Pandemic-induced market dynamics could result in Class of 2020

As the ongoing COVID-19 pandemic continues to alter the global economic outlook and influence the dynamics of the risk transfer space, there could be an opportunity for the new, specialist players to enter the P&C space.

This is the view of Adderley of global law firm Appleby, who in a recent interview with Artemis, discussed the potential impact of the coronavirus outbreak on the Bermuda market.

“I think this is going to drive new startups, and I realise that’s different,” he began.

Over the last ten years or so, market sentiment has generally suggested that you’re not going to see another Class of 2001 or 2008. With the exception of Convex last year, for the most part, the P&C side of the business hasn’t really seen startups, but has seen capital raises and sidecars.

“Everyone says that they are gone and that we’re never going to see them again. But, I wonder now if that’s going to change,” said Adderley.

The reason for this, he explained, is that for the first time in a while, you can actually say that everything is coming together.

“We know there was a firmer market in Jan 1 renewals, and everyone thinks it’s going to get firmer and even more robust in June. And, if people thought June was getting even more robust, with COVID-19, it will be even firmer.

“We also know that we’ve had ILS funds who had lots of redemptions. We know people are recalibrating their investment portfolios and coming out of the ILS space, so we know there’s less money in ILS, which is going to impact the market.

“Add to this COVID-19, plus the issues around governments or courts either a) making insurance companies pay for claims when it wasn’t covered by COVID-19 or b) start taking a more liberal view of clauses in agreements, which might have covered COVID-19, and that’s going to spook existing institutional investors,” said Adderley.

Adding, “If you came into the market today as a brand new startup, at the time of a more robust, firmer market, knowing what you know today about all the issues of courts and everyone else talking about pandemics and so on. You are able to draft contract word and language in such a way now to make sure pandemics aren’t covered, or, maybe you write this line directly, maybe it’s a bit like cyber insurance. You’re a specialty in pandemics.”

According to Adderley, the only negative to launching a startup in the current environment is that, when world economies fade, people have less money, which means they have less money to spend on insurance.

The duration and severity of the pandemic in all parts of the world remains uncertain, but as some regions in the U.S. and other parts of the globe start to think about relaxing social distancing measures, the trickle down effect could result in an opportunity.

Adderley doesn’t expect there to be a flood of new businesses as was the case in 2001, but said that he thinks there is a strong possibility that the market could see the emergence of another startup or two.

“For once, you could argue that everything works that way. We always wondered what it would take for a new startup to come about, maybe it was a pandemic,” said Adderley.