Aon: difficult market conditions could be easing

2024 could see an easing of the worst of the conditions affecting the current hard market, according to Brian Wanat, Head of Commercial Risk, North America at Aon.

Looking at economic & demographic indicators & trends in the US, Wanat said that migration slowing due to high mortgage rates that are keeping residents in one place. The commute is back after the pandemic forced people to work from home, but higher supply chain & wage costs are impacting e-commerce margins.

He pointed to elevated interest rates as still being a factor, adding that the US’s Inflation Reduction Act means that larger countries can compete with the US, but smaller economies are being left behind.

General insurance market conditions have been challenging for 5+ years, he said, and macroeconomic and geopolitical conditions have been and continue to be unstable.

The reinsurance market is driving very hard Nat Cat conditions due to a systemic change in losses. Rates re-accelerated after Hurricane lan and natural catastrophe capacity was cut.

According to Aon the ‘three I's’ created a perfect storm in the second half of 2022 - Inflation, Interest Rates, and lan, and that in the first half of 2022 earnings for insurers were generally not good due to severe convective storms' impact.

Although he said that cyber had seen softening market conditions in 2023, he warned that ransomware incidents are up dramatically.

Wanat said that climate will continue to be a headline for the industry and that sophisticated modelling and other tools increasingly available to risk managers. The continuous development of data & analytics may increase the broad risk-taking market (e.g. parametric, ILS, etc.).

Wanat also unveiled a list of reasons for optimism for Aon’s clients:

·         Insurers are likely past the worst of the hard market - 2024 will likely be more stable

·         The industry is addressing valuations - a driver of problems

·         Capital is returning (albeit slowly), inflation is easing, and interest rates are beginning to have a positive impact.

·         The industry is resilient and creative

·         Higher stakes mean more resources

·         Global construction boom will increase demand, but likely attract more capital.

·         Sophisticated modelling helps risk managers make better decisions

·         Data & Analytics (and Artificial Intelligence)

·         Conversion to structured data will make all aspects of the industry more efficient

·         Increase ability to finely segment risk - diversify portfolios for risk takers across all markets

·         Reduce uncertainty due solely to "bad data." Reduce barriers to entry for risk takers

·         Coalescing of markets around "leader" and "followers"