Fresh capital needed to tackle protection gap: Case

Aon’s CEO Greg Case has told the French risk and insurance management community that he sees great potential in the capital markets through instruments such as parametrics to bridge the widening insurance gap in key areas such as cyber, natural catastrophes and pandemics. In his keynote address to AMRAE members at the association’s annual conference in Deauville, Normandy, Case pointed out that Aon’s latest analysis of natural catastrophes clearly showed a worrying trend in the widening protection gap. He told AMRAE members that the research, published in late January, revealed that 398 global natural disaster events caused $380bn of economic losses last year compared to $355bn economic losses in 2022. Last year’s events were 22% above the 21st-century average. Global insurance losses during the year were 31% above the 21st-century average, exceeding $100bn for the fourth year in a row. The insurance market only covered $118bn of the losses last year compared with $151bn in 2022. Case pointed out that this meant that only 31% of total losses were insured last year and so the ‘protection gap’ stood at 69% against 58% in 2022, again highlighting the urgent need to tackle the challenge. Case said that the recent intensification of the global risk environment has raised the profile of the corporate risk and insurance management community in France and worldwide, which is a positive trend. He said that Aon and the wider market need to support the risk and insurance management community more effectively when faced with this risk intensification and widening insurance gap. The traditional insurance market simply does not have enough capital available to tackle the big systemic risks such as cyber, nat cats and pandemics alone, he said. But Case sees positive signs of innovation within his own group and the wider market. He believes that with the adoption of new technologies and forward-looking, rather than historical, analytics fresh capital and solutions can be found. Case pointed to two significant recent parametric deals that Aon has organised for corporate customers that he says are good examples of how the market can respond to the ever-rising complexity and interconnectivity of risks. Case said that the group had recently placed its first ever cyber ILS cat bond, showing that it is possible to cover these often difficult to place risks using fresh capital so long as the analytics are right. He said that in this case, capital came from a pension fund, adding that this is “a small step, but a step in the right direction”. During Aon’s recent year-end results call with analysts, Aon President Eric Andersen further explained: “The point of it is, we were then able to take that ILS structure, using the data and analytics that we did to build it, and used it to do an ILS structure for one of the largest corporates in Europe [that] was looking for a traditional cyber programme, but wasn’t able to get the limit they wanted.” Aon has also recently placed another “first ever” parametric earthquake cover directly for a technology firm. said Case. “The interesting thing was that if the earthquake hit then the cover would put $50,000 into the accounts of the company’s employees, so it was not protecting the building but the talent. How cool is that?” he said. “The world is changing and your role has become much more important… we need risk to be managed more professionally and we need more capital,” concluded Case.

Fresh capital needed to tackle protection gap: Case

Amrae members told parametrics are one option

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