Increased rates are unlikely owing to new market entrants, but insurance buyers should focus on long-term relationships.
Following a recent spike in large losses, some specialist power underwriters are re-evaluating their positions. However, the high level of capacity available in the London market is likely to temper any potential impact.
The increased frequency of large losses over the past eight months, originating from various causes – including flood, fire, and machinery breakdown – has caused concern among power underwriters operating on already thin margins.
As a result, this loss frequency spike could act as a brake on the downward trend in pricing. But a hardening of rates seems unlikely, given the high levels of capacity and competition from new entrants in the market.
Rate reductions have continued at similar levels for recent renewals – often double-digit percentage reductions – although there has been some tough talk in the market in response to losses.
It will be interesting to see if this talk turns into more meaningful action over the coming months, and no doubt established players in the power market will fight against further rate reductions. However, new entrants and the generalist property market (which mostly avoided the recent run of losses) are likely to be more accommodating.
Another evolving trend in the power market has been cyber risk. In December 2015 the sector witnessed its first documented malicious cyber breach, which was designed to take a power grid offline. This cyber attack against a Ukrainian utility company used malware to remotely switch breakers and cause an outage.
In response to this growing threat, insurers have been developing insurance products designed to provide cover for resultant physical damage and business interruption following an attack.
Tip for buyers
Long-term relationships and class-specific expertise hold real value in the power market. However, attention must be paid to new entrants, where they present high levels of security and have a reputation for good claim settlement.
For more information, please contact Sonia Caamaño, Senior Partner, Specialty Property & Casualty on +44 (0)20 7466 6202 or email email@example.com