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Law360, London (January 4, 2021, 2:46 PM GMT) -- The cost of insurance for businesses globally rose 16% last year, a London insurance broker said on Monday, as tougher market sentiment has pushed insurers to limit exposures to losses connected to the COVID-19 outbreak.
Howden Broking Group Ltd. said in a report that insurers are hiking rates for businesses that were already facing "significant, even existential, financial pressures."
The broker said insurers were scaling back or withdrawing from underperforming lines of business, limiting the range of options available to consumers and contributing to higher prices.
"Whilst acknowledging the imperative of underwriting profitability…, insurers should weigh the implications of extreme price swings on trading relationships, particularly when some businesses are fighting for survival," Howden said in the report. "These market conditions will not last forever and memories will endure long after the cycle has shifted."
The global insurance market is heading toward what is known as a "hard market," a cyclical trend in which limited supply and increased demand contribute to higher prices.
Howden said the current environment is different from earlier hard markets, which typically occurred after major losses from hurricanes. But insurers' capital bases are "remarkably resilient," the report said, despite early warnings last year about the potentially damaging impact of COVID-19.
"Tighter capacity has been a result of checked appetite rather than capital destruction," the Howden report added.
Regulators are keeping a close eye on developments in the hard market. The Financial Conduct Authority warned the London insurance sector last year that it should communicate clearly to customers why prices were rising.
The Howden report said that reinsurers were by contrast "mostly circumspect and discerning" when it came to price hikes at the global renewal of policies, which took place on Jan. 1.
Nevertheless, property and casualty reinsurance rates rose by an average of 6% on the first day of the year, the biggest year-on-year increase in more than a decade, Howden said. "COVID loss experience, along with yet another hyperactive natural catastrophe year, were key inflating drivers," the broker added.
--Editing by Ed Harris.
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