Rampant insurance market competition which lowered premiums across the board is likely to continue throughout next year, according to one industry expert.
“An influx of capital from non-traditional sources is contributing to increased market capacity, lower premiums and effectively enhancing competition in the global insurance industry,” said Aon Risk Solutions global managing director, Jason Disborough.
But insurers have been unable to absorb this increased capital through organic growth, he said.
“Funds are flowing into the insurance sector from major pension and hedge funds as well as family trusts in a way we haven’t seen in the past.
“In the current low interest rate environment, these investors are seeking alternative sources of return. In addition, they have been willing to accept lower rates of return than have been usual in the industry. Because their investment has the potential to dwarf traditional sources of capital, it has the ability to fundamentally change market dynamics.”
Softening market conditions and increasing capacity have seen premiums fall. Disborough said while this was great news for those being insured, it present “real challenges” for insurers.
“Many are no longer able to rely on growth from their existing book of business, and need to look at new ways of maintaining profitability.”
Disborough said he did not expect general economic conditions to pick up significantly throughout next year, and alternative capital flowing into insurance markets would continue to keep competition alive and well.
“All in all, insurers and reinsurers alike are facing challenging times ahead.”
To respond to these changing market dynamics, Australian insurers need to be innovative, said Aon Pacific chief broking officer James Baum.
“Australia is lagging behind the rest of the world in a number of areas. Network security and cyber risk, for example, have been seen as emerging risks for far too long. The fact of the matter is that these risks are here now, and require a better and more coherent response from Australian insurers.”
Aon provides risk management and insurance and reinsurance brokerage throughout 120 countries.