Alleviating the pressure on the US insurance market

22 October 2018

Ed Hochberg, CEO, North America, JLT Re

The industry is still feeling the full impact of the devastating catastrophes of 2017. However, the good news for clients is that the property cat market is still very liquid and claims are being paid efficiently.

In the longer term, this should boost the insurance market as a whole, as it moves to address the protection gap.

Last year’s catastrophes revealed that such gap exists even in developed economies such as the US.

Paying claims efficiently and promptly still remains one of the best advertisements for buying (re)insurance.

The relatively muted impact on rates from the HIM (Harvey, Irma, Maria) losses – contrary to some immediate expectations – will likely help the potential for a greater take-up of property cat cover.

We anticipate more of the same in the forthcoming renewal season, unless there is a late twist in catastrophe incidents, and major claims impact the market.

Pressure on casualty market

There are more pressures in the casualty markets, with early rumblings of issues in some sectors. Commercial auto and some professional lines in particular have seen the market getting firmer as experience deteriorates.

This is partly because primary insurer reserves have been largely exhausted by the years of soft markets, so poor experience is not as concealed by substantial reserve releases.

As such, the current poor accident year experience is beginning to fall straight to the bottom line. This will always happen in the late stages of a soft market and eventually this becomes the catalyst for rates to harden and capacity to tighten.

Insurers are facing up to this challenge, finding innovative solutions to transfer risk and alleviate the pressure on capital and their balance sheets.

We are seeing whole classes of business being put into run-off as well as an increase in the take-up of adverse development covers.

This deterioration in insurer capital and reserves is generally good news for the big reinsurers, which still have strong balance sheets.

They are likely to be asked to take on more risk in most major property and casualty lines and are in a good position to respond.

Increasing protection for cyber risks

Reinsurers will also expect to play a large part in developing new covers for the ever-expanding range of cyber risks.

The cyber-attacks on businesses and public bodies – coupled with the growing awareness of silent cyber risks – have forced clients to deepen their understanding of their exposures. Where they cannot mitigate these exposures, they will look for greater insurance protection.

Looking further ahead, there is some nervousness around a range of geo-political issues.

There will inevitably be some economic fall-out from Brexit and the recent rise in tensions around some areas of international trade.

We are not seeing these affect the insurance market yet, but they definitely have the potential to cause problems. 

 


Ed Hochberg on +1 215 309 4520 or ed.hochberg@jltre.com