Charles Seymour, Managing Director, Rural Division
Most of the major insurers in the UK, like other sectors of the financial services industry, have not been immune to the severe economic downturn experienced in 2008. Although spared any severe weather related disasters, the economic climate has impacted considerably on investment returns and an increase in the cost of catastrophe insurance would now appear to be inevitable. Swiss Re recently reported that the volume of claims on both natural and man-made disasters almost doubled last year from £33 billion to £50 billion and the Norwich Union results for 2008 demonstrate only too well how margins have been squeezed. Profits increased to £305 million, but this figure included £106 million of reserve releases and this when weather related losses had improved by £235 million.
At this stage of the economic cycle, when the security of many seemingly secure financial institutions is being questioned, it is most important for brokers to only recommend those insurers who have a sound credit rating and who will be most able to pay claims, and it is for this reason that we at Lycetts have always placed our estate insurance risks with recognised names who satisfy these criteria.
How best to plan for a period of rate adjustment is where our advice is of most benefit. It is important for our clients to recognise how an estate risk is evaluated by insurers, so that it can be presented to the market in the most appropriate manner. A detailed history of losses paid and outstanding over a three to five year period will be required by any underwriter and such losses will be examined to ascertain whether there is any discernible pattern. One-off catastrophe claims will probably not have a significant impact, but a history of regular claims, often for relatively small amounts, will send all the wrong signals. Insurers would expect an insured to 'act as if uninsured' at all times and to look upon their policy principally as a guarantee of protection against a catastrophic event. They should not be regarded as a means of providing indemnity for day to day repairs to poorly maintained farm buildings, which will always suffer damage in storm conditions if not properly looked after.
We recommend that our clients consider carrying voluntary excesses not only to help to reduce the impact of any increase in premiums, but also to ensure that the claims profile of an estate is sufficiently good for the risk to be fully marketed at renewal. A poor claims history will severely restrict our ability to carry out such an exercise and in extreme circumstances will entail existing insurers imposing special terms and other insurers possibly declining to provide a quotation.
Some of our estate insurers now offer a low claims rebate clause. This allows the policy holder to become more closely involved with the performance of their account, benefiting financially when claims fall within certain parameters. Typically a return of premium amounting to 10 per cent might be paid if claims in the previous year are below 15 per cent of the gross premium and a cheque will be issued after the policy has renewed for the coming year. It is interesting how often the claims experience of an estate will improve if such an agreement is entered into, and although not all insurers are at present prepared to offer these contracts, we view it as a welcome development.
A period of belt tightening can be beneficial in that it focuses the mind on the relevance of all aspects of the insurance cover and it is for this reason that our account executives prefer to visit their clients on a regular basis to carry out a thorough annual review. What was the traditional landed estate of the past has often been replaced by a highly efficient and multi-faceted commercial operation encompassing a diverse number of activities that are constantly evolving and require expert advice that may well encompass not only our rural practitioners, but also our commercial, financial services and bloodstock divisions. We really are able to offer an all-embracing service and we continue to believe strongly in developing and nurturing our geographically diverse, always interesting and extremely loyal client base.
