2023 has been shaped so far by geopolitical turbulence and climate-related risks, but also economic resilience in the face of persistent inflation. Humanitarian concerns are at the forefront of global priorities for society at large, but lingering concerns about financial solvency following failures in the banking sector continue for many business leaders. In 2024, these trends, according to Beinsure analysts, will continue.
Beyond these foundational concerns, cyber & ransomware threats, the shifting labor market, and technological advances such as Artificial Intelligence (AI) are weighing on the minds of people from every corner of the world, including business leaders who are guiding their firms in these changing times, according to Aon’s Global Insurance Market Insights.
The results of Aon’s Global Risk Management Survey of about 3,000 business leaders around the world pointed to cyber risk, business interruption, supply chain disruption, and failure to attract/retain talent as some of their top concerns.
While each of these risks poses unique challenges, their increasing inter-connectedness and severity calls for a further evolution of risk transfer approaches that leverage rapidly developing datasets and sophisticated modeling to identify a combination of traditional and innovative solutions that holistically meet each firm’s individual risk tolerances and objectives.
This report describes some of the important developments insurance market and includes special features to help you navigate the complexities and challenges of today’s risk and insurance environment.
The Key Insurance Market Trends
A complex macro environment shaped insurer confidence and strategies. Economic resilience, gradual improvements in global supply chains, and a global construction boom served to bolster insurer confidence, while geopolitical instability, persistent social and economic inflation, and climate-related concerns created uncertainty and conservatism.
Insurance market continued to moderate as insurers sought to balance growth with profitability, divergent conditions continued for favored versus challenged risks.
- Favored and well-performing risk types, including significant portions of the Financial Lines market, experienced an expansion of underwriting appetite, an increase in available capacity from new and established insurers, and healthy competition, driven largely by insurers’ return to profitability, an interest rate driven boost in insurer performance, and confidence that coverage language had been (re)aligned with insurer intent.
- Higher-risk, natural catastrophe-exposed, and claims-impacted risks, as well as those not demonstrating mature risk management practices, experienced the most significant price increases and capacity constraints, driven largely by natural catastrophe-driven volatility, a challenging early-2023 reinsurance market environment, and rising legal settlement amounts (e.g., “nuclear verdicts”).
- Across all risk types, the underwriting environment was disciplined and focused on risk differentiation. Superior results were achieved through early engagement with insurers and robust, differentiating submission details including valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims.
Insurance Market Dynamics
Insurance Pricing
Adverse claims trends pressured pricing upward across Auto and Casualty, while Cyber and Directors and Officers experienced a softening market as incumbent insurers sought to retain and grow their portfolios. Property pricing remained volatile due to concerns related to inflation, high reinsurance costs, climate change and Natural Catastrophe exposures. USA-exposed risk (on non-USA placements) remained challenged.
Insurance Capacity
Capacity was sufficient across most products and risk types as established insurers expanded their appetite, and other insurers (re)entered markets targeted for growth. Capacity for Natural Catastrophe-exposed Property risks remained constrained – and expensive – driving continued use of alternative solutions including index-based products, self-insurance and captives (see Natural Catastrophes Will Break Several Insured Losses Records).
Insurance Underwriting
As insurers focused on profitable growth, underwriting stringency gave way to flexibility, but discipline continued. Underwriters focused on individual risk profile, controls and performance. Risk quality and differentiation remained a top priority. Use of data and analytics to support decision-making continued to gain prevalence. Superior results were achieved through early engagement with insurers and robust submission details, including descriptions of valuation methodologies, risk control practices, improvements implemented, and lessons learned from past claims.
Insurance Limits
Most placements renewed with expiring limits and sub-limits; however, Property limits were pressured upward by economic inflation, which, together with social inflation and “nuclear verdicts”, also impacted Auto and Casualty limits. Larger limits were available on Cyber and Directors and Officers placements as clients sought to restore limits reduced in recent years. Detailed descriptions of Property valuation methodologies were required.
Insurance Deductibles
Expiring deductibles were achieved on most placements, although increases and minimum deductibles were required on some poor-performing risks and higher-risk sectors. Decreases were available on some well-performing classes and risks but were often declined by clients due to incommensurate additional premiums.
Insurance Coverages
Coverage enhancements, supported by quality underwriting data, were available in areas targeted for growth as insurers continued to leverage coverage terms as a differentiator. Some exclusions remained non-negotiable.
Insurance Product Trends
Auto Insurance
A convergence of factors led to moderate-to-challenging market conditions. Costs continued to climb, driven by inflation, large verdicts and settlements, global supply chain disruptions, increasing accident frequency, labor shortages, and advanced automotive technologies; however, the availability of alternative solutions and healthy insurer appetite for well-performing risks served to dampen market impacts and price increases.
The underwriting environment was disciplined; underwriters focused on portfolio sustainability and client risk management practices, especially for heavy risks. Innovative automotive technologies served to enhance underwriting approaches and product offerings.
