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Market impact of COVID-19
COVID Commentary
Risk managers will be faced with more challenging insurance discussions and renewals this year. How can they prepare?
3 Ways To Prepare For Insurance Renewal In A Hardening Energy Market
Read More
After months of lockdown, what are the best ways for an organisation to plan for a return to the workplace?
The Workplace Of The Future Is Here: No ‘Business As Usual’ In A Post-COVID World
Explore Our Ideas
Cyber criminals quickly recognised the opportunities that the pandemic provided them. As the volume of emails from employers, governments and health agencies related to the outbreak increased, so did the number of phishing emails concerning COVID-19. How can you address the cyber risks brought on by the new boom in remote work?
How Cyber Criminals Are Taking Advantage Of COVID-19
Businesses successfully navigating the “new better” will need to recognise the impact of the pandemic on their employees’ physical, emotional and financial wellbeing.
The Resilient Workforce: How Investment In Wellbeing Pays Off
Find Out How
Many of the Philippines’ pandemic control measures have impacted public policy and business regulations. Businesses now face increased risk from revenue losses and associated cost-cutting measures. This is affecting both local and multinational businesses with a presence in the Philippines, all along the global supply chain.
How To Address Emerging Pandemic Risk In The Philippines
Explore Our Solutions
Post-pandemic, patients and providers will continue to seek virtual care options, many of them through models that integrate virtual care with in-person healthcare services. Can this approach improve patient access and reduce employer costs?
Telehealth’s Rise: 5 Keys To A Virtual Care Strategy
Find Out More
2021 Asia Market Review
How can you move forward with confidence and certainty in a volatile business environment? Download Aon's eighth annual Asia Market Review for more insights.
Cargo
Human Capital Solutions
Health
Financial Lines
Digital Economy
Cyber
Credit Solutions
Casualty
Captives
Affinity
COVID-19 and the market changes that will shape 2021
The COVID-19 pandemic has impacted clients and the insurance industry in a variety of ways − from the direct and specific losses arising from the pandemic, to more long term and potentially fundamental changes to how the market operates moving forward. This section focuses on three keys areas that have been impacted by the pandemic, directly and indirectly, changes to which are likely to affect clients in Asia for the longer term, providing benefits as well as challenges: claims, wordings and pricing.
Acknowledging that losses and claims arising from the pandemic have garnered significant regulatory, judicial and media attention, the purpose of this commentary is not to focus on them specifically; to the extent clients have insurance coverage in place that responds to losses, we will continue to work with them and the market to secure appropriate payments in the best achievable timeframes. Overall claims volumes in Asia have decreased year on year in 2020; fewer planes in the air and cars on the road has resulted in a significant decline in travel and motor/auto claims. Likewise, we have seen a reduction in losses typically arising in the retail and hospitality sectors, from public liability to employee/worker compensation claims. For many insurers and claims service providers, this has created an opportunity to “clean up” their claims portfolios, from expediting the closure of long outstanding claims to adopting more efficient practices, as well as introducing new technologies. In addition, existing technologies have been tested, and for the most part performed well, during the extended periods of work from home that have become common during the pandemic. Taken together, this bodes well for the future. We anticipate continued development in online reporting platforms and robotic process automation to streamline the overall claims process, particularly in the retail and higher volume segments. Major losses have not declined during 2020; if anything, they continue to trend upwards in terms of quantum and complexity. The pandemic and the broader hardening of the insurance market has impacted these losses directly and indirectly, generally resulting in a prolonged assessment and adjustment of the loss. Examples include: loss adjusters and other specialists unable to travel to the site of a major loss, hampering their ability to assess loss causation in a timely fashion; delays in sourcing/ manufacturing critical replacement parts (particularly across borders), potentially extending business interruption periods; increased scrutiny of major and complex losses by external legal counsel (on behalf of insurers and reinsurers) and centralization of claims authority at (re)insurer head office, which can prolong coverage determination and complicate decisions around payments on account (and thus affect client cashflow). These challenges are not new but do emphasise the importance of clients and the market investing more time on pre-loss planning (getting to know nominated loss adjusters and establishing claims protocols) and reinforce the need for clear and robust lines of communication throughout and management of the claims journey (managing expectations of all stakeholders and minimising surprises). As we move beyond 2020, many of the challenges resulting from the pandemic remain; however, clients and the insurance industry should benefit in the longer term from the accelerated adoption of claims technologies and processes that have been introduced (partly) in response to the pandemic. In addition, and perhaps more importantly, there is an opportunity to learn from the challenges faced in the major loss arena; time invested by clients and the market in advance of any loss undoubtedly pays dividends in the event of a major loss. Equally, all stakeholders need to focus on communication: managing expectations is critical when it comes to major losses – generally speaking, nobody likes surprises.
