Reinsurers should revisit U.S. casualty catastrophe reinsurance products in response to government administration changes that are expected to influence the legal, social, and economic conditions impacting treaties policies, Willis Towers Watson reinsurance risk management specialist Pete Thomas advised.
“History tells us that every time there is change from a democrat to a republican administration, or vice versa, it is a good time to revisit casualty underwriting and casualty reinsurance products, especially casualty catastrophe reinsurance products.
“While it takes time for a new administration’s executive orders, directives and practices to work their way through Congress, the federal government, the states and the courts, insurers’ occurrence and accident policies will eventually be impacted to varying degrees,” Thomas explained.
The reformed U.S. budget has been set up to defund and curtail the federal government’s regulatory and enforcement capabilities, this could have a knock on effect of greater demand on re/insurers as it increases potential for legal action as injured parties take the need to deter behaviour and compensate injuries into their own hands.
Products likely to be impacted are casualty catastrophe reinsurance that offers liability coverage with occurrence and accident triggers, and products with losses discovered and claims made triggers – where Thomas said concerns are similar but subtly different.
The Willis Towers Watson risk expert said to fully understand the relationship between regime changes and insurance, reinsurers need to look at how insurance drives the U.S. tort system.
“Without a robust liability insurance market in the middle of the 20th century, various state courts around the country would not have adopted the Second Restatement of Torts (1965), which supercharged the plaintiffs’ bar’s ability to pursue injury cases. It makes no sense to secure a judgement against someone who can’t pay; insurance solves that problem.”
The Trump administration will likely leave more responsibility for regulation and enforcement with the states, and Thomas believes such reforms will undoubtedly impact tort and casualty underwriting.
“The Trump administration’s proposed budget is clearly a departure from anything proposed by the Obama administration. Insurers would therefore be well served by considering the positive and negative implications of such a proposed change in governance.”
Constantly changing societal factors begin to change from the moment the policy is bound and reinsurance protection and policies are particularly vulnerable to legislation changes when a new regime takes hold, particularly one which promises to uproot much of the previous regime’s policies.
However, Thomas says, “a well-designed casualty catastrophe reinsurance with broad coverage grants and risk-adjusted limits is a partial hedge against the results of reforms, political risk and uncertainty.”