A new report, “Navigating a Changing Insurance Market,” released today by Aon plc has found that the commercial European insurance market is at the cusp of a more consistent shift towards firming market conditions, that will have a strong impact on buyers.
Aon’s report finds that this shift is being driven by insurers’ response to high-levels of man-made and catastrophe losses, increased operational costs and evolving buyer demands and risk exposures. In 2017 and 2018 alone, global natural catastrophe losses reached record-levels of US$247 billion. This unprecedented rise in catastrophe claims has been coupled with increased uncertainty surrounding future losses, as buyers place greater importance on evolving exposures such as reputational risk, intellectual property, cyber and non-damage business interruption, where there is limited historical data and less-mature risk models.
For commercial insurance buyers, in certain areas of the market, this shift in market conditions is likely to mean increases in rates, capacity constraints, tightening terms and conditions and a more critical attitude from insurers towards risk selection and risk management practices.
The extent to which buyers are experiencing these effects varies from country to country across Europe and by line of insurance. The report has found that there are more challenges where buyers are not providing enough underwriting information or allowing sufficient time for their renewal process. Conversely, if a business has a good loss record, supporting data, proactive risk management programmes and a thought through strategy, there are still deals to be done in the market.
In the UK, the commercial insurance market is entering a more disciplined phase, and the report finds that buyers will need to focus on providing sufficient risk information and allowing enough time for the renewals process. D&O, marine cargo and professional liability are the business lines most impacted by the changing market, whilst food and waste are challenging sectors for property and business interruption, with a focus on risk management quality. The Grenfell Tower block fire has triggered challenges for professional liability, leading to rate rises in design, construction and other similar professions.
The Aon insurance market heat map confirms that in the UK there can be greater challenges for smaller companies, where buyers are providing insufficient underwriting information or not committing enough time to their renewal process. As the quality of the risk submission becomes more important to ensure optimal renewal terms, organisations will need to articulate to the insurance market how their risk is better managed than that of their peers.
Aon’s Hugo Wegbrans, Chief Broking Officer EMEA said: “Commercial insurance market conditions have been very favourable for buyers in the past decade, underpinned by a prolonged soft market period. This, along with continuing loss activity, has led to a consistent change in insurers’ attitudes with a renewed focus on profitability. How we respond to the changing market as an industry is critical. The market is firming, and buyers need to rethink their approach, ensuring there is an increased exchange of information between parties throughout the year to avoid surprises at the time of renewal.”
Richard Waterer, Managing Director EMEA, in Aon’s Risk Consulting practice, added: “As the market becomes more selective, buyers need to be proactive around the renewal process and improve the marketability of their risk profile. Businesses need to focus on developing stronger risk management programmes, identifying areas where claims can be managed and reduced, and increasing collaboration between the insurance buying function and their broader enterprise risk management team. Through working with their broker to ensure that insurer relationships are strong and risk data is robust, as well as considering alternative risk financing, such as the use of captives, businesses will be better prepared to navigate the impact of a changing market”
Additional findings from Aon’s insurance market heat map:
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