Claims
Wordings
One consequence of the pandemic has been the regulatory and judicial scrutiny of insurance policy wordings. We expect the market to increase its focus on wordings and the scope of cover provided in respect of pandemics specifically - infectious diseases exclusions have been the subject of intense negotiations during 2020 renewals (including treaty reinsurance during the most recent 1 January renewal season) - and business interruption generally. Beyond that and more broadly, greater clarity of language used is no bad thing, particularly when it comes to claims – managing expectations is made easier when dealing with clear language.
While much remains to unfold, COVID-19 loss forecasts for the insurance industry have varied wildly, ranging from $50bn to $100bn. Aon analysis indicates an average Loss Estimate of 3.3% to total equity of the insurers reviewed. There are also implied pressures on rating models and portfolio-wide increases associated with the pandemic. Aside from the effectiveness and speed of the vaccine roll-out, the other remaining contingency is the aggregated impact of Business Interruption litigation events across multiple jurisdictions.
Pricing
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delays in assessing loss causation when loss adjusters and specialists were unable to reach major loss sites, business interruption periods were sometimes extended due to setbacks in sourcing or manufacturing critical replacement parts, particularly across borders, and prolonged coverage determination and payment decisions, which affected client cashflows, due to the increased scrutiny of major and complex losses by external legal counsel on behalf of insurers and reinsurers, and growing centralisation of claims authority at (re)insurer head offices.
These challenges emphasise the need to invest more time on pre-loss planning, such as getting to know nominated loss adjusters and establishing claims protocols. It also underscores the need for clear communication during the claims journey to better manage expectations of all stakeholders and minimise surprises. In 2021, many of the pandemic-related challenges remain. However, we believe that clients and the insurance industry will benefit from the accelerated adoption of claims technologies and processes happened in 2020. In addition, and perhaps more importantly, the pandemic has presented us with the opportunity to learn our most significant lesson from the challenges faced in the major loss arena − time invested by clients and the market before a loss will undoubtedly pay dividends in the event of a major loss. Equally, all stakeholders need to focus on communication: managing expectations is critical when it comes to major losses – generally speaking, nobody likes surprises.
• • •
Aviation
Construction
Financial Institutions
Energy
Hospitality
Mining
Life Sciences & Pharma
Power
Real Estate
Private Equity
Tech, Comms & Media
Shipping
Renewable Energy
Claims Observations
There is a prolonged claims investigation process and some increased loss quantum due to the impact of COVID-19. In this challenging market environment, claims are being scrutinised heavily by insurers and loss adjusters. It is more important than ever that full underwriting information is made available.
-Name, title
Asia Rate Movements
i
Source: Lorem ipsum dolor lorem ipsum dolor lorem ipsum doolor
Benign
Moderate*
in Hong Kong SAR, China
Severe**
Asia Loss Experience
*Upstream **Downstream – moderate frequency, severe quantum
Client Tips
Engage with your broker early about impact of coverage and premium changes.
Build awareness of your risk tolerance to optimise your risk retention.
Prepare for factual dialogue on valuations, business interruption analysis, and risk engineering, especially post-loss investigation.
