Modern technology causing volatility in market
The usual news is of rating agencies taking action, new reinsurance products, reports on Insurance Linked Securities and reserving. But this year, Aon Benfield launched its annual Global Insurance Market Opportunities (GIMO) report at the Rendez-Vous, which examines the key areas of potential growth and disruption for insurers.
The report, Riding the Innovation Wave, “examines the ways in which insurers can be innovative organisations, and how the industry can capture opportunities from innovation and defend against threats of disruption.” The latest issue covers a number of issues including cyber liability,with Aon Benfield forecasting that by 2020 global cyber premiums could reach USD10 billion – a figure at least as large as the worldwide directors’ and officers’ liability market.
But it also looks at motor insurance and reveals that if autonomous vehicle technology is adopted at even a moderate pace, US motor pure premiums could decrease by 20 percent by the year 2035 compared to their 2015 levels – and potentially by more than 40 percent by the time that autonomous vehicles reach full adoption in 2050.
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With the first commercially available technology expected to hit the road in 2018, the forecast assumes an 81 percent reduction in claims frequency, and an increase in claims severity due to sensor costs and an increased cost of handling product liability claims.
But what has this to do with commercial insurance buyers? Here’s the rub – personal motor accounts for 47 percent of global insurance premium and, according to Aon Benfield, without this ballast and implicit capital subsidy, the reinsurance broker estimates that US property-casualty insurance volatility could increase by 40 percent.
One might have expected that cyber risk could cause volatility in the insurance market, with a growing demand for cover, and insurers not wanting to miss out on an opportunity, but also unsure of how to write the risk. But driverless cars causing property-casualty insurance volatility? That is unexpected. And one thing that neither the insurance industry nor commercial insurance buyers want is unexpected volatility.
