectation gap between them and their customers by explaining how much they are paying out, not just under business interruption policies but other lines such as event cancellation, travel and trade credit insurance used in supply chains.
Lloyd’s estimates that Covid-19 will be the second most-expensive event ever for insurers as they face $107bn (£88bn) in claims, eclipsed only by Hurricanes Katrina, Rita and Wilma in North America in 2005. Taking into account insurers’ losses on the investments they hold to make sure they can pay out on claims, the losses will reach a record $203bn, it says.
The ABI expects its members to pay £1.2bn for Covid claims, including £900m for business interruption, on top of the $4.3bn Lloyd’s expects its members to fork out.