New capital worth $20bn that entered the insurance market in 2020 could hold back rate increases, according to a new report from Aon, but the overall trend in 2021 is for higher prices.
Buyers will also face challenges from increased claims scrutiny and “delay-defer-deny” tactics employed by insurers, it warned.
Aon said increased rates for buyers across most lines globally have in part been driven by Covid-19, on top of higher nat cat frequency, social inflation and lower investment yields.
This has made insurers more risk averse and underwriters are applying more scrutiny, particularly when checking buyers’ supply chain risk, said Aon.
Cynthia Beveridge, president of Aon Broking, commercial risk solutions, said: “We expect heightened underwriter scrutiny on supply chain transparency and resilience, Covid-19 and communicable disease safety measures, and cyber threat resilience,” which she said will be reflected in prices and coverage.
Hugo Wegbrans, global chief broking officer for commercial risk solutions at Aon, said buyers should look at alternatives to traditional insurance such as captives. They must also be able to set themselves apart as a better risk and start renewal plans early, he added.
Aon also warned that insurers are using “delay-defer-deny” tactics in claims, adding that there has been a “marked increase” in external coverage counsel. “Aon’s perspective is that external coverage counsel should not be engaged unless it is absolutely necessary and efforts to avoid such use have been exhausted,” it said.
Aon said buyers should provide fully calculated losses when submitting claims to avoid delays and ensure clear understanding of policies, including exclusions. It said claims resolution is taking longer and buyers should even consider negotiated settlements at less than full claims value to speed up payments. At the same time, Aon said co-insurers are not always following the lead position in many large losses.
“In the current market it essential to manage internal as well as external expectations with regard to decision and payment timelines. This environment is likely to remain until at least year-end 2021,” Aon said.
In the longer term, Aon said clients could benefit from clearer contract certainty as insurers address clarity in policy wordings following the fallout from Covid-19 business interruption policies.
Aon predicted that protected cell companies and captives will continue to grow in popularity as organisations not only look to access additional capacity via the reinsurance market but also utilise their balance sheet more effectively to retain more risk and address new and emerging risks. At the same time, new products such as parametric policies, event-focused policies and usage-based policies will increasingly gain traction as data becomes more available and consumer trends evolve, the broker said.
In terms of regional trends, Aon noted that in North America, a “confluence of circumstances” – namely 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. But new capital is mobilising from existing insurers and through the formation of new insurance and reinsurance entities, focused on property catastrophe, reinsurance, casualty and financial lines.
In Latin America, Aon said Covid-19 has exacerbated an already challenging market landscape, leading to heightened risk profiles and escalating loss costs, with the most severe impact being felt by political risk, directors and officers, complex and cat-exposed property, and the energy and power industries. In response, Aon sees alternative solutions such as captives, reinsurance and alternative programme structures being explored and leveraged.
In 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, Aon said.
In Asia-Pacific, the market remains challenging and pricing has increased overall, said Aon, but this varies considerably by line of business, sector, geography and renewal versus new business, as well as whether the insurer is local.