Contingency

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in the 2019 in contingency sector.

Key developments in 2018

Mentioning the weather in an insurance context most often provokes thoughts of large-scale CAT losses, or wide reinsurance exposure, following a major event such as a hurricane or wildfire. Weather, however, also affects other insurance, not least contingency.

A basic contingency risk covers the risk of an event – a concert, a sporting competition, a conference or an exhibition – being cancelled or disrupted. There are many potential causes of cancellation and disruption but the weather is high on the list and, we would suggest, is likely to become an even more significant factor in this area.

There is a growing consensus that the world is experiencing weather that is both harder to predict and more extreme. This was made clear in March 2018 when the European Academies Science Advisory Council (EASAC) published its statement Extreme Weather Events in Europe. The statement was an update of a 2013 study, made following further analysis. In the statement, EASAC confirmed that the evidence was that both the frequency and economic costs of extreme weather events was increasing overall. The EASAC report noted that climate change “had increased the probability (in some cases substantially) of extreme events” including increased risks of wildfires and rainfall and associated floods. Perhaps ironically, the statement was prepared in part using data on natural disasters obtained from German insurer, Munich Re.

At one level, the EASAC report confirms what many are experiencing in practice. At the time of writing, Britain has had its joint hottest summer on record (the hottest ever for England) and there are severe wildfires burning in California. The EASAC report is, however, part of a growing identification that weather poses significant risks, and this is increasingly likely to be fed into the analysis of the availability of capacity and the pricing of contingency risks. Many insurers already do this in quite a sophisticated way, but more and more are likely now also to need to follow suit.

What to look out for in 2019

Look out for more of the same in 2019. As the data confirms that we are living in a world with a less predictable, more oscillating, weather pattern, the insurance market for certain types of contingency risk may harden. It may be one thing to obtain a contingency policy covering an indoor concert on one night (say) at London's O2 Arena. It may be another thing entirely to obtain cover for a three-day outdoor concert festival or a tennis tournament in an area that can fall victim to hurricanes, such as Florida, if we no longer have a clear picture of when the hurricane season is likely to occur. Such cover, where placed, may also be subject to more stringent restrictions ruling out all but the most extreme weather conditions.

Authored by Damon Brash.

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