Insurance. Those within the industry would hope it conjures up visions of something dependable, long lasting, stable.
But year on year the insurance market is shifting quicker than could be imagined, according to Aon’s new report on navigating the changing market. According to the report, insurers are reassessing their business models, with “unprecedented loss levels” one of the main reasons why.
Chris Sutton, head of strategic broking, said that the Aon report highlights how much change there has been in the European market recently.
“There are some changes afoot, and some of the buyers are starting to feel that already,” Sutton explained.
The executive said that although there were multiple reasons for this, it is the claims environment that has caused losses for insurers.
“I think there are some key underlying themes which have driven it, and I think the obvious first one is around claims and the impact on profitability,” he said. “I think we’ve all seen the headlines about the challenging claims environment over the last few years.
“A lot of that has to do with catastrophes, but I think the pinch is really starting to be felt around man-made losses, around attritional losses, which have eroded, I think it’s just got to that point now where insurers are just looking and saying ‘we’ve got no more reserves left’.”
Sutton says part of the reason insurers are losing more money now is because their books are based on insuring for events that are happening more frequently than ever before.
“Look back over the last 10 years, in 2011 and 2012 with the Japanese tsunami, the earthquakes in New Zealand, and Superstorm Sandy in the US,” he said. “Then you go to 2017, with the hurricanes off the coast of the States, which I think is the third worst year on record.
“So you look at that space of time, the intensity, and the frequency of those big losses and then you go to last year, 2018 - it didn’t hit the peaks of 2017 but it was well above a normal CAT year. Are we seeing a trend? Arguably yes.”
This has led to a lot of concern in the industry and may lead to price increases, Sutton said.
“Rather than events being priced in at a 1 in however many years event, that is becoming a 1 in every five, or 1 in every 10 years,” he explained. “And I think there’s concern around that. How prepared are clients and insurance companies to deal with that? If you look at the loss numbers over recent years, there certainly seems to be a bit of a shift.”
Sutton says that as this has been coming for a while, Aon has a plan in place to work with clients on dealing with it.
“I think we’ve been in a protracted prolonged soft market going back many years, 10 years plus. I think it’s quite easy to fall into a certain way of working, a certain pattern of working,” he said.
“But I think the challenge now is if you want to get to where you were before, or even close to where you were before, we’re going to need to engage with you more and understand your business more. We’re going to have a closer relationship in terms of how we exchange information and understand what each other are doing.”
