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The insurance market has all the feel of the beginning of a hard market, said a speaker at Business Insurance's executive panel on the state of the industry panel at the Risk & Insurance Management Society Inc.'s annual conference in San Diego Tuesday.
He added, however, “that's not what's going on.”
Robert H. Rheel, New York-based president of Aspen U.S. Insurance, said he would “like to believe we're going through a transformation of the industry” instead. Key drivers include consolidation, particularly in the wholesale segment, as players position themselves in the marketplace, he said.
A second key driver is capital.We are “seeing an influx of new capital from nontraditional sources, driven by low investment yields coming off the Great Recession,” he said, adding “it looks like insurance companies are generating a higher return on capital.
"When you talk to the individuals behind this capital, they say “they are here to stay,” said Mr. Rheel. “Some are actually building up capital” to support the business for when an event such as a hurricane occurs, he said. A third factor affecting the market is the amount of data available, he said.
One of the topics discussed during the session was cyber coverage. “What we don't know about cyber is what's driving the difficulty of pricing it,” said Lori Goltermann, Chicago-based CEO of U.S. retail for Aon Risk Solutions.
Cyber's impact is not only in the area of personal information but also in business interruption and the potential loss to customers, she said. The industry probably has to spend a lot more time analyzing what can go wrong and how to model that, including assessing the risk and the exposure. “That's not an easy exercise,” she said.
Just buying a policy is a “limited way to look at cyber.” It must be viewed much more broadly to see its impact on business “and come up with a solution to it,” she said.
It is important to have the right partners advising you, said Kirk James, Chicago-based chief strategy officer for Hub International Ltd. For instance, there is a risk of cyber causing bodily injury, said Mr. James, pointing to the data collected on cyber-enabled “wearables.”
“If that data is incorrectly interpreted” it could cause an event that was otherwise unanticipated, he said. “The marketplace is going to have to respond to those kinds of risks,” he said. Risk managers must work with those who understand these risks “because you can't do it all. You can't possibly protect yourself from everything.”
More traditional risks are also a concern, according to Mr. Rheel, observing that flood maps change only after a flood. We “must anticipate where to put up capacity and work with accounts,” he said.
Another challenge facing the industry is that 25% of its employees will retire within the next five years, said Ms. Goltermann, which will affect workers compensation and health care. “I think this is something we will see emerge as a trend inside the risk community,” she said.
Mr. James also said risk mangers no longer report just to one senior executive but now work as a team with others, including the information technology department. “Not only is the external world shifting for you,” but it is swirling internally as well, Mr. James said.The session was moderated by Business Insurance Editor Gavin Souter.