Engineering insurance rates are continuing their downward trend across all classes of business following the costliest hurricane season ever and a series of large construction claims, according to the International Association of Engineering Insurers’ (IMIA) Index 2018.
The Index, which compares the movement of rates from a base point in 2010, showed strong rate decreases across many classes, with rate drops of 70 point (from 130 to 60 index points) experienced for civil/infrastructure construction and industrial erection covers.
IMIA also found that, for operational covers, the index level of power and heavy industries fell by around 50 points (from 115 index points to 65), while oil and gas fell 70 points (from 140 to 70).
“The situation is unsustainable,” said Oscar Treceno, Chairman of IMIA, at Association’s annual conference in Singapore. “Continuous rate decreases over such a long time, despite everybody’s obvious expectations, combined with major losses is leading to players abandoning the engineering segment, shifting long-term/long-tail products into other lines of business, and laying-off of underwriters.
“In a worst-case situation, one could imagine this line of business disappearing completely if things don’t improve.”
Stephan Lämmle, a member of IMIA’s Executive Committee, also commented: “We believe a more intelligent approach is needed to address declines. Active portfolio management and the application of adequate terms for engineering risks, in combination with insurance and engineering expertise, are the first steps needed.
“This should go along with the development of new products and services involving insuretechs, data analytics involving artificial intelligence and the internet of things solutions to match today’s trends and challenges in the engineering risk landscape.
“Such strategies will result in adding value, boosting productivity and cost-reducing risk management support for clients and the launch of a new era of engineering insurance.”
The IMIA Index is designed to provide an insight into engineering insurance rate variations and to allow companies to keep track of current pricing trends, compare them with past levels, and use the information to complement or fine-tune their available rating tools.
Lämmle explained that, going forward, IMIA will continue to work with insurers to raise awareness of the threats that can result from too heavy a focus on the top line and market share, as well as the consequential market conditions.
“IMIA’s position is that increasing transparency and awareness assists management in making sound decisions and adopting sustainable underwriting strategies,” he added.