Emergence of inadequate reserves and climate change will reshape industry

Inadequate reserves in the industry and climate change are the two main developments in 2019 most likely to change the risk transfer industry going forward, according to a comprehensive poll of Intelligent Insurer’s online readers and other key executives from the industry.

“There is a growing hole in reserves industry-wide and I think in 2020 we will see that cause some major shocks in the industry,” said one anonymous respondent.

Simon Bird, active underwriter at Brit Global Specialty, added: “Under-reserving, especially in casualty, is a fact of life at present.”

Commenting on climate change, Jarno Seegers, associate at Xceedance, said: “Climate change and cyber are huge new threats that need to be addressed with urgency. This provides opportunities but also highlights the difficulties of trying to get a good handle on the scope of these risks.

“Lots of insurers are looking at insurtech innovations to grasp for help that traditional modelling vendors seem unable to provide sufficiently.”

These choices were closely followed by respondents’ hopes for a hard market, more cat losses and loss creep and the fallout from the restructuring going on at Lloyd’s. Insurtech and its potential to change the industry secured a high percentage of votes as did the movement of alternative capital into new areas and lines of business.

One respondent said: “The hardening market is the story. There are many drivers but adverse reserve development and another year of higher than long-term catastrophe losses are major drivers. I expect the other items on the list to drive future changes.”

P Umesh, an independent consultant, added: “Signs of hard market are visible in some liability lines. Equally, climate change will impact every aspect of the industry—compliance, investment and insurance, etc.”

Stephen Card, chief executive officer of Carbon Underwriting, added: “The hardening market is long overdue and has primarily been brought to a head by Lloyd’s action on underperforming syndicates in 2018. The impact of this will continue well into 2020 and beyond in many lines.”

The battle for talent received quite a low response rating, as did further consolidation and the challenging investment environment, although these issues were key for some.

“Low interest continues to push rates which keeps the market hard (in some regions) The high employment environment coupled with retirements is changing the industry. Climate change is costing the industry billions,” said John Chino, area vice president, Gallagher.

Some respondents also noted an increase in awareness of specific risks in 2019, which could have future implications. Rebecca Kingsley, brand manager of Travelinsuranceexplained.co.uk, said: “Consumers are increasingly aware of the ‘end supplier failure’ and ‘scheduled airline failure’ clauses when buying travel insurance.

“2019 has shown that even travel giants such as Thomas Cook are not immune to market volatility, and multiple airlines have gone into administration leaving thousands of people out of pocket and many more awaiting compensation from the UK Civil Aviation Authority.

“It has certainly left many travellers wary of the fact that the travel industry is under a lot of financial pressure due to climate change and political uncertainty, and any cover for these risks is going to be high on customers’ minds.”