ENERGY
In January 2020, all the estimated annual hull war premium was eroded by significant losses, which led to rates rising by up to 50%. Capacity may still be an issue for buyers of hull war insurance.
+10% to +30%
-5% to +15%
2020
2021
*Insured losses (regional) **Insured losses (global) and uninsured losses (NDBI, grounded aircraft, significant reduction in passenger numbers).
Clients had to deal with suspensions of trade by port blockages due to COVID-19. A downturn in business performance created uncertainty around turnover predictions, leading to premium fluctuations which proved difficult to manage. Appetite and capacity issues formed due to large regional storage exposures and the market’s Nat Cat risk-averse attitudes. Commodities, Auto and Pharma/Life Science attracted limited buy-in from insurers, plus had stringent coverage restrictions and outsized rate increases. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
• • • • •
Reflections
Predictions
The reduced capacity witnessed in Asia over the last year will begin to plateau as new entries join the market. Rate adequacy will continue to drive the cargo market, with bottom line pressure coming from insurers’ global management. Excess stock placements will be limited and continued global engagement will be crucial to their completion. Supply chain insurance and trade disruption cover will be more in demand, despite a cautious approach to providing terms. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
At the height of the pandemic, 65% of the world's fleet was grounded; passenger numbers dropped by 95%; aircraft on ground aggregated risk remained high throughout the year. An estimated 500,000 jobs have been lost, globally, with many more in furlough. The resulting reduction in active flight activity and pilots returning from furlough has led to a sharp increase in unstabilised landing approaches. The aviation industry ecosystem has faced a credit crunch, leading to significant financial restructuring and cessation of business.
• • • •
2021 has already begun in a challenging manner, with the recent loss in Indonesia of a B737-500 aircraft and 62 fatalities. This incident is yet another indicator that while operations globally are reduced, losses are still occurring. Continuing unprofitability will likely lead to capacity withdrawal, and we may see more M&A activity. The market will therefore likely continue to harden. New products associated with emerging risks will become popular, including parametric, credit-based and cyber coverage. Aviation policies will continue to be challenged from a coverage perspective, with insurers offering different terms and conditions at varied pricing levels.
Demonstrate why your risk should be differentiated from that of your peers.
Prepare early in a firming market and engage with insurers as you would your investors.
Approach risk from a broad-base perspective and aim for strategic synergies.
aviation
+15% to +30%
+15% to +35%
*15% to 30%
Airlines
*15% to 20%
Aerospace
General aviation
* for special circumstances, rate movements could be significant
2020 was a year with significant severity losses including high profile commodity frauds impacting banks in the region. There has been an increase in other fraud-related loss scenarios and in some countries, loss events involving financial product misselling and anti-money laundering risk governance oversights.
+10% to +20%
+20% to +40%
Moderate
Severe
There was an increase in non-financial (operational) risk and credit risks associated with the economic downturn. Several banks were affected by notable commodities trading frauds. There was significant focus on cyber exposures of insureds’ customers. An increase in trade tensions has increased the political risk environment, with banks being caught in the middle as a vehicle for government policy.
Environmental, social and corporate governance (ESG) focus will continue to gather momentum as ESG litigation trends develop globally Additional risk mitigation efforts to manage commodities fraud. Regulatory priorities will continue for operational resilience, cyber, climate change, conduct risk, financial crime, governance, and reporting and capital. There will be an increase in the frequency of black swan events.
Employ credit risk mitigation strategies to address economic headwinds from the pandemic.
Increase management attention to ESG considerations, particularly tail liability risks.
Engage in underwriter presentations and prepare the risk narrative.
financial institutions
Cyber events continued to make headlines, resulting in fines for cyber breaches, financial losses and reputational impact for major brands. The event cancellation market paid significant claims relating to COVID-19 numerous events in the region.
