With losses from Hurricane Mathew and other catastrophe losses, 2016 has seen the highest loss activity in three years. Even so, according to Andrew Marcell, Global Head of Strategy at Aon Benfield, the impact on rates in property reinsurance will be fairly minimal.
There are numerous emerging risks from new technologies and the sharing economy. For instance, Aon reports a 30-40% increase In premiums for cyber insurance, as the industry finds ways to better assess the risk and provide risk management solutions, While the risk is still evolving, demand for coverage is increasing. Autonomous vehicles pose an opportunity and a threat, according to Mr. Marcell. Consumers may experience fewer accident and claims, and see reductions in premiums. Auto insurers will be looking for new avenues for product development to make up for lost volume in revenue. Insurers and reinsurers alike are looking for ways to take advantage of “new world economies” in order to “grow the pie.”
In more established lines, new modeling techniques are vastly superior in quantifying flood risk to better inform insurance buyer and drive flood insurance into the market, which will develop more viable solutions.
Mr. Marcell says the amount of alternative capital available in 2016 is still growing, but at a slower rate than in previous years. Aon Benfield sees approximately $75 billion of alternative capital available in 2016, some in Insurance Linked Securities (ILS) and catastrophe bonds, some in collateralized vehicles and hedge fund reinsurers. Looking ahead, there appears to be increased interest in cat bonds in 2017, as returns continue to outperform S&P benchmark returns. The outlook is positive. Mr. Marcell notes that alternative capital was once seen as a threat to traditional markets, but is now viewed as an adjunct to their business model, using alternative capital as sidecars or ILS towers as part of their overall protection.
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