In 2018 the insurance industry experienced continued consolidation of the market, and further bottom- and top-line growth can be expected going into 2019. In the past year several high-value deals took place, such as AXA’s $15 billion acquisition of XL Caitlin, reflecting the industry’s strength, as well as its leading players’ eagerness to expand and discover new clients. The Asia-Pacific region is becoming more significant in the global market, and this is a trend that is predicted to continue throughout the coming year. Practitioners we interviewed continue to advise and represent their clients on a diverse range of insurance issues. Some of these are familiar, whereas others reflect more recent developments, relating to, for example, the #MeToo movement, the legislation of cannabis and Brexit.
The insurance sector has been impacted by social changes that arose in some of the biggest news stories in 2018. Over the past few years, cannabis has become legalised in some regions of the US and Canada, and now constitutes a major industry, demanding both commercial and personal insurance coverage. Some practitioners we interviewed this year have seen a significant amount of work relating to legalisation, such as advising other jurisdictions on due diligence. In the USA, there are still complications for companies seeking to provide coverage for cannabis, since any use of the drug is illegal at a federal level, and there is limited data that would allow for assessing the various risks involved. However, in the next year we can expect to see some interesting developments in this area.
The #MeToo movement and claims arising from it have also given rise to new issues for insurance lawyers to tackle. Corporations, employers and regulators have a responsibility to safeguard and support victims of sexual harassment and the reputation of individual figures, including prominent names at multi-billion dollar companies, and increased awareness has led to increased risk for organisations. Practitioners we spoke to reported cases involving boards of directors being sued for failing to deal with reports of sexual harassment. Directors’ and officers’ (D&O) policies and employment practices liability (ELP) policies can offer coverage for sexual harassment claims. Therefore, it has become extremely important for companies to work with insurance brokers to ensure the best possible coverage for employment liability and D&O claims, as well as assessing and improving company-wide behaviours.
Climate change continues to be a major global threat impacting economic, human and environmental structures, but dealing with the financial risk of climate change is now becoming a major issue for insurers. This is reflected in recent studies and discussions taken by leading financial institutions, as well as the founding of organisations such as The Sustainable Insurance Forum in 2016. Proposals have been given by the G-20’s Financial Stability Board Task Force on financial disclosures relating to climate matters. Some of these include disclosure of board oversight and the role of management in evaluating climate change risks. A growing understanding of the responsibility for organisations to tackle and deal with the issue of climate change means that insurance lawyers are seeing an increase in work involving D&O liability in this area. Lawyers will have an important role to play in wording policies and dealing with potential future claims.
Climate change is also having a direct impact on the insurance industry through an increase in climate-related disasters, such as drought, wildfires and heatwaves. Swiss Re calculated that, in 2017, there were $144 billion of insured losses as a result of natural and man-made disasters, the highest amount ever recorded. As the Sustainable Insurance Forum and IAIS International Association of Insurance Supervisors have stated, “Insurers play a critical role in the resilience of households, firms and corporate sectors to physical climate risks, which will become even more important in the future as impacts begin to manifest with greater intensity.” Looking into the future, it will be crucial for the insurance industry to protect itself and others from the effects of climate change.
Technology continues to be a leading topic for practitioners working in insurance. Transactions involving insurers and reinsurers investing in insurtech start-ups were busy once again in 2018, with the number of investments matching the high of 118 in 2017, according to Willis Towers Watson. These start-ups are still mostly focusing on personal lines insurance, but there are more cropping up in other commercial areas of insurance. Cloud computing is now widespread among insurers. However, with this development, attention to cybersecurity and liability has grown. One interviewee remarked this year: “With new technologies and new ways of selling insurance, it is increasingly difficult to keep in line with GDPR, and complex legalisation is expected to follow.” Several practitioners we interviewed mentioned cyber matters as a key area requiring attention. Many we spoke to are regularly involved in advising clients on cyber risks, as well as “making sure policy holders are compliant” regarding cyber liability.
The development of self-driving cars is also a hot topic of discussion within the industry. Technological progress in this area poses crucial problems for the auto insurance sector, with some claiming that auto insurance becomes dispensable if no one is behind the wheel. However, others highlight that although there will no longer be the risks associated with human error, there will be new and unique risks involved with fully automated cars. In future, liability will most likely shift from the individual to the manufacturers of self-driving cars and those who license the software. As the Association of British Insurers has emphasised: “While car manufacturers are producing innovative hardware and software, insurers are innovating their products to make sure vital questions of safety and liability are answered.” Insurance lawyers will inevitably have a leading role in assisting the industry with respect to the new risks and questions raised by the evolution of technological advancements in areas such as this.
As ever, insurance and reinsurance lawyers have seen high workloads as the industry continues to thrive, although some noted that disputes have decreased. With further consolidation being seen in the industry, competition for legal work is fierce. Clients are said to be applying significant pressure on lawyers with regards to legal costs, with one interviewee remarking that “the insurance market seems to be particularly savvy with fees, wanting as much clarity as possible.” In the coming year we can expect to see some interesting developments.
Further analysis on the insurance market will be published throughout the year on whoswholegal.com. Visit our website to subscribe to briefings about the topics you are interested in or to read all of our analysis and market insight.