2019
2020 has perhaps been the most challenging trading year faced by the industry during peacetime, due to COVID-19. There was widespread restructuring of debt repayment terms across the industry in an attempt to prevent mass default. There was mass retrenchment of workers across the industry, potentially causing a future talent issue. With another very active typhoon season, climate change continued to impact the region. Airbnb listed, confirming the direction of travel in the industry away from a fixed asset-heavy model to a tech platform-driven industry.
The industry will continue to face headwinds as COVID-19 recedes. There may be an increase in political unrest or violence, as seen recently in Thailand, Hong Kong and Sri Lanka. Sustainability will increasingly become a board priority and should be a key risk consideration. There will be a number of distressed asset sales, increasing the need for transaction liability cover.
Seek strategic risk management advantage by being more resilient than peers to external shocks.
Review risk registers to identify and mitigate tail risk events which may be underrated.
Consider strategic risk retention options to achieve an optimal total cost of risk outcome.
+8%
+10% to 20%
Liability:
Nat Cat-exposed Property
There were some severe loss events in 2020, associated with M&A that are insurable under both Transaction Liability Insurance (TLI) and General Partner Liability (GPL) insurance. There is increasing merit to use TLI, benefiting from better pricing models compared with the GPL programme. There has been a notable increase in cyber-related scams impacting the Private Equity (PE) ecosystem, highlighting the need to assess cyber risk mitigation strategies of the PE stakeholder universe.
Due diligence challenges associated with pandemic lockdowns impacted deal flow. Cyber resilience strategies for portfolio companies has gained traction. Cross-border political risk considerations have become more complex. Sustainable investment practices with ESG bias has gained momentum.
As Asia emerges first from the pandemic, there will be an increased deal flow. More favourable valuations and distressed asset sales will have influence on the industry. There will be an increased focus on risk strategies to manage volatility, uncertainty, complexity and ambiguity. Innovative ways will be adopted to engage Credit Solutions to manage portfolio company balance sheets.
Focus on any portfolio company management challenges to navigate economic headwinds.
Develop well thought-out M&A transaction risk strategies.
Explore working capital credit insurance solutions to optimise your company’s financial portfolio.
private equity
2020 highlighted the industry’s exposure to non-damage loss scenarios, including pandemic, natural catastrophe, terrorism and cyber attacks. Some Nat Cat near misses in the US and Asia re-emphasised the need for effective balance sheet protection against low-frequency, high-severity shocks.
The hospitality and retail asset classes were the most heavily affected by COVID-19 in 2020. Severe climate-related events continued to impact rating and capacity availability in adverse weather and Nat Cat-exposed geographical regions. NDBI losses continued to mount, driven by events such as Hong Kong protests. Moves towards alternate asset classes, including health care, logistics and data centers, created new risk profiles for clients.
Increased scrutiny of underwriting submissions will continue, with additional emphasis on the quality of information and investment in risk management. Underwriters will seek to expressly exclude some non-damage events from PDBI policies, such as epidemic and silent cyber risk. Insureds will use alternative to optimise total cost of risk, including parametric covers, captives and protected cell companies (PCCs). Investors and developers will continue to move up the risk curve towards non-core assets and must be cognisant of the associated change in insurable risk profile.
Select alternative risk transfer vehicles and self-insured retentions to reduce the cost of risk.
Invest in risk management to see an outsized total cost of risk return.
Closely consider long-term tail risks, such as climate change.
real estate
Flat to 100%
Flat to +20%
Financial lines (D&O)
Financial lines (Professional Indemnity)
COVID-19 has caused the biggest financial impact to the oil & gas industry since WWII. However, in Asia, national oil companies dominated the scene, having managed to weather the storm. Downstream Energy risks saw significant premium increases, higher deductibles being imposed, coverage restrictions and capacity constraints – especially for risks with Nat Cat exposure. Some insurers withdrew from the market. Loss-free placements were scrutinised by underwriters and took longer to place. Vertical placements became commonplace and insurers proposed their own terms, leading to tower complexity. Upstream Energy activities saw modest rate increases, particularly for offshore exposures. Onshore/midstream property and subsea projects saw worsening loss ratios and higher rate increases.
