Asian insurance buyers adapt to hard market

In Singapore, the reopening of businesses and optimism over the vaccination programme has boosted investor confidence and an economic rebound is expected in 2021.

Besides pricing increases, the Singapore insurance market is moderately challenged when compared to the global market, according to the latest Aon Global Market Insights Report.

In Asia, pricing has seen an overall increase. However, the extent of increase varies by several factors such as business line, sector, geography, renewal vs. new business and whether the insurer is local.

The report finds that more than capital and capacity, macro factors and events such as supply chain vulnerability, lower investment yields, ongoing economic uncertainty, social inflation and weather volatility will drive risk complexity in 2021.

Insureds are more mindful of pricing given the current economy. Many insureds, especially those whose budgets are not aligned with current market conditions, are exploring alternatives and trade-offs (eg, increasing deductibles) to offset proposed premium increases.

Cynthia Beveridge, president, Aon Broking, Commercial Risk Solutions, Aon, said: “There is general optimism that the rollout of the COVID-19 vaccine will have a positive economic impact. Along with the introduction of additional capacity into the market, this may result in an easing in the second half of 2021 of some of the challenges experienced in the risk and insurance environment during 2020.

”That said, risk complexity will continue to be impacted by supply chain vulnerability, a virtual workforce, ongoing economic uncertainty, social inflation and weather volatility. We expect heightened underwriter scrutiny on supply chain transparency and resilience, COVID-19 and communicable disease safety measures and cyber threat resilience. Pricing and coverage terms will continue to address these concerns.”

Singapore trends:

As the COVID-19 situation evolves, a tight market is likely to continue, at least through the first half of 2021. In addition:

• Coverage is stable; however, pandemic exclusions have become common;
• Credit insurance has become more difficult and is under heightened scrutiny, and
• New shorter-term and micro-insurance products are coming into the Singapore market.

Brent Clawson, chief broking officer, Commercial Risk Solutions, Asia, Aon, said, “The impact of claims related to COVID-19 for businesses and insurers has not yet been fully seen. The fluid situation of business interruption driven by regulations, litigation and the macro-economic environment will continue to bring complexities to the fore in 2021. COVID-19 has also resulted in claims activity in other lines of coverage, with numbers and costs likely to increase.”

Market dynamics of key products in Singapore:

• Casualty: Pricing and deductibles are increasing in this field. Many insurers are imposing blanket exclusions for communicable disease as well as data risk and cyber threats. Reinsurance costs are escalating, which are likely to keep primary rates elevated.

• Employer’s liability / workers compensation: Premiums are increasing, mainly driven by changes in the new Work Injury Compensation Act, 2019 (WICA). In addition to increased benefit levels, insurers now have the added responsibility of assessing permanent incapacities. Some insurers have appointed third-party providers to make these assessments, thereby increasing costs for this class of insurance. Insurers are becoming more stringent in their underwriting requirements and approach in an effort to balance underwriting guidelines with WICA requirements. The Ministry of Manpower (MoM) has mandated a minimum level of the required information, which has resulted in more accurate insurer ratings and premium changes for many insureds. Some employer’s liability insurers are scaling back coverage related to contingent liability, especially for contractors and subcontractors. As insurers seek more clarity following recent changes to WICA, renewal terms have changed in ways that have not been experienced in previous updates to the Act.

• Financial Lines: Insurers are leveraging technical pricing approaches and rationalising capacity at the portfolio level leading to increased premium and decreased capacity. Insurers are being conservative in their scrutiny of insureds’ financial positions, operations (including return-to-work policies), controls and governance. Companies that are in industries severely impacted by COVID-19 and/or have weak financials will likely see narrowing coverage with little room for negotiation.

• Property: Insurers are imposing communicable disease exclusions, withdrawing contingent business Interruption coverage and imposing cyber exclusions on property damage and business interruption (PDBI). Deductibles are increasing, particularly for business interruption for Singapore risk locations. Insurers continue to reduce capacity as they focus on diversification of risk, and a further reduction in capacity is expected as reinsurance rates continue to increase.