Aon: how insurers are reducing exposures

Gaps in insurer appetite are widening

Aon: how insurers are reducing exposures

Risk Management News

By Daniel Wood

“The gap between the appetite and non-appetite business continues to widen,” said Tracy Riddell (pictured above).

Riddell is Aon’s head of product delivery for Australia. She was one of the authors of the giant brokerage’s Global Market Insights Report for Q4 2023.

In response to impacts from the more volatile areas of the market in 2023, the report’s authors say insurers are continuing to refocus their appetite in 2024, including in Australia and across Asia-Pacific.

“Insurers refocused their appetite on mid-market, risks with lower hazard ratings or less ability to generate large loss, well performing and risk managed accounts, with a view to balancing their portfolio and reducing exposure to large and catastrophic losses,” said Riddell.

How insurers are using improved data and modelling

Aon’s local head of product delivery offered insight into how insurers are using improvements in data and modelling.

Some industry stakeholders could be expecting these advances to present opportunities for insurers to get into more risky markets. Riddell suggested to Insurance Business that this is not the case. Currently, she said, the opposite is happening.

“As modelling and data improves, insurers are keener than ever to remove loss-making portions of their portfolio,” she said.

Riddell said examples of where insurers are removing more risky coverages include construction property insurance, abuse cover under liability policies, financial institution PI and bushfire prone geographical areas.

Resilience: does this word summarise 2023?

In the report’s opening chapter of this global survey, the authors summarised the general situation across the insurance market during 2023 with one word: resilience

According to the firm’s media release, despite economic volatility, geopolitical instability and natural disasters, the insurance market held relatively steady.

“Resilience shaped the risk and insurance community,” said the release.

IB asked Riddell to explain what sort of resiliency measures local insurers put in place?

“Insurers are responding to reduced capacity and exposure to natural catastrophe risk by increasing deductibles, reducing limits and, in some cases, excluding or declining natural catastrophe risks in order to reduce volatility within their portfolio,” she said.

Riddell said a focus was secondary perils, particularly storm, hail and bushfire.

“All of which share limited modelling advances,” she said.

Riddell said for well performing and “preferred risk types,” underwriting policies has been adjusted by providing “abundant capacity and competitive coverages and pricing.”

In contrast, businesses or sectors with more challenged risk profiles “faced greater underwriting scrutiny, higher prices and fewer options.”

Bifurcation is intensifying

She said bifurcation describes the contrast between the factors at play with preferred risk types versus more challenging risk types.

“We see this bifurcation in the market intensifying over the coming months with almost all insurers sharing similar plans for growth in less volatile areas,” said Riddell.

According to Investopedia, market bifurcation occurs when market movements like growth and value investments, move in different directions, “or when high-quality and low-quality securities move out of sync, causing one to perform much better than another.”

Riddell’s co-author, Paul Young, Aon’s head of commercial risk, Asia, captured some of these contrary forces at work across insurance markets in Asia-Pacific, including in Australia.

“There was clear evidence of a bifurcating market, with conditions still hardening in natural catastrophe exposed areas, but softening in most financial lines and mid-market property programs that were retained in domestic insurance markets,” said Young.

Pricing gently rising

The report also said insurance costs have seen a moderate uptick in both Australia and China. However, rates in Hong Kong, Singapore, and Thailand have held steady, showing no significant changes. Meanwhile, Japan was singled out for “a more challenging price environment.” Average increases there were as high as 20%, particularly in casualty insurance and for properties vulnerable to natural disasters.

Capacity is abundant

The report described capacity as “generally abundant” in Australia, China, and Hong Kong and “ample” in Japan, Singapore, and Thailand.

“Larger and more challenging risk profiles drove demand for alternative risk transfer solutions and long-term arrangements to insulate against market cycles and support greater stability and certainty over the long term,” said the report.

Five 2024 trends

The Aon report highlighted five trends for insurers to watch this year:

1. Cyberattackers will continue to exploit vulnerabilities and adapt their methods

2. The energy transition will require significant investment

3. Core inflation will remain subject to volatility

4. The worker-driven market will continue

5. Demand for parametric covers will continue to increase.

What insurance trends are you seeing in 2024? Please tell us below.

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