Next year will be a continuation of current trends in pricing, scrutiny and information requirements. Risk quality will be a driver, with insurers being prepared to walk away over underwriting concerns. Underperforming product lines will close and there will be a focus on profitability. Large accounts will face restricted capacity.
In terms of claims, the P&I 2020-2021 policy year looks set to be the worst performing to the Pool of the International Group of P&I Clubs in a decade. Fuelled by numerous types of losses to the Group, these high-profile, costly claims look set to influence how P&I Clubs will conduct their renewals.
+5% to +25%**
+7.5% to +35%**
** For clean accounts
Severe*
*Wakashio (grounding), Beirut Port (explosion), Gulf Livestock 1 (sinking), New Diamond (fire), APL England (cargo claim), ONE Apus (cargo claim).
Uncertainty from the US-China trade war lowered demand between the two superpowers and led to a drop in freight rates. Freight rates plummeted across most vessel types and segments, and with them also the income base owners enjoy. The difficulties of crew-changes resulting from the COVID-19 pandemic have put further pressure on owners due to time lost in ports. With continuing instability in the Middle East, trading to the Persian Gulf remains an expensive proposition.
Capacity flow back to London will be significantly less. London and European insurers will find some Asia pricing more to their liking and will underwrite in Singapore. The market will continue to harden, and as investment returns are volatile, more focus will be on pure underwriting results. P&I markets are starting to feel the pinch felt by their Hull and Machinery (H&M) peers, and more stringent P&I underwriting is expected. Some insurers will look to consolidate their products while others will look to diversify, bringing opportunities to owners.
Improve seafarers’ performance and retention through behavioural assessments and offer benefits packages.
Consider risk transfer solutions for increasing risks like cyber and delays.
Build relationships with current insurers to enjoy stable terms.
shipping
There has been a claims trend reflecting emerging asset-light strategies, with an increase in financial lines claims events. Legal frameworks are evolving, and and regulator disputes will likely rise in frequency. IP disputes are also increasing in frequency.
Flat to +10%
+5% to +10%
Technology is one of the industries that experienced growth. Non-organic Mergers and Acquisitions (M&A) growth underscores the need for robust due diligence. Those involved with critical infrastructure capabilities have experienced seismic shifts in the political risk landscape. There is an increased tendency for technology to be politicised for national interests. Innovation and the need to protect IP highlighted the market opportunity for new insurance solutions.
There will be increased regulatory scrutiny, particularly for industry diversification opportunities that collide with other regulated industries, such as financial services. IP risk considerations are overtaking physical assets, plus a shift towards solving valuation challenges to address the insurance gap. Favourable credit insurance terms, and other working capital solutions, will be leveraged. There will be an increase in M&A activity, particularly cross-sector synergies and disruptors.
Understand legal and regulatory frameworks that interact with digital transformation business growth initiatives.
Maintain focus on geopolitical shifts that will impact geographic expansion.
Double down on cyber risk governance considerations to prepare for renewal.
Technology, Communications & Media
* Increases beyond 20% for high NatCat exposed regions, where losses prevail and where newer technologies are being deployed, such as larger wind turbines, energy storage systems, or wider coverage is being purchased As with conventional power generation, some jurisdictions were able to stabilize their local pricing for renewable energy clients
Global Nat Cat events led to increased underwriting scrutiny and a conservative approach, particularly to pricing of Nat Cat exposures and limits provided by insurers. The hardening market made it challenging to procure the cover required under loan agreements, creating the potential for a breach of loan covenants. Restrictions for unproven/prototypical technologies, such as defects exclusion, serial losses and deductibles, also had the potential to breach contractual arrangements. Project developers needed to work on tight schedules to qualify for Feed-in Tariff (FiT) schemes and avoid project cancellation. This compressed schedule could lead to punitive terms and conditions. In some countries, long delays occurred due to a lack of robust local labour force or supply chain.