Casualty / Liability Insurance
Moderate market conditions, characterized by flat to modestly increased pricing, disciplined underwriting, and focused but healthy appetite continued across most of the portfolio, despite insurer concerns related to economic, social and claims inflation – including “nuclear verdicts”, litigation funding, US Auto attachment points, large auto/heavy fleet exposures, biometric privacy, diacetyl, “forever chemicals” (PFAS), wildfire, and Traumatic Brain Injury.
Challenging risk types, US-exposed risks, risks with adverse loss experience and programs with low deductibles or attachment points experienced a more challenging environment characterized by stringent underwriting, conservative capacity deployment and material price increases in some cases.
Cyber Insurance
Despite increasing complexity and frequency of ransomware incidents and ongoing privacy-related losses, softening market conditions continued as growth-focused insurers expanded their appetite and capacity across the market.
Underwriting requirements eased slightly as insurer understanding of Cyber risk further matured while insureds presented stronger security controls.
Concerns related to systemic and supply chain risk continued to mount. Focus on privacy controls continued, with specific attention on biometric data and pixel tracking, as well as new privacy/consumer protection regulations.
Underwriters continued to evaluate and scrutinize coverage offered for critical infrastructure, systemic and/or correlated events, and war.
Directors and Officers Insurance
Softening conditions continued despite a complex backdrop of elevated risks including geopolitical instability, inflation, financial market fragility, equity market volatility, supply chain challenges, increasing litigation funding, and an evolving regulatory framework.
Capacity from new and established insurers continued to increase in a growth-focused market with very few new buyers, which created healthy competition and favorable client pricing outcomes.
Underwriting remained disciplined, especially related to listed risks, cryptocurrencies, pharma and oil/coal related exposures, although underwriters demonstrated some flexibility in coverage terms and conditions for targeted risks.
Alternative structures (e.g., higher retentions, coinsurance, quota shares, and alternative capital solutions such as captives) continued to serve as useful levers.
Property Insurance
The market divergence between “targeted” and “non-targeted” risks continued. Risks in higher-hazard occupancy types, or that were Natural Catastrophe exposed or claims impacted, experienced conservative, challenging and volatile market conditions which were driven by increased reinsurance costs, Natural Catastrophe losses, inflation, and ongoing supply chain challenges.
Well-performing risks and risks in lower-hazard occupancies experienced a more favorable environment characterized by increased line sizes and healthy competition; however, a focus on profitability continued.
Across the portfolio, underwriting was disciplined, and scrutiny of insured values continued. Updated valuations and detailed descriptions of valuation methodologies were required.
Margin clauses or coinsurance penalties were mandated where valuations were deemed inaccurate or under-reported.
In response to the volatile geopolitical environment, underwriters further limited or excluded coverages related to Strikes Riots and Civil Commotion (SRCC), Cyber, Terrorism, War and Sanctions, and implemented wider geographical exclusions.
Insurance Regional Market Dynamics
Evolve your insurance paradigms
Think strategically about insurance as a form of “rented capital” and consider it in your firm’s capital allocation strategy.
Capital allocation is no longer limited to retirement planning and budgeting; business leaders’ approach to capital allocation has changed as theories have evolved and as tools of business have matured.
In the modern business world, C-suite leaders understand that capital allocation – to distribute and invest financial resources to maximize stakeholder profits – is the core function of their job.
Through this new, more strategic lens, firms can utilize insurance as a way to free up other sources of capital that can be deployed to drive growth and profit.
Banks have been focused on capital optimization for a long time and now, with AI, the Internet of Things (IoT) and advances in technology that have enabled the robust identification and quantification of risk factors, the shift can happen more broadly.
Scrutinize and carefully manage your geopolitical risk
Review policy language, limits, sub-limits and deductibles related to Cyber, Terrorism, War, Political Violence and Civil Unrest.
Look closely at Sanctions Clauses and provisions related to physical loss or damage to property, business interruption and extra expense, as well as Ingress/Egress and Contingent Time Element (CTE).
Insurers are implementing further limitations and exclusions – you may want to consider purchasing specific coverage for Political Risk, Special Risks, Cyber, War, Terrorism, SRCC, Travel, and Accident and Health. Talk to your Aon Team about Alpha – Aon’s global facility for Terrorism and Political Violence coverage.
Reach out to your Aon team and to your insurer(s) if your covered location(s) or operation(s) have sustained damage or if you believe business interruption has occurred.
Start the renewal process early
Underwriters are evaluating more information than ever. In addition, while escalations and referrals have decreased in some parts of the market, they remain common and often require longer lead times. Start the renewal process early to ensure you have sufficient time to tell your story and respond to queries, and to provide underwriters sufficient time to properly evaluate and price your risk.
