CHICAGO – Skyrocketing rates in the property insurance market should stabilize this year as insurers and reinsurers incorporate updated valuations into their underwriting and new capacity enters the market, Aon PLC President Eric Andersen said.

But the market needs to adapt to remain relevant to policyholders in the changing global environment, he said.

The sharp rate hikes buyers are experiencing were driven by the reinsurance market, Mr. Andersen said Thursday at a conference in Chicago sponsored by London-based CFC Underwriting Ltd.

Reinsurers faced the dual challenges of covering properties that were undervalued because of inflation and falling investment returns from their bond portfolios due to rising interest rates, he said. In addition, they paid significant claims in recent years from catastrophes such as storms, wildfires and floods.

During reinsurance renewals this year, reinsurers have in many cases increased deductibles by about 100% and increased rates by between 50% and 100%, Mr. Andersen said.

“They repriced the risk to get out of storms, to get out of the wildfires,” he said. “They pushed the risk to the primary insurer, who is essentially pushing it to the primary buyer.”

But increased capital is entering the market; for example, Everest Re Group Ltd. said Wednesday it would raise $1.5 billion in new equity capital, several reinsurers are dramatically expanding their capacity, and more new capital is likely to soon enter the market, he said.

“I think we’re going to come out of this year largely stable, so the work has largely been done, and then we go forward from here,” he said.

The insurance market, though, needs to develop to offer coverage for new risks that companies face, including risks related to climate change, Mr. Andersen said.

“We need a significantly larger pool of capital, but that capital will not come in unless it actually has an opportunity to make money, unless it understands the risks that it is taking, and it has clients that actually understand what they’re buying, and today that’s not where we are,” Mr. Andersen said.

The insurance sector must invest in new technologies and capabilities to help buyers and capital providers better understand climate risks and to develop new products and services, he said.