Last week I published a piece looking at some of the changes to financial regulation – of which there are a number – poised to come into effect in 2025. But while the impact of these changes will be significant, they are not the only trends set to shape the financial landscape over the year ahead – far from it.
From adjustments in pricing and coverage, to shifting client expectations, to the rise of digital assets and IPO activity, we foresee several wider market changes on the horizon, bringing opportunities and challenges alike.
Evolving market dynamics and client needs
Prior to the pandemic, the financial and professional lines market was incredibly soft – there was ample capacity to satisfy demand and encourage competition, a good breadth of cover across all policies, and very discounted pricing year on year. The spate of losses incurred over the pandemic, and their swiftness, caused a sudden surge in pricing which some colloquially referred to as a hard market – but this has proven not to be the case. While pricing was adjusted, the introduction of new insurers into the market over the past several years has quickly caused a plateau back to the original pre-pandemic levels, if not lower. With no changes in coverage or capacity made alongside the pricing, this latter element has therefore become the focus of many clients, who have more uniformity of choice than ever before in terms of the coverage offered across various providers. This is also not surprising given the economic climate, with operational costs increasing and regulatory changes (such as IFPR) removing capital offsets that made insurance financially beneficial as well as providing a risk management tool.
With such a level playing field on cost and cover, we expect clients to now begin considering their other needs. Are they happy with the interaction level of their providers; is the response time satisfactory; are they speaking with someone who has the experience to assist with any query they may have? Clients may then consider it pertinent to take a more granular view of their insurance placement in terms of aspects such as the claims service of their broker and insurer, any fluctuations the insurer may have had in risk appetite historically, along with bespoke insurance solutions that could be tailored to their business.
This is all theoretical of course, but with large catastrophe losses continuing to impact the insurance market along with the occurrence of high severity events such as Crowdstrike, it is only reasonable to expect that adjustments will need to be made in the future to keep this sector sustainable for insurers. As and when this happens, clients need to be confident in the ability of their insurance broker to navigate a wide variety of insurers, analyse and discuss their risk profile, and ensure service levels remain at an exemplary standard.
Continued digitisation and product innovation
As digital assets become more ingrained within society and regulation begins to emerge in domiciles such as the UK, more insurers should gain comfort in providing traditional policies (D&O, PI) for companies utilising cryptocurrency – in particular, those holding it directly. Given the more intangible nature of holding these assets – with so-called ‘hot’ and ‘cold’ wallets – and the valuation requirements that may be needed to transfer them into fiat currency, we expect products to emerge to the benefit of custodial firms and their clients in respect to loss due to fraud or negligence.
2025 also brings with it the first CSRD reports by large EU-listed companies and the ongoing adoption of ISSB-based sustainability reporting standards by non-EU countries, including the UK. For example, guidelines on funds’ names using ESG or sustainability-related terms will apply for existing funds from May 21st 2025, making it likely that insurance policies will adapt to align with the current framework.
There are other regulatory changes to consider such as AIFMD 2.0, and while this is not applicable to all AIFMs, the defining of loan origination and changes to leverage requirements in certain jurisdictions may bring more insurers into scope to provide terms, as well as giving such clients due consideration to look at insurance policies to manage the heightened regulatory risk that implementation brings.
The return of the IPO
Although the rate of IPOs peaked toward the end of 2024, for the first three quarters of 2024 there were just 946 IPOs. This is well below the peak of IPO activity in 2021, when there were 2,355 IPOs within the first three quarters.
This drop-off is a key economic concern within the UK, and steps are being taken to address the reduction – such as the FCA changes to the listing regime for London markets, which removes the need for votes on transactions and increases flexibility around enhanced voting rights for owners and founders. This simplification lowers the threshold for meeting the eligibility requirements to list in London and brings the UK into closer alignment with international standards.
In the event of an IPO, it is important to ringfence the liabilities associated with the offering of those securities. While D&O coverage can provide securities claims against the insured entity, it is more effective to segregate the IPO under a Public Offering of Securities Insurance (POSI) policy. This is tailored to cover the risks associated with the offering faced by directors, the company and any controlling or selling shareholders. Importantly, this leaves any existing D&O cover to operate separately, continuing to afford the directors full protection for claims arising out of their day-to-day roles within the business. POSI policies can also be bought for a period of up to six years in line with the statute of limitations, making them a useful one-time purchase to ensure future protection.
From a market standpoint, an increase in IPOs brings more of the above coverage requirements and premium into the insurers. With signs pointing toward more established companies making up the majority of those undertaking an IPO, we can hope this will cause a reduction in related claims and allow for a positive loss ratio in this line of coverage and growth in terms of market capacity.
Embracing change
Based on these trends – as well as the regulatory shifts I examined in my previous piece – 2025 promises to be a year of significant change for financial institutions. Embracing change, while being agile enough to take a bespoke approach to each client’s individual needs, will be crucial to ensuring success in the year ahead.
As ever, the BMS FINPRO team is here to help financial institutions – and their directors – navigate this ever-evolving landscape, so please don’t hesitate to reach out with any queries you may have.