Reflecting on 2022 and Looking Ahead: Charting a Course in a Heightened Risk Environment in 2023

January 16, 2023

As we bid farewell to 2022 and the third year in a tumultuous start to the 2020s, 2023 and what lies ahead, pose many questions for the insurance industry in the UK.

How will claims inflation and volatility impact insurers profitability and how can brokers assist their clients in a tightened underwriting environment? What are insurers doing to revive decreasing service levels to brokers? Why are cyber-attacks ever-increasing and what does this mean for insurance? What are the new complexities in the D&O market? What is driving the number of increased unoccupied properties? Which industries are hit the most by the inflation squeeze? How is insurance adapting to the remote and hybrid workforce? And finally, what are the new risks that are emerging from climate change?

We dive into each of those questions below in relation to their relevant insurance risks and the opportunities that each challenge presents.

How will claims inflation and volatility impact insurers profitability and how can brokers assist their clients in a tightened underwriting environment?

With inflation continuing to be on the rise, claims inflation will have a significant impact on insurers in several ways. As claims costs increase, insurers have to pay out more in claims, which impacts their combined ratio. Insurers, therefore, have to maintain their profitability by increasing premiums at renewal and for new business. This leads to pricing pressure and makes it difficult to compete in the market. Capacity may also be limited in certain industries or products as insurers become more selective about the risks they have an appetite for. This reduced appetite makes it harder for brokers to obtain coverage for their clients for certain types of risks. Furthermore, reserving and solvency play a big component here as insurers balance future financial obligations alongside their profitability.

Brokers need to be aware of the changes in insurers’ risk selection as underwriters tighten their underwriting criteria, adjust pricing and reclassify certain types of risks. The guidelines of the past may not be reflected in the criteria of the year ahead and the modern broker can utilise the latest technology tools to stay ahead of competition to continue providing excellent service to their clients. This is specifically important in an environment where underwriters change their risk selection. Brokers can successfully continue to provide excellent service to their clients in a few ways: automation of data collection and analysis to quickly identify any changes in risk exposures, advanced risk modeling to help more accurately predict and manage risks, market access specifically for changing risk types such as cyber and ESG and utilising platforms to stay ahead of changes in policy terms and pricing. This helps brokers be proactive in managing their clients’ insurance needs.

What are insurers doing to revive decreasing service levels to brokers?

Service levels in the insurance industry have become increasingly frustrating in recent years. One of the main drivers is the increasing complexity of the insurance products themselves given the changing risk landscape and the corresponding increase in the number of claims, which in turn impacts the complexity of the claims process. This leads to longer response times for quotations and makes navigating the claims process a lot more difficult. Additionally, with the rise of digital technologies and online platforms, consumers have come to expect faster, more convenient service in their daily lives. Those consumers are the brokers who are now frustrated with insurance companies that are not keeping up to the same standard that is readily-available to them as consumers.

In the hyper-connected world we currently live in, insurance companies can further utilise technology to improve their service levels to brokers in a number of ways.

1. Automated underwriting: By using automated underwriting systems for an array of risks from small to large, insurance companies can speed up the process of evaluating and approving insurance requests. This can help brokers obtain their clients’ coverage quickly.

2. Data analytics: Insurance companies can use data analytics to better understand broker preferences and to personalise the broker experience. This can help them to identify areas where service can be improved and to target specific broker segments with tailored and relevant products.

3. AI and Machine Learning: Insurance companies can use these technologies to analyse large amounts of data, identify patterns and make predictions about broker preferences. It can help them better understand broker needs and tailor their products and services to meet those needs.

4. Communication Platforms: Insurance companies can use integrated, end-to-end communication platforms where risk evaluation, messaging and documentation co-exist in order to provide a fast, efficient and personalised service.

Why are cyber-attacks ever-increasing and what does this mean for insurance?

Hackers increase cyber-attacks, specifically during recessions, because of opportunities to exploit financial vulnerabilities of businesses and individuals. The number of attacks also increase due to financial losses individuals face, leading some of them to crime and hacking. Data breaches and ransomware attacks have become more common, with high-profile incidents costing companies billions of dollars and having a significant impact on the operations of impacted organisations. In response to this, legislation aimed at protecting personal data and increasing accountability for companies has been imposed.

As such, many companies will increase their focus on cybersecurity and invest in technologies and strategies to protect themselves. Cyber insurance is increasing in importance as a way to mitigate the financial impact of cyber incidents, especially as they become more prevalent and sophisticated.

Insurance brokers can position themselves well in this rapidly evolving field by staying up to date with the latest developments and trends from legal and regulatory requirements, understanding of the different types of cyber risks that businesses face in their respective industries to familiarising themselves with best practices for data security.

What are the new complexities in the D&O market?

The D&O risk mitigation strategies, underwriting and claims landscape will continue to evolve due to a variety of factors. In the current macro environment, shareholders will continue to be more active in the governance of companies with an increased emphasis on directors and officers’ accountability, specifically on environmental and social issues. Regulators will also firm up their roles in the enforceability of laws and regulations in relation to D&O liability, including those related to financial fraud. As noted above, the growing threat of cyber-attacks also impacts D&O cover as it is an issue that will further contribute to rising D&O claims and settlements.  

