Insurer Capacity, Explained…on
Capacity, put simply, is how much insurance an insurer can offer. There is often a common misconception that insurers have the ability to provide unlimited amount of cover. Whereas, insurers must in fact maintain enough capital to carry the risks that they write. Should they take on more risk than they could afford to pay out in claims, then they would become insolvent in the event of total loss. As such, Insurers will often purchase reinsurance to guarantee they have sufficient capital in respect of paying the claims.
When we talk about ‘capacity,’ we could be talking about one particular insurers annual ability to take on risks, or it could be their reinsurance agreement which limits the amount of risk an insurer could take at any one location, without the need to purchase further reinsurance.
However, there are ongoing discussions all the time in respect of market capacity. This is often in respect of one segment or trade sector. In recent times, there are a number of insurers who have had to pull out of certain sectors or trades and can no longer offer terms at any level, due to underwriting losses and predicted underwriting losses.
Effectively, this means that despite there not being a reduction in businesses in that trade sector in the UK, the amount of insurance available has considerably reduced. This potentially means that insurance may not be available, allowing insurers to become highly selective as to which policies they will and will not write. When markets harden this way, the importance of having a broker present your business accurately to an insurer is crucial.
Contact us today to discuss your requirements further.