A number of key indicators suggest that W&I claims activity in EMEA is on the rise with the result that 2021 is likely to see some significant shifts in the EMEA W&I insurance market as insurers seek to adapt accordingly. 

For a while, it seemed that the impact of COVID-19 on W&I claims might not be as significant as some commentators predicted at the outset of the pandemic: indeed, our notification count remained relatively stable in 2020 compared to 2019 (aside from a one-off spike in notifications in May and June as many countries emerged from lockdown).  However, since the start of 2021, there has been a noticeable uptick in our EMEA notification count.  In Q1 2021 we received more notifications than we did during the whole of the second half of 2020.  Furthermore, 42% of these notifications involve a loss or a potential loss that exceeds the retention – a noticeable increase compared to the second half of 2020 when the figure was only 27%.  This includes a number of medium severity ($1m-$10m) and high severity ($10m plus) claims, most of which relate to 2020 deals.  Indeed, 55% of our EMEA notifications in Q1 2021 were made within the first 6 months of the policy period.  This is much higher compared to the historic average of 32% as reported in our recent claims study released last year. 

The clear take away based on our recent claims experience is this: W&I insurers in EMEA are receiving more claims, more quickly, and for larger amounts than at any point in the past.  However, the reasons for this are not just connected to COVID-19, although this could be the catalyst for some claims.  Certainly, the pressures of COVID-19 and “stay at home” orders have meant that some key aspects of due diligence – inventory control for example – have been much harder to complete accurately.  This has been exacerbated by the fact that the time for due diligence has been compressed, sometimes by over half, in the rush to get deals done.  What we are seeing now is more deep-rooted.  It is the result of a long-period of increased competition, which has lowered prices, put downward pressure on retentions and widened coverage.  These factors, combined with the fact that insureds have become much more sophisticated in terms of how they use the product and increasingly systematic about assessing whether they have a policy claim post-acquisition, mean that W&I insurers have assumed more risk over the last few years at a time when pricing has gone down.  That is counter-intuitive and is clearly unsustainable.       

The impact of increased claims activity in EMEA is likely to be felt in a number of different ways.  Most obviously and most immediately, we are likely to see a rate correction in EMEA similar to the one already underway in the Americas, where rates increased by around 20% during the course of last year.  It is notable that the W&I insurance market in the Americas continues to thrive in this higher rate environment demonstrating that there is tolerance amongst insureds for price increases: insurers in EMEA should take heed and act now to bring about a price correction.