Market capacity overall remains buoyant as insurer appetite re-focuses on a more balanced generation mix to include Renewable Energy. Unmatched technical underwriting information submissions will be critical to differentiating risk. There is also an increased need for detailed Estimated Maximum Loss (EML) studies and/or greater attention to design standards, especially in Nat Cat-exposed locations. There will be increased interest in weather parametric solutions to complement traditional insurance procurement for a holistic risk management approach.
Demonstrate positive risk management features and practices to differentiate your risk in the market.
Consider how weather impacts your ability to maximise revenue, and what solutions there are.
Enhance relationships with key insurance partners to stabilize market volatility.
renewable energy
D&O programmes for US-listed entities came under significant strain as rates increased significantly and capacity was withdrawn from the market. There was an increase in the frequency and severity of cyber incidents, not only seeking financial information but also manufacturing IP and even causing operations to cease in some instances. Many clients were unaware of their exposures and made ill-informed decisions around IP, recall and NDBI. Increased supply of telemedicine and online service provision has heightened cyber exposure and created coverage gaps in traditional policies.
Liability capacity for the manufacturing of the COVID-19 Vaccine, contract manufacturing and logistics will be an issue, with markets watching their global aggregate exposure. Captives will become a serious consideration for large clients looking to reduce the impact of changing markets. Automation and technology will continue to play an important role in the value chain, increasing cyber exposure. Nat Cat events will increase in frequency and severity, increasing NDBI exposure.
Understand the value of your IP, its protection and your options to make an informed decision on risk transfer.
Consider how non-damage business interruption and tighter contract controls can strengthen your supply chain risk.
Review your cyber security and your employee cyber awareness. Consider risk transfer as claim frequency has increased.
Life Sciences & Pharmaceuticals
Avoid cutting back on cover to save on premiums, despite this period of distressed trading.
In 2020, there has been an increase in robotic process automation to streamline the overall claims process, especially in higher-volume segments. The larger and more complex claims are seeing increasing involvement of external legal counsel by reinsurers. Active partnership and clear communication with leaders are critical for minimising surprises.
Nat Cat events and construction losses heavily influenced underwriting, spiking pricing and deductibles compared to previous years. Delayed projects which required period extensions beyond agreed policy provisions, and complex projects have been adversely affected. Risk management remained paramount. Insurers were highly focused on undertaking comprehensive reviews of project data prior to pricing risk. More complex projects saw fewer insurers offer lead terms, resulting in a more restrictive, less dynamic market place. The hardening market presented challenges for project financed risks where there was a mismatch between insurance requirements and the insurers’ current position.
There will be more interest in non-damage solutions to complement traditional insurance procurement. More innovative insurance structures are likely for larger, more complex risks, particularly where capacity is constrained. It will be critical to have an insurance advisor that understands contractual liabilities and how to manage your risk financing. A hardening market may prompt more rigorous risk management practices. Insurers will undertake more detailed analysis and monitoring of projects' progress reports. Period extensions beyond certain agreed parameters are likely to become more challenging.
Choose a risk advisor to navigate project risk and deliver value-based solutions.
Work with a market-specific risk advisor/ broker to secure optimal outcomes.
Build and sustain relationships with insurers to support you through project lifecycle.
*More if Nat Cat exposures are high, or where there are capacity constraints in more challenging and complex sectors, such as large hydro construction.
+7.5% to +10%
+25%*
+25%
Upstream
Downstream
*International markets, domestic markets +5% to +15%. Operational property assets
Within the power industry, technology has continued to grow in importance. A number of different investigation tools to support remote claims evaluation by insurers and loss adjusters have been deployed. Furthermore, larger and more complex claims are seeing increased involvement of external legal counsel by reinsurers.
+15% to +25%*
*More if Nat Cat exposures are high, or where losses prevail, or where there are capacity constraints. Some jurisdictions were able to stabilise local pricing.
