State of the P&C Reinsurance Marketplace
At the 2022 APCIA Annual Meeting in Dallas, TX, a panel discussed the current state of the property and casualty reinsurance marketplace. The panel included:
- Dana Perino – Author and Host, Fox & Friends
- Paul Anderson – Senior Managing Director, AON
- Will Garland – President, Centers of Excellence, Guy Carpenter
- Kerri Hamm – Head of Business Development, Munich Re US
What are your biggest concerns regarding the reinsurance marketplace right now?
The continued impact of inflation on claims cost. The costs of goods and labor continues to escalate, which is increasing repair and replacement costs significantly in property and auto claims.
There are also concerns about the impact of Hurricane Ian. Florida has been a very challenging jurisdiction for property claims because of widespread fraud and abuse. While Florida passed some reforms this year, they may not have gone far enough. The hurricane will also cause insolvency for several property carriers. When you couple the bad insurance environment with the inflationary concerns, it becomes difficult to understand the ultimate exposure for this natural disaster.
Are there concerns that the war between Russia and Ukraine will impact the reinsurance marketplace?
At the present, there is very limited potential for insured losses in the impacted areas. However, there is concern that the conflict will escalate, impacting areas with greater insured exposures. Expect reinsurers to take a close look at the war exclusions in their contracts and to tighten up the language as needed. The reinsurance market has no intention to cover losses relating to wars.
How is climate change impacting the reinsurance market?
Climate change in the reinsurance marketplace is not a political issue. It is in the numbers in terms of higher catastrophic losses. However, higher losses are not only due to climate change. Population shifts and litigation trends are huge factors in increased losses. Millions more are residing in flood zones today compared to 20 years ago. That significantly increases the potential exposures from natural disasters.
What does the flood insurance market look like?
The take-up rate for flood insurance outside of the National Floor Insurance Program (NFIP) remains very low. The insurance is available in the commercial marketplace, but most do not purchase coverage. The potential for flooding is stretching well beyond coastal communities ,and most of that is uninsured. The analytics for forecasting potential losses from floods are improving.
How is the tort environment impacting claims?
Lawsuit abuse continues to financially impact the entire property and casualty industry. Without tort reforms, it will continually worsen. Nuclear verdicts have become widespread in jurisdictions nationally, reaching beyond the typical judicial traps, which is increasing the costs of insurance for all.
Litigation financing also needs to be addressed. There is an entire industry build around investing in litigation with the hopes of achieving substantial verdicts. These parties do not have any interest in settling.
How is environmental, social and corporate governance (ESG) impacting the insurance marketplace?
There have been Directors & Officers (D&O) policy lawsuits related to “greenwashing.” This means claiming your investments and practices are environmentally-friendly when they are not.
What are the most significant concerns in the cyber marketplace?
The biggest concerns are around systemic risk, geopolitical cyber warfare and insurance market capacity. The risk of a widespread systemic cyberattack is difficult for the market to quantify. For example, consider if an attack took out an electrical grid for days what the impact would be for businesses and individuals. The government needs to consider insurance marketplace backstops.
What emerging risks are you tracking?
The potential liability exposures around Per- and Polyfluoroalkyl Substances (PFAS), also known as Forever Chemicals, is a growing concern. These chemicals are in hundreds of thousands of products, and there is increasing concern that the long-term health consequences from these could result in another era of lawsuits that resembles asbestos cases.
Accurately tracking aggregate casualty liability exposures is also a concern. Reinsurers need to be able to determine all of their potential exposures across multiple lines to a particular risk.
How is COVID-19 impacting the reinsurance industry?
Right now, staffing is the greatest challenge. There are widespread staffing shortages across many sectors of the industry. Staff training and promoting collaboration in a remote environment has also been difficult.