COVID-19 has brought the growing ‘intangibility’ of risk into focus, a trend that will accelerate
2020 was historic by any measure, according to a report from international insurance broker Howden.
“The lives of billions of people have been redefined by COVID-19, a global health crisis that brought with it shutdowns, financial market turbulence, economic dislocation and civil unrest. The pandemic is a reminder that certain perils do not conform to long-held assumptions around correlations, boundaries and duration,” it found.
The manifestation of systemic risks emerged elsewhere too. “The effects of climate change were again in focus, as the frequency of extreme weather events pushed the boundaries of historical precedent. The increasingly complex risk landscape has exacerbated risk aversion in the insurance and reinsurance market, with carriers’ appetites responding accordingly.”
José Manuel González, CEO, Howden Broking Group said: “Whilst the pricing environment may be supportive for carriers in 2021, this should not translate into a degree of risk aversion where underwriters accept rate but shy away from new risks or new business.
Focus on intangibles
The global risk landscape is changing like never before. Carriers and brokers have always served clients best by learning from shock events and 2020 is surely a year rich in its lessons.
There is much to draw from: COVID-19 has brought the growing ‘intangibility’ of risk into focus, a trend that is only going to accelerate as new technologies continue to redefine risk characteristics.
“Irrespective of what happens to the market cycle in 2021, the (re)insurance market must seize the opportunity and focus on doing what it has done so well several times over; innovate and develop creative solutions for the changing needs of our clients,” observed Howden.
Looking ahead to 2021, hopes rest firmly on a successful vaccine rollout to limit the already considerable economic damage. The resumption of economic growth must be facilitated and supported through better risk transfer solutions.
Insurance rates continue to rise
Howden found that commercial re/insurance rates accelerated across most classes of business in 2020, despite businesses facing significant, even existential, financial pressures due to COVID-19.
Howden’s global Property-Catastrophe Rate-on-Line Index rose by 6% at 1 January 2021. This was higher than the flat outcome of 2020, and the biggest year-over-year increase in over a decade.
COVID-19 loss experience, along with yet another hyperactive natural catastrophe year, were key inflating drivers. Rates continued to rise on underlying business, especially in the US.