Te mentioned report finds that while capital and capacity are impacting market conditions, a confluence of macro factors and events are the key market drivers, namely increased frequency of natural catastrophes, social inflation and 0% interest / lower investment yields.
More than that, upward pricing momentum is expected to continue through 2021, though the approximately USD 20 billion of capital that entered the market globally between March and December 2020 may temper rate movements.
"There is general optimism that the rollout of the COVID-19 vaccine will have a positive economic impact. Along with the introduction of additional capacity into the market, this may result in an easing in the second half of 2021 of some of the challenges experienced in the risk and insurance environment during 2020", said Cynthia BEVERIDGE, President, AON Broking, Commercial Risk Solutions.
According to the report, the following regional trends with effects in insurance tarrifs have stood out:
- A confluence of circumstances - increased frequency of high-severity claims resulting from mass tort litigation, a severe storm season and the pandemic - has put pressure on insurers' bottom lines, which has in turn strained pricing, limits, deductibles, coverage terms and claims performance.
- New capital is mobilizing from existing insurers and through the formation of new insurance and reinsurance entities, focused on Property Catastrophe (CAT) Reinsurance, Casualty and Financial Lines.
- COVID-19 has exacerbated an already challenging market landscape, leading to heightened risk profiles and escalating loss costs; Political Risk, Directors & Officers, complex and CAT-exposed Property, and the Energy and Power industries are experiencing the most severe impacts.
- To offset the effects of the market, alternative solutions such as captives, reinsurance and alternative program structures are being explored and leveraged.
- Economic uncertainty, escalating loss costs and reduced investment income due to low interest rates are intensifying insurer focus on improving results, resulting in continued price escalation, a shifting of appetite, restrictions of coverage and revisions to underwriting strategies.
- The industry was broadly prepared for the end of the UK's Brexit transition period on 31 December 2020, which, amongst other requirements, calls for specific entities to be established to enable UK firms to continue to serve European Union clients.
- The market remains challenging and pricing has increased overall. However, the extent of increase varies widely by line of business, sector, geography and renewal vs. new business, as well as whether the insurer is local.
- With the centralization of the underwriting function amongst leading insurers, and in light of insurer focus on profitability, insurers are not looking at risk through the same local lens, and as a consequence, relationships are not having the impact they once had.