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Property insurance market braces for year-end challenges: Aon

20th November 2023 - Author: Akankshita Mukhopadhyay

In a recent report by Aon, the Global Insurance Market Insights for Q3 2023 sheds light on the key challenges facing the Property insurance market as the industry approaches the crucial year-end period.

As insurers gear up for the peak reinsurance renewal season and the conclusion of the Atlantic hurricane season, they are navigating a landscape complicated by persistent inflation, a sluggish supply chain recovery, and ongoing concerns about property and business interruption valuations, coupled with geopolitical volatility, the report noted.

Insurers are actively adapting to this dynamic risk environment by refining their risk appetite, coverage language, and underwriting practices.

Collaborating with Aon, they are developing innovative approaches and solutions to meet the evolving needs of their clients, the report said.

One of the top priorities identified in the report is addressing underinsurance. Driven by factors such as inflation, slow supply chain recovery, and rising labor costs, property and business interruption values have significantly increased.

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Insurance to value remains a focal point on risk management and underwriting agendas, as underinsurance has been shown to result in prolonged and challenging claims adjustment processes, leading to lower settlement values.

Geopolitical events are also playing a crucial role in shaping the insurance landscape. Widespread humanitarian and economic impacts resulting from current geopolitical events and civil unrest have heightened the need for underwriting rigor and coverage clarifications.

Businesses face potential revenue losses from damaged property and inventory, as well as disruptions from business interruption due to direct or indirect causes, such as supplier and customer disruptions. The risk of cyber attacks has also increased, prompting insurers to take various actions to limit their exposure.

Supply chain risk remains a significant concern in today’s interconnected and complex risk environment. Businesses and risk managers are grappling with the challenge of quantifying the aggregation of business risk from supplier locations, leading to poor visibility into risk severity.

Lack of information on supplier facilities and protection further contributes to information gaps in the underwriting of Contingent Business Interruption (CBI) coverage.

While the global reinsurance capital has rebounded, natural catastrophe pricing is expected to remain materially elevated. The increase in reinsurance market capital in H1 2023 was primarily driven by retained earnings, recovering asset values, and new inflows to the catastrophe bond market.

Reinsurers have experienced improved underwriting and operating returns year-to-date, attributed to increased insurer rates, portfolio retentions, tighter peril scope, and improved investment income.

With a shift in focus from economic inflation to social inflation, reinsurers are closely monitoring the impact on high-value claims costs and reserving implications for insurers, the report noted.

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