Market conditions signal continued hardening in property cat
Amidst an environment of dislocated market conditions, the property insurance market is experiencing continued hardening, with a particular focus on cat coverage.
Henry Felix, president of Allied World’s North America division and Simon Newport, MD and property broking leader at Aon recently discussed the prevailing market conditions and the main drivers influencing the landscape with The Insurer TV from the Bermuda Risk Summit.
Felix characterized the current market conditions as being “dislocated”, fueled by several key factors.
“Notably, treaty buying, inflation, risk selection, and elevated cat activity are the main drivers contributing to the market's complexity. Insurers are recalibrating their line sizes and reevaluating risk exposure to ensure that they align with the current pricing and overall market environment,” he said.
The impact of climate change is also being keenly observed as it plays a significant role in influencing elevated cat activity, noted Newport.
Insurers are scrutinizing insurance values to ensure they accurately reflect replacement costs, encompassing inflationary factors such as labor and raw materials. The objective is to prevent unexpected losses due to undervalued insurance estimates and foster accurate, standardized methodologies in underwriting and renewal processes.
“The property insurance market has been facing an extended period of hardening, with 21 consecutive quarters of positive rate increases,” said Newport.
“As a result, buyers are under significant pressure, leading many to adopt strategies such as larger retentions, self-insuring part of their risks, and using captives or alternative risk-transfer methods. These measures help manage costs amid rising insurance prices and increased exposures due to surging property values and higher catastrophe risks,” he added.
The conversation also highlighted the importance of understanding clients' individual risks and tailoring solutions to their specific needs. Larger, more sophisticated buyers seem to be coping better with the challenges, as they are better equipped to assess and manage their own risks, but smaller companies without dedicated insurance departments may struggle to navigate the complexities of the market.
“Regarding submission flow, insurers are experiencing an elevated number of submissions,” said Felix, speaking of Allied World’s own experience.
However, brokers are playing a critical role in triaging the flow and matching risks with insurers' appetites. While in-person communication remains crucial, the adoption of virtual calls and joint discussions has become more common, enabling better risk assessment and response times.
The issue of new capacity entering the market was also raised. However, the current climate of volatility may deter some investors from venturing into the insurance space. While some interest from potential newcomers exists, it is expected that new entrants may be cautious and closely monitor market conditions before committing to investments.
Despite the challenges, Bermuda remains an essential player in the market. The market's focus on building and maintaining strong relationships with clients has been pivotal in times of crisis, such as the recent influx of cat losses. Clients value the stability and support offered by long-standing relationships with insurers, making Bermuda a crucial component of the global insurance ecosystem.
As the industry navigates through 2023, market participants are cautiously optimistic but remain vigilant about potential risks and opportunities. The need for accurate risk assessment, dynamic pricing, and fostering strong client relationships will continue to drive the property insurance market in the face of ever-changing challenges.