Environmental, social, and governance (ESG) risks are becoming more relevant to the insurance industry and insurance companies are adapting their products to include coverage for these risks. ESG claims subject companies to greater scrutiny from regulators, investors, and the public. This makes it more difficult for companies to defend against D&O claims and may increase the cost of settlements and judgments. Some insurers are developing new D&O coverage options that specifically address ESG risks, such as coverage for reputational damage resulting from ESG-related claims.

To mitigate these risks, companies are implementing various strategies from conducting regular risk assessments, establishing robust corporate governance to enhancing risk management and compliance programs. While these strategies are robust from an internal perspective, brokers can further help their clients by providing unique insights from an insurance lens to implement measures that reduce D&O insurance premiums. This starts with staying informed about the risk landscape including emerging risks, alongside advising on governance practices and exploring new coverage options that may be more suitable for their clients' needs in a changing risk environment.

What is driving the number of increased unoccupied properties?

The number of unoccupied properties in the UK will continue to increase for a variety of reasons in both residential and commercial properties. Unoccupied residential properties increase primarily due to the economic environment. With rising interest rates and inflation, homes are becoming increasingly unaffordable. Changing demographics is also a contributing factor with people living longer and moving around more frequently.

Unoccupied commercial properties are further impacted by the new hybrid way of working and the reduction in demand for brick-and-mortar retail space. As businesses scale back offices, operations or are forced to close; many office spaces will become vacant. Higher e-commerce presence will lead to higher vacancies in retail units.

For unoccupied properties, the insurance market is becoming more challenging as the number of properties that are unoccupied for an extended period of time is increasing. Insurers are becoming more cautious about providing coverage for those properties, as they are considered higher risk due to the potential for vandalism, theft, and other types of damage. Many insurers are now excluding coverage for unoccupied properties or requiring additional endorsements or exclusions. Additionally, many insurers are also requiring more frequent inspections of unoccupied properties, which can increase the cost of coverage.

A complex set of factors will continue to impact the UK’s property market from demographic changes, economic conditions to changes in consumer behavior. The property owners insurance market will continue to evolve to meet the changing needs of customers and the increasing risks associated with unoccupied properties.

Which industries are hit the most by the inflation squeeze?

Certain industries are likely to feel the inflation squeeze more than others and those industries are the most vulnerable to rising insurance premiums as well.

Some of the sectors expected to be hit by inflation over the course of the coming year are construction, manufacturing, retail, transportation, agriculture and energy. Rising costs of construction, materials, goods and services, seed, fertiliser, fuel and raw materials will shrink operating margins for those industries. This in turn makes it harder to secure financing, to grow crops and to generate the required outputs.

Brokers can help alleviate the pain of their clients in these industries by providing them with expert advice and guidance on how to manage their insurance needs relative to the particular risks to each industry in a changing economic climate. They can help clients review their existing insurance policies to ensure they are still appropriate for their needs and budget, in addition to helping them attain more cost-effective or better coverage from another provider or providing them with combined insurance solutions that can be more attractive than stand-alone policies. As and when inflation eases off, brokers can then conduct another exercise with their clients for a full insurance review that reflects the market.

How is insurance adapting to the remote and hybrid workforce?

With the hybrid working model here to stay, improvements in employees’ lifestyles are counteracted by an increase in certain risks for insurers and their customers. Some insurers are offering new policies designed for remote workers and businesses to include new coverage for remote cyber risks and accidents that occur in a home office. Hybrid poses its own unique challenges as it straddles traditional employers’ liability when employees work from an office while adding new sections on coverage while employees are working remotely.

The Health and Safety Executive (HSE), a UK government agency that is responsible for enforcing health and safety laws and regulations, is renewing its focus areas due to the changing working environment. Compliance with the HSE is critical to obtaining and maintaining employers’ liability insurance. Some of its recent focus areas include overall mental health,  work-related stress and cyber security.

As such, underwriters are taking into account the increased cyber, liability, health and safety and productivity risks into account when pricing the premiums for employers’ liability and cyber insurance.  

What are the new risks that are emerging from climate change?

Climate change has already impacted the insurance industry with the acceleration of risks expected over the coming years. As temperatures increase and precipitation patterns change, water shortages and floods are both becoming more prevalent. Wildfires in certain parts of the world are also increasing. Droughts are becoming more frequent and severe, which leads to increased risks related to crop failure, loss of income and property damage. The increase in floods’ intensity and frequency damages properties, causes business interruption and leads underwriters to increase the premiums of those properties in high-risk flood regions.

Insurance companies are currently facing challenges in assessing and pricing the risk of these events, which can lead to higher premiums for customers. Additionally, some insurance companies are starting to exclude certain types of water-related risks from their policies, making it harder for businesses to get coverage. Whether data models have grown in sophistication and insurers have partnered up with specialised companies to assist them better understand and price those risks.

In Conclusion

A world that is more connected than ever and a tightened global economic environment pose challenges that lead to increased levels of risk. For an industry that exists primarily to transfer risk, innovative insurers and brokers now have ample opportunities to differentiate themselves, develop new products and grow their market share.

If you wish to discuss any of the above in more detail and how Upsurance can assist, feel free to reach us at

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