APAC firms adjust to a rapidly changing risk landscape

Climate risk continues to play a significant role in underwriting and insurance in Asia Pacific. This is according to insights from Aon’s Q4 2022 Global Market Insights Report. 

Meanwhile, demand for international insurance programs is growing in Asia Pacific as businesses in the region continued to expand beyond local geographic borders.  

Parts of the region that are susceptible to natural catastrophe events such as heavy rainfall, typhoons and drought experienced challenging market conditions in the tail end of last year.

Natural catastrophe events continued to drive large losses and pressure market conditions for property insurance. Changes to the reinsurance market, including higher costs and retentions, and some coverage restrictions, will drive rate increases for both local and international insurers.

Owen Belman, chief executive officer for Asia at Aon, said: “Traditional and newer forms of volatility are exposing organisations to risks that impact their employees, clients and businesses. We must therefore prepare for the risks of tomorrow, equipped with tools to measure both near- and long-term risks.

“While businesses commit to building resilience and maintain a strategic approach to risk, the need for insurance industry to invest in data-driven insights, real-time catastrophe monitoring and risk modeling to identify alternative risk management solutions that are cost-effective is vital.”

Rethinking cyber and supply chain risk

The report further highlights that while supply chain efficiencies have historically helped companies to optimise short-term financial performance, over time they have led to accelerated risk and reduced resilience.

As a result, many companies are now willing to balance a proportion of their supply chain efficiency to allow for greater certainty.

Aon expects this trend to continue into 2023, with companies deploying strategies such as dual sourcing, contracts with improved supplier terms, supply chain financing or holding increased quantities of inventory. Continued scrutiny will be exerted on strategic suppliers to build assurance around their ability to supply goods and services.

The cyber insurance market remained challenged in the last quarter of 2022 but showed signs of stabilising, as companies enhanced security and risk management, the claims experience improved, and retentions reached levels deemed sustainable by insurers.

While rate increases continued, they varied widely based on risk management maturity and the level of adjustment made in prior years.

Paul Young, head of Commercial Risk Solutions for Asia at Aon, said: “Persistently high inflation combined with supply chain challenges, talent shortages and climate change concerns highlight the ongoing uncertainty in the market as volatility continues as a key theme for companies to manage.

”Businesses must engage with insurers across the portfolio, rather than narrowly for a single product. This will help deepen the relationship and encourage insurers to look beyond only in-appetite products and risks, to help inform better decisions for the business.”

Watch out for ESG duties

Environmental, social and governance (ESG) issues pose a broad and complex set of risks and opportunities to companies and investors. Insurance underwriting, for example, is becoming increasingly focused on understanding and assessing ESG-related risks.

Proactively preparing for underwriting meetings clearly addressing issues facing insurers will be a key differentiator in underwriting decisions and is likely to impact a company’s total cost of risk.

Despite the moderation in rate increases across most products for the majority of 2022, the final quarter saw a change, notes the broker.

This was most notable in the Property market, as insurers became more conservative in anticipation of challenging treaty renewals. While pricing conditions remained moderate overall, sectors and risks deemed likely to create volatility for insurers experienced more significant increases.