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The president of one of the world’s biggest insurance brokers has warned that the industry should be “very careful” about offloading big global risks such as cyber attacks and pandemics to the public sector, saying that the business might never come back to private firms.
Speaking in Bermuda on Thursday at the PwC Insurance Summit, held in association with the Financial Times, Aon president Eric Andersen said the insurance industry needed to be “more aggressive” in absorbing some of the bigger risks coming from areas such as natural catastrophes, sweeping cyber attacks and pandemics. Some in the sector have called for new and expanded private-public partnerships that can share significant losses in these areas.
“Once that type of risk goes into the public sector, I can’t think of where it has come back out into the private market,” said Andersen.
“I think we should be very careful about calling for taking big chunks of what we should be doing for a living, and putting it over to the public sector . . . If we walk away from cyber, if we walk away from pandemic [risks], those types of things, ultimately what are we doing? That’s our business.”
Ahead of the all-important discussions for policies renewing in January, the senior broker also called on reinsurance companies to take more risk when it came to property catastrophe cover, which pays out following damage from events such as hurricanes and floods.
Over the past year, global firms have reduced the amount of property catastrophe reinsurance that they are willing to give to primary insurers and dramatically increased its price.
That has had knock-on effects, resulting in less coverage and more expensive cover for business owners and households and fuelling concerns that higher reinsurance prices and other factors such as climate change are creating an “insurability” crisis in key markets.
“There is an equilibrium that has to happen that we are not at, at the moment,” said Andersen. He said reinsurers needed to come down on price, or reduce the “attachment point”, which sets the level at which the reinsurance kicks in: in essence, taking more risk.
“It will happen, because I don’t think the product as priced today . . . is actually a fair trade for what’s being offered,” he said.
Reinsurance executives, also speaking at the event, warned that inflationary factors, and a push to improve profitability after years of losses, meant prices were unlikely to soften.
“A market correction was needed,” said SiriusPoint chief executive Scott Egan. He forecast there would be “no drop in rates” in January. “Reinsurers are prepared . . . to stand their ground.”
Reinsurance industry executives also discussed the outlook for Bermuda as a global hub for reinsurance, given the prospect of a global minimum tax rate and pressure from regulators elsewhere to tighten its capital regulation.
Bermuda premier David Burt told delegates he had no doubt the local market would survive these wider pressures, adding the government was working to bolster its broader attractiveness, such as addressing cost-of-living pressures for workers.
“The story of Bermuda’s demise has been written so many different times. Nonetheless, we continue to come out better.”
