Triggering change in the US insurance market

11 July 2017

Business insurance in the US is still a buyers’ market. However, there are many factors that could start to disrupt the insurance industry.

Ed Hochberg, CEO, North America, JLT Re

The annual RIMS meeting of corporate risk managers in the US took place in April
in Philadelphia. 

They convene at a time when, after years of price decreases, it is still a buyers’ market for business insurance in the US. 

I don’t believe this is how it will be forever though, because life doesn’t work that way. Things happen.

One trigger for a market correction is a big cat event that changes sentiment. I’m not sure it would cause a long lasting upturn, however.

A more important signal for me is a change in the reserving cycle that puts pressure on the insurance market and causes capital to be withdrawn. 

It can take the withdrawal of capital to create sustained capital is withdrawn from different classes for reserving reasons, the change in supply and demand drives prices up.

Emerging risks for insurers

Another challenge facing insurers is the quest to stay relevant in the face of emerging risks, at a time of great technological change. 

Insurers must make sure their product offerings are what commercial clients actually need. Meanwhile, they themselves have to understand their new exposures.
It’s an issue that could feed into insurers’ relationships with their reinsurers. Insurers’ reinsurance needs are informed by emerging exposures and also by market conditions.

The reinsurance market has been present in the big-ticket segment for a while, but reinsurance market conditions are such that if reinsurers want to grow they have to expand more strongly in the corporate space and in different ways.

Annual RIMS meeting

The theme at this year’s RIMS convention is Disrupt the status quo. It’s possible that alternative capital could start to disrupt the business insurance market when the conditions are right.

Necessity is the mother of invention. We haven’t seen more corporate risk securitisation activity because there has been sufficient capacity in the primary insurance market to deal with corporate risk. 

There’s been no need for risk managers to opt for alternative risk transfer because traditional insurance offers a cost-effective solution.

But when the market changes, it’s possible that asset managers working with risk professionals will find new ways of structuring products that meet the needs of their clients and also their investors.

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For further information, please contact Ed Hochberg on +1 215 309 4520 or email ed.hochberg@jltre.com