Geoffrey Lambrou, Aon chief executive officer, Specialty Broking & Operational Excellence, Asia speaks exclusively with Strategic Risk Asia-Pacific to highlight key takeaways for risk managers from Aon’s Asia Market Review 2018.
The world is shrinking
Whilst regional loss experience remained benign, 2017 was a year where increasing globalisation and the interconnectedness of global businesses and financial markets became more tangible in Asia.
The Asian market, which traditionally has been highly insulated from external shocks felt in other global markets, is now feeling the effects of the losses incurred by international insurers as a result of hurricanes Harvey, Irma, and Maria.
As the world continues to connect with developments in information technology, efficiencies in scale, and financial innovations driving change, markets will converge further and faster.
Risk transfer is an organisational issue, not just the risk manager’s
In 2017, as in prior years, we witnessed a continuing increase in the level of risk maturity in the region, although there are a number of areas where significant economic losses continue to be suffered unnecessarily due to insufficient risk transfer strategies.
One such area is cyber risk, where clients’ exposures continue to grow exponentially, year on year, whilst buyer behaviour lags behind that of peers in other geographies.
Given the pace of technological development, adoption, and reliance in key business processes, the impact of these losses will begin to be felt at the most senior levels of organisations if they fail to grasp the significance of these exposures.
The devil is in the details
The acute issue of insurability has also raised wider questions and focus around policy wordings. We have seen, and can continue to expect to see, underwriters seeking to clarify what is covered under traditional products, so as to prevent losses being picked up which were not intended to be covered but must be paid due to ambiguous policy language.
In this environment, the technical ability of the broker and its consultancy skills are paramount. Risk managers must be cognisant of this change in tack and confident in the advice they are receiving.
Not all doom and gloom
Whilst the natural catastrophe losses incurred in North America and the Caribbean will be felt, there is still a global surplus of capacity in the insurance market, and the losses incurred will generally impact insurers’ earnings but not their capital in 2018 in a significant way.
Whilst there will be concern from underwriters around natural catastrophe exposed risks and default risk in 2018, other classes of business such as Financial Lines and Liability should be largely unaffected as Asia remains significantly less litigious than other parts of the world.
Dig deep for positive results
The net effect of the above earnings event is likely to be that the market will be largely unchanged through 2018, with positive client results available for well-managed risks.
While large premium reductions typically seen in previous years would be difficult, and risk managers will find themselves under pressure to deliver added value outside of pricing reductions and to develop more advanced strategic risk finance plans, the importance of well-articulated and enacted risk management plans, detailed and accurate presentation of their risks, and sophisticated insurance buying strategies will be key to achieving the optimal risk transfer cost clients continue to search for.
At the centre of this equation is the broker, whose role becomes more complex but more valuable in evolving market conditions.