A good year ahead for Asian insurance buyers: Aon

Overall, 2017 should be a positive year for risk managers and insurance buyers, thanks to abundant capacity and decreasing rates, even in areas of growing exposure such as cyber and credit default. This is the conclusion of the 2017 Asia Market Review, conducted by global broker Aon. The fourth annual report on insurance and risk trends in Asia states that capacity will continue to rise in most markets, emanating from various diverse sources. Combined with positive underwriting results and a benign loss landscape, downward pressure on rates is likely to continue for most classes. This pressure will continue even for classes where the risk continues to rise, such as cyber, where new innovations such as the Internet of Things and the fintech movement provide new services but also create new exposures. Asian businesses also remain affected by geopolitical developments, not least in the US where new President Donald Trump signed an executive order to overturn the Trans-Pacific Partnership within his first few days in office, generating more uncertainty about international trade agreements with Asian countries and any foreign direct investment. Nevertheless, Aon predicts a positive outlook for insurance buyers and risk managers. “Even in challenged environments, such as credit default and cyber, we see an upside for our clients,” commented Geoff Lambrou, chairman, Aon Risk Solutions, Singapore and head of specialty broking, Asia. The comprehensive study looks at a number of specialty lines – from aviation to terrorism – summarising the likely challenges and risk that will emerge during the next 12 months, plus any movements in premiums and new underwriting entrants that have occurred in the previous year. Particular focus is given to default risk in terms of structured credit and political risk; performance guarantees; and trade credit. The latter category was one of the few lines to experience upward premium movement in 2016 (6%). This was due to a severe loss environment caused by a general economic slowdown in the region, compounded by falling global commodities and resulting in overdue invoices and defaults among Asian businesses, states Aon. The increased default rates have been most noticeable in China (20%), Taiwan (17%), Singapore (15%) and Hong Kong (15%). This trend is expected to continue, with Asian exporters facing increased political risks and protectionist challenges, according to credit insurance provider Euler Hermes. “In the face of these challenges, companies will settle their outstanding business debts less quickly,” commented Holger Schaefer, regional head, Asia-Pacific, Euler Hermes. “We forecast a 7% increase in corporate insolvencies in the region in 2017.” This forecasted increase has led a number of insurers to review their regional strategies and to tighten their appetite in certain sectors, states Aon. “The resulting clean-up and review of risk attaching to their books has now placed insurers in a strong position to grow in a controlled and considered manner in 2017 and beyond.” Aon states that it has placed a large number of credit lines in the market, indicating that “for the right risk, capacity and appetite is available”. The report also highlights the risks posed by technology and innovation. As organisations “look to harness the power of new technology and interact with consumers in new ways, effective risk management will be a necessity”, states the report. Cyber attacks remain the major technology risk for Asian companies – they are reported to be 80% more likely to be targeted by hackers than in any other parts of the world. And despite the fact that the adoption of cyber insurance among Asian companies trails more mature markets, Aon does anticipate an increase in take-up in 2017 across all sectors. The report strikes an optimistic tone, not just for insurance buyers but also for underwriters. However, a constant source of debate within the Asian risk and insurance industry is whether the persistent downward pressure on rates, while welcome for cash-strapped buyers, is sustainable for both insurers and brokers. At the recent Pan-Asia Risk and Insurance Management Association conference in Hong Kong, this was the dominant subject of a debate between the regional heads of major insurers, chaired by Commercial Risk Asia’s Adrian Ladbury. Kent Chaplin, chief executive of Lloyd’s Asia, bemoaned the excess capacity in the market and suggested that insurers and insureds must find a new way to do business. “We are in this together [insurers and risk managers] and we can’t sustain the current rates,” he said. Meanwhile, David Jacobs, chief executive of Marsh Asia, posited the idea of structuring a new remuneration service for brokers, to compensate for the hours they put in and which could even involve charging both insurers and insureds, albeit with full transparency.

A good year ahead for Asian insurance buyers: Aon

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