The continued impact of global Nat Cat events led to increased underwriting scrutiny and volatile pricing models. The hardening market made it challenging to procure the cover required under loan agreements, creating the potential for a breach of loan covenants. Early lender engagement was crucial to mitigate that possibility. A cautious approach to business interruption exposures resulted in the tightening of policy language, particularly for contingent business interruption cover. Sector losses, as well as climate and energy transition factors, factors influenced changes in some underwriting guidelines. This has resulted in some power-generation clients facing aggressive market conditions and capacity constraints.
The market will continue to hold firm and seek to strengthen its position. It will become increasingly important to create unmatched underwriting information submissions to differentiate risk. It will be crucial to strengthen existing relationships and foster new partnerships with strategic insurers and increase dialogue on risk management. Interest in non-damage solutions will increase to complement traditional insurance procurement.
Seek opportunities to blend traditional and esoteric solutions to close the protection gap.
Consider risk profiling to validate optimal structures and retention levels for renewal.
Nurture your relationship with your insurer and increase engagement throughout the year.
POWER
*Insured losses (regional) **Insured losses (global) and uninsured losses (NDBI, Grounded Aircraft, significant reduction in passenger numbers).
Clients were increasingly challenged by difficult operating conditions. There was more scrutiny on the operation of tailing dams. There was a renewed focus on ESG issues.
Underwriting decisions will be pushed up higher in insurers’ organisations. It is expected that cover enhancements will continue to be subjected to pressure. Insurers will require much more underwriting information. Capacity will be steady apart from thermal coal risks.
Understand and manage risks to the business.
Ensure that the cover you have is adequate.
Engage early and understand drivers that impact rates.
Losses in 2020 have not been as severe as previous years. We have seen a levelling of capacity, although there were several large claims globally. In Asia, insurers are reviewing claims with greater scrutiny. Therefore, it is important to ensure that there is a strong focus on claim management.
+15% to +25%
Flat to +25%
+5% to +20% upwards
+5% to +25% upwards
Non-Nat Cat-exposed Property
Unexpected and uninsured losses arise as businesses adapt operating models in the new normal. Clients should seek advice in areas such as IP, recall, cyber and NDBI to to understand their exposure and risk transfer/self-insurance solutions.
Flat to +100%
Flat to +5%
Financial lines (Medical Malpractice)
CGL, financial loss, recall, clinical trials
1
2
3
TBC
+15 to +20%*
Also, increasing product recall claims are resulting in third-party recall costs, alongside business interruption and damage to reputation.
+15 to +25%*
Risk and insurance leaders are spending more time in pre-loss planning, getting to know their nominated loss adjusters and establishing claims protocols. This enables an effective post-loss execution and business interruption mitigation. Where policies contain Claims Preparation clauses, clients gain access to dedicated expertise to support their submissions.
* Increases beyond 20% for high Nat Cat-exposed regions, where losses prevail and where newer technologies are being deployed, such as larger wind turbines, energy storage systems, or wider coverage is being purchased. As with conventional power generation, some jurisdictions were able to stabilise their local pricing for renewable energy clients.
-15% to +20%*
• •
Credit
Human Capital
+20% to +30%
Regularly analyse the total cost of risk on challenging sections of.
Ensure rigorous data collection and focus on the inherent quality of specific risks.
Property
Political Violence
M&A Transaction Liability
Intellectual Property
Reinsurance
Reputation Risk
Engage in risk engineering to better manage and mitigate claim volatility.
*ONE Apus.
Clients had to deal with suspensions of trade by port blockages during the pandemic. A downturn in business performance created uncertainty around turnover predictions, leading to premium fluctuations which proved challenging. Appetite and capacity issues formed due to large regional storage exposures and the market’s risk-averse attitude to natural catastrophes (Nat Cat). Commodities, Automotive and Pharmaceuticals/Life Scicences sectors attracted limited buy-in from insurers, plus had stringent coverage restrictions and outsized rate increases.
The reduced capacity witnessed in Asia over the last year will begin to plateau as new entries join the market. Rate adequacy will continue to drive the cargo market, with bottom line pressure coming from insurers’ global management. Excess stock placements will be limited and continued global engagement will be crucial to their completion. Supply chain insurance and trade disruption cover will be more in demand, despite a cautious approach to providing terms.
