The product recall market is in a state of flux and for brokers, insurers and clients alike, there is uncertainty about the future. Rob Marshall, head of our Product Recall team, sums up the current state of the product recall market, examining the causes and consequences of market fluctuations.
The product recall market in brief
The rise of domestic markets in the US entering the class appears to have plateaued, with soft rates, widening coverage and severity of claims all taking their toll. The wider casualty space is suffering with widespread reports of Insurer losses, putting pressure on Recall underwriters to increase rates in line with their casualty counterparts. We are seeing a number of non-renewals from US Insurers, causing headaches for agents to find suitable alternatives for distressed clients. One consequence is the inflation of self-insured retentions by insurers in many areas, more akin to the catastrophic class of insurance it was intended to be.
What is causing this volatility?
US food companies still account for the majority of buyers in the recall market, although rates are going up in this sector more than in any other segment. FDA pressure, rapid improvements in testing procedures and brand damage in the media have caused an increase in both frequency and severity in claims activity.
How are insurers responding to these challenges?
The most successful recall insurers appear to be those who have diversified their portfolios from solely writing US food clients, in order to balance their books. We are now seeing London underwriters actively seeking out alternative industries including automotive, aviation, cosmetics, medical devices, and the technology sector to name a few.
Line sizes are shrinking, with many insurers preferring the quota-share model, the benefits being one seamless policy and a single point of contact for claims handling. This can result in the need for extra markets on a renewal or layer(s), making a spread of relationships with different Insurers crucial at this time in the market cycle. This coincides with buyers becoming more educated and comfortable with the various recall product(s) and opting for higher limits for true balance sheet protection.
Insurers are also looking to diversify their geographical spread of risk. Clients worldwide are becoming more aware of the recall products and their huge benefits in the event of a crisis and more countries are now exploring these insurance solutions. RKH have had recent success placing business from Europe, Australasia, South America and the UK, with further interest coming from Africa, South East Asia and Scandinavia to name a few. The majority of buyers are still from North America, however this is changing just like the market is.
Positive outlook for the London market
London is seeing new capacity enter for the first time in a few years. HDI Global Specialty began writing recall in September with recall veteran David Palmer at the helm, and the market has already seen the impact of a new hungry entrant with a huge balance sheet attempting to obtain market share – their minimum sales threshold of USD 100m+ underlines the space in which they are looking to compete. Another new entrant in November is Perigon, an MGA backed by Bermudan insurer Fidellis, and led by the experienced Ian Bailey who joins from Hiscox. This will again present opportunities for new and existing buyers to explore options previously unavailable to them.
What will the next 12 months look like?
The US casualty market looks like it is in for a tough period over the next 12 months and beyond, with premiums going up. The London marketplace is primed and ready to assist those clients who are unhappy with their renewal pricing, or who are looking for a fresh solution to their product recall needs.
For further details, please get in touch with the Product Recall team.