Differentiate your risk
Insurers are focused on risk quality, and risk differentiation is key to achieving superior outcomes.
Leverage available data to provide robust, quality underwriting information including property valuation methodologies, risk modelling, risk improvements, lessons learned from past claims and actions you are taking to build resilience.
Provide access to experts from across your organization. Step up in-person engagement where appropriate.
Update values and other exposures
Inflation, rising labor costs, and supply chain disruptions have driven up property and business interruption values while social inflation and changes in companies’ operations and geographic footprints have impacted liability risk.
Work with your Aon team and across your organization to conduct a thorough assessment of your exposures and valuation methodologies and ensure that sums insured, indemnity periods, limits and deductibles are up-to-date and aligned.
This will help guard against underinsurance and avoid insurer-imposed limitations such as margin and coinsurance clauses.
Summary for global insurance market in 2024
The global insurance market in 2024 is characterized by several key dynamics, trends in products, and regional differences, as outlined by various industry experts:
Market Dynamics and Trends:
- Increasing Global Risks: There’s an intensified focus on the insurance industry’s capacity to act as society’s “financial safety nets” against escalating global risks like climate change and cybercrime. Insurers are transitioning from merely reacting to risks to preventing losses from happening in the first place.
- Technological Transformation: The industry is undergoing a shift to a more customer-centric business model, requiring the adoption of advanced technology and modification of company culture. This includes improving collaboration among employees and increasing accessibility to customer data.
- Non-Life Insurance Sector: This sector is experiencing top-line growth through higher-than-average price increases across most lines of business. However, rising loss costs are impacting bottom-line profitability. The U.S. non-life market, in particular, is facing one of the hardest markets in a generation, with record growth in expenses and insurance rates.
- Life and Annuity Insurers: There’s a focus on core system modernization and culture transformation. The sector is poised for a tipping point in 2024 as it becomes increasingly digitized and customer expectations for relevant and holistic product offerings grow.
Key Insurance Products and Services Trends:
- Insurtech: Advancements in AI and machine learning are increasingly integrated into insurtech for risk assessment, underwriting, and customer service. The demand for cyber insurance is growing, and there’s a trend toward hyper-personalized insurance products tailored to individual needs.
- Group Benefits and Health Insurance: There’s a growing trend towards more personalized and flexible benefits packages. Mental health benefits are central to group health plans, and there’s an increased focus on cost management strategies, including the use of telemedicine and digital health services.
Regional Trends and Predictions:
- Strategic M&A Activity: Insurance companies are expected to transition to a more strategic approach in mergers and acquisitions (M&A), likely divesting non-core businesses and acquiring those offering new capabilities, particularly in the insurtech space
- Generative AI Integration: The integration of Generative AI is anticipated to transform operations and cut costs, enhancing communication with policyholders, streamlining claims processing, and reducing fraudulent activities.
- Talent Shortage and Risk Mitigation: The industry faces a talent shortage, particularly in technology expertise. Companies are focusing on attracting tech-savvy talent and upskilling current employees. There’s also an emphasis on mitigating risks related to climate change, cyber threats, and social inflation.
These insights collectively indicate that the global insurance industry in 2024 is at a crucial juncture, where technological innovation, a focus on sustainability, and the need to adapt to changing market conditions and customer needs are driving significant transformations.
How Can Organizations Respond?
Think strategically about insurance as a form of “rented capital” and consider it in your firm’s capital allocation strategy.
Capital allocation is no longer limited to retirement planning and budgeting; business leaders’ approach to capital allocation has changed as theories have evolved and as tools of business have matured.
In the modern business world, C-suite leaders understand that capital allocation – to distribute and invest financial resources to maximize stakeholder profits – is the core function of their job.
Through this new, more strategic lens, firms can utilize insurance as a way to free up other sources of capital that can be deployed to drive growth and profit. Banks have been focused on capital optimization for a long time and now, with AI, the Internet of Things (IoT) and advances in technology that have enabled the robust identification and quantification of risk factors, the shift can happen more broadly.
Underwriters are evaluating more information than ever. In addition, while escalations and referrals have decreased in some parts of the market, they remain common and often require longer lead times.
Start the renewal process early to ensure you have sufficient time to tell your story and respond to queries, and to provide underwriters sufficient time to properly evaluate and price your risk.
Insurers are focused on risk quality, and risk differentiation is key to achieving superior outcomes. Leverage available data to provide robust, quality underwriting information including property valuation methodologies, risk modelling, risk improvements, lessons learned from past claims and actions you are taking to build resilience.
Provide access to experts from across your organization. Step up in-person engagement where appropriate.
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AUTHORS: Cynthia Beveridge – Global Chief Broking Officer Aon, Neil Harrison – Global Chief Claims Officer Aon, Rhonda Jenn – Global Colleague Analytics Leader Aon, Joe Peiser – Chief Executive Officer Commercial Risk Solutions Aon