Other than ONE Apus, claims have been particularly benign. However, natural events continue to cause high-value losses. Across the globe, there is an increased need to store stock, causing concerns over location, data quality and available risk management advice. Another concerning trend has been fires on container vessels, which are complex claims that take months to extinguish and even longer to identify the root of loss.
Captive risks are typically limited by the reinsurance market providing aggregate and stop-loss protection. Once a claim occurs, the procedures manual will document the claims process, who handles the claims adjustments and represents the cpative until ultimate settlement.
+5.6%
+10%
Property Damage & Business Interruption (PD/BI) increases
Premium growth (expected) 2021
Clients who performed full probable maximum loss (PML) reviews understood their risk appetite and ability to retain risk and outperformed others.
Property market players are striving to complete placements and access reinsurance markets via captives. Directors and Officers (D&O) was a concern but with planning and due diligence, clients have utilised captives to complete placements, especially Sides B and C. More clients are retaining employee benefits by self-insuring through captives. It remained crucial to discuss with a broker after renewal - not before and allow a time frame of nine months to form a new captive.
Live enquiries from organisations about forming a captive or protected cell are projected to continue. Captive owners will reassess their programmes to optimise risk retention and return on investment. The general upward mergers and acquisitions (M&A) trend will lead to risk finance reviews for risk retention and optimising captives. Based on current activity, more captives will be formed in 2021 to help organisations reduce their total cost of risk. Asia is an immature captive market and, we expect it to grow.
Perform a feasibility study on captives over the next 3 to 5 years.
Choose the Risk Finance Decision Platform to review risk classes and reports on optimum risk retention strategies.
Review major risk classes to set boundaries for risk retention and transfer.
In general, the frequency of claims continued to increase over the past few years. 2020 saw an increase in large loss events, especially in the Power & Energy industries. Learning from the event(s) and presenting this knowledge is key to capping premium increases at renewal, and/or retaining capacity altogether, which is the larger issue facing 2021.
Market changes in Asia gained momentum with increased rates and wording restrictions. Globally and locally, capacity continued to decrease – especially for clients with poor loss histories or in high-risk industries. It has been one of the worst years for large casualty losses, with various full limit losses across different countries and industries, adding pressure on insurers to rectify already poor-performing portfolios. Many insurers have centralised their underwriting process or increased sign-off procedures, leading to additional time and information being required to finalise renewals.
We expect the market to continue to harden, more quickly in high-risk industries or those with a poor loss history. “Underrated” clients will see larger increases with no competitive alternatives. Captives will continue to become an issue for clients with large capacity requirements, in high-risk industries or where insurers are watching their aggregation as markets look to review and manage their overall exposures. Underwriters will decline opportunities that do not present enough information or time to complete the underwriting process.
Start renewal discussions early. Be prepared to answer more questions and supply more information than in previous renewals.
Differentiate your risk. Identify key points of differentiation that make you a better risk profile for insurers and articulate that to the market.
Seek assistance to understand the ever-changing market environment to make informed decisions about retaining or transferring risk.
For trade credit, there is increased frequency of loss across multiple sectors. For structured credit, there is increased severity of loss, particularly in the commodities sector. For best claims outcomes, treat your insurers as partners, with transparent, early and regular communication about loss minimisation actions. Also, focus on the insurance contract wording and ensure that the conditions are fully understood, and that the insurance contract is tailored for the specific transaction(s) insured.
High profile insolvencies including Hin Leong Trading and Virgin Australia.
The credit risk environment deteriorated while demand for credit insurance increased. 3 in 5 countries were exposed to some form of riots or civil unrest, increasing demand for political risk insurance. Sectors such as commodities saw liquidity pressures as lenders take a cautious credit approach. Government stimulus packages stabilised economies, but likely to taper off in 2021, adversely impacting credit risