Aon’s report finds that while capital and capacity are impacting market conditions, a confluence of macro factors and events are the key market drivers, namely increased frequency of natural catastrophes, social inflation and 0% interest / lower investment yields. Upward pricing momentum is expected to continue through 2021, though the approximately US$20 billion of capital that entered the market globally between March and December 2020 may temper rate movements.
Cynthia Beveridge, President, Aon Broking, Commercial Risk Solutions, Aon, said: “There is general optimism that the rollout of the COVID-19 vaccine will have a positive economic impact. Along with the introduction of additional capacity into the market, this may result in an easing in the second half of 2021 of some of the challenges experienced in the risk and insurance environment during 2020. That said, risk complexity will continue to be impacted by supply chain vulnerability, a virtual workforce, ongoing economic uncertainty, social inflation and weather volatility. We expect heightened underwriter scrutiny on supply chain transparency and resilience, COVID-19 and communicable disease safety measures and cyber threat resilience. Pricing and coverage terms will continue to address these concerns.”
Hugo Wegbrans, Global Chief Broking Officer, Commercial Risk Solutions, Aon, added: “When renewing cover, we are advising our clients to explore alternatives such as captives and alternative program structures; describe the differentiators that make them a ‘better’ risk; start renewal planning early because of the busy market and the time needed to evaluate additional underwriting information; and set realistic expectations, including with internal stakeholders.”
Neil Harrison, Global Chief Claims Officer, Commercial Risk Solutions, Aon, said: The impact of claims related to COVID-19 for clients and insurers has not yet been fully seen. The fluid situation with regards to business interruption, driven by regulatory activity, litigation and the macro-economic environment will continue to bring complexities to the fore through 2021. COVID-19 has also resulted in claims activity in 20 other lines of coverage, with numbers and costs likely to increase. Consideration of insurer claims performance and understanding of the obligations of all parties in a claim situation are key issues for our clients.”
Regional trends
North America
A confluence of circumstances - increased frequency of high-severity claims resulting from mass tort litigation, a severe storm season and the pandemic - has put pressure on insurers’ bottom lines, which has in turn strained pricing, limits, deductibles, coverage terms and claims performance.
New capital is mobilizing from existing insurers and through the formation of new insurance and reinsurance entities, focused on Property Catastrophe (CAT) Reinsurance, Casualty and Financial Lines.
Latin America
COVID-19 has exacerbated an already challenging market landscape, leading to heightened risk profiles and escalating loss costs; Political Risk, Directors & Officers, complex and CAT-exposed Property, and the Energy and Power industries are experiencing the most severe impacts.
To offset the effects of the market, alternative solutions such as captives, reinsurance and alternative program structures are being explored and leveraged.
EMEA
Economic uncertainty, escalating loss costs and reduced investment income due to low interest rates are intensifying insurer focus on improving results, resulting in continued price escalation, a shifting of appetite, restrictions of coverage and revisions to underwriting strategies.
The industry was broadly prepared for the end of the UK’s Brexit transition period on 31 December 2020, which, amongst other requirements, calls for specific entities to be established to enable UK firms to continue to serve European Union clients.
Asia Pacific
The market remains challenging and pricing has increased overall. However, the extent of increase varies widely by line of business, sector, geography and renewal vs. new business, as well as whether the insurer is local.
With the centralization of the underwriting function amongst leading insurers, and in light of insurer focus on profitability, insurers are not looking at risk through the same local lens, and as a consequence, relationships are not having the impact they once had.