Cross-border transactions fuel demand for transactional risk insurance, Marsh reports

Talking exclusively to StrategicRISK, the regional head of Marsh Martin South said that, until recently, few insurers in the Asia-Pacific region were willing to offer warranty and indemnity (W&I) cover, whereas “today Marsh can utilise up to 15 potential underwriters”.

“In 2012, Marsh placed 24 W&I policies and $423 million in insurance limits in Asia-Pacific,” South said.

“In 2013, Marsh placed 52 W&I policies and a total limit of US$1.03 billion in Asia-Pacific, dramatic increases on both metrics.”

Speaking to SR following the publication of Marsh’s latest Global Insurance Market Quarterly Briefing, South said that global demand for transactional risk insurance had grown substantially over the past three years.

This was fuelled by an increase in corporate, private equity and infrastructure funds using insurance to protect their deals and gain a strategic advantage in negotiations, particularly in cross-border transactions, he added.

Tale of two Cs

South said that the Asian insurance market continued to be “a tale of two Cs: capacity and competition”.

“As international insurers continue to seek growth outside their home markets, the influx of insurance capacity into Asia continues to benefit corporate insurance buyers through aggressive competition, especially for accounts that have good risk management and claims history,” he said.

“With the exception of employee health and benefits – which is an area experiencing rate increases due to its unique cost drivers – we expect the soft market to continue subject to any major market-moving events.”

Indeed, employee health and benefits – medical insurance in particular – continued to be one area experiencing increases, South said.

“Companies are caught in a squeeze play, struggling to balance the need to offer attractive benefits programs to attract and retain talent and to contain rapidly increasing medical insurance costs driven by deteriorating claims trends,” he said.

“Companies across Asia are not investing aggressively enough into health management programs that address the root causes, failing to make the link between health, wellness and long-term medical cost reduction.”

Rate reductions

Marsh’s quarterly briefing states that rate reductions of up to 25% were widespread for commercial business in the Asia-Pacific region. This was mainly due to inflow of capacity and competition, creating a continued favourable market for insurance buyers in the region.

Limited catastrophe losses in the first quarter — and a two-year absence of significant market-moving events — contributed to the growth of global property capacity, the briefing reports. As a result, prices and contract conditions were generally favourable to buyers.

Property insurance capacity is at very high levels in Asia, the briefing adds, with the abundance of supply driving insurers to compete aggressively on price to retain and win business.

South said that new capacity in Singapore had come largely from international carriers continuing their growth agendas.

“This, combined with a capacity surplus, is fuelling competition driving premium rates to historic lows,” he said.