Risk managers must fight for capacity in Asia Pacific region following nat cats

The call comes after natural disasters in Australia, New Zealand and Japan have sparked a sharp hardening of the region’s catastrophe exposed property market and seen the withdrawal of capacity for certain risks. According to Adrian Humphreys, Lloyd’s General Representative in Australia, rates for catastrophe exposed property risk in New Zealand are up between 50% and 400%, depending on whether the premises were hit by the recent earthquake in Christchurch. Properties affected by the Japanese earthquake and tsunami in February are seeing premium increases of between 100% and 200%. For those not hit the rise is a more modest 20% to 40%, he continued.hideIn Australia the situation is less concerning for insurance buyers, but property premiums are up between 10% and 20%. “Losses that we have experienced in New Zealand and Japan have had a significant impact on a lot of insureds and certainly a lot of insurers. It has come to a position where those clients that have had significant losses and that are exposed to significant nat cat areas face significant increases in premium and deductibles and reductions in limits of liability,” said Bob Mann, Chief Placement Officer at Aon Risk Solutions in Australia. With the New Zealand and Japanese property markets in freefall as reinsurers look to use their capacity elsewhere, insurance and risk managers across the region, and particularly in Australia where the market is yet to nosedive, need to fight for global capital, urged the experts on the ‘Insurance Market Update: Does the insurance market have the capability to fund future business needs?’ panel debate. “It is a challenge that the people in this audience need to meet. We are good at it but we need to be aware that there is an expectation to lift our game because there are other areas around the world and we do fight for the capacity. Why should underwriters want to place business here? Why support here?” said Mr Mann. He urged insurance buyers to bring quality data and detailed information to the table to encourage the insurance industry to stay in the region. This has historically been a strong suite for Australian risk managers in particular, he added. “Risk managers need to be abreast of the major issues such as capacity in nat cat areas—for windstorm and quake—and be prepared to provide information to assist in the modelling that the insurance and reinsurance industry use to model these risk to contain their aggregations. It is so important that risk managers today understand what drives the underwriter and reinsurer. In yesteryear that is exactly what this group of people did, and Australian risk managers were leaders,” he continued. Despite property lines in the Asia Pacific region hardening the general market reflects the state of the wider global dynamic and was described as being ‘in transition’. Speaking on the wider global market, Lloyd’s Mr Humphreys explained that the losses in the Asia Pacific region were being balanced by benign hurricane seasons in the US. But he warned that history suggests this will not continue for another year and US hurricane losses will eventually tip the global insurance market. “Most rates are driven by reinsurers and they are balancing books with what is happening in the US. There has been nothing happening in the US in the last couple of years. This is why you are seeing rates at this teetering point, whilst people wait to see what happens in the hurricane season there,” he began. “In the last one hundred years there have never been three benign US hurricane seasons in a row. Now we have had two. So if you were a betting person you would put money on the fact that rates will go up next year when something hits North America. But if it doesn't you won’t see any great shift in rates until there is a better place to put your money,” he added. One line in particular where risk managers across the world are being asked to increase transparency and work more closely with the risk transfer industry to ensure it continues to supply cover is contingent business interruption (CBI). The earthquake and tsunami in Japan, which is expected to produce insured losses of over $30bn, highlighted huge and unexpected exposures for the insurance and reinsurance industry to CBI losses. In the big European insurance and reinsurance meetings this year the market warned that without more and improved data on the risk cover may be withdrawn. “Supply chain is very significant because from an insurer’s perspective it is becoming increasingly clear that we are underwriting unknown unknowns. That is a fundamental challenge. Even some of the customers don't understand some of the dependencies that they are going to suffer until they have a loss. That is very uncomfortable for us to accept,” explained Kai Dwyer, General Manager Global Corporate at Zurich Australia. Risk managers in the audience were urged to join the global effort to increase the understanding of the exposures relating to this line of business. “Contingent business interruption is becoming such a big issue that underwriters are now seeking more supply chain management from the insured. The analysis of this risk is so important. Business interruption following these nat cat losses is a big issue,” explained Mr Mann. On the Australian market specifically the insurers on the panel warned that there is a lack of innovative insurance solutions on offer from the local players and that those wishing to place new risks are being quoted much higher prices than those renewing business. Whilst pointing out that buyers can get access to innovative solutions for Australian risks in markets such as London and the US, Zurich’s Mr Dwyer said that more premium would be placed in the local market if it got its act together. “I do think that the Australian market does have a shortfall, particularly against the London market, in the area of innovative products and I think that that is to the detriment of the market here. I believe there is still way more business placed in markets like London and the US and Bermuda than really should be. The Australian market is a sophisticated market. It has skilled practitioners, plenty of capacity, is well regulated and very healthy but there is a gap in terms of being able to bring some of those innovative capabilities and globalise them. They tend to stay in places like London,” he said. For his part Marsh’s Executive Director for Australia, Scott Leney, argued that the market needs to be more consistent in the premium prices it quotes. New business should not be so heavily penalised, he suggested. “Over the last six months we have seen a widening gap between renewal business and going into the market with a new prospect and that is a very difficult aspect of our business to explain to our clients. It makes planning for next year even harder and is something that we have got to get to grips with,” he said.

Risk managers must fight for capacity in Asia Pacific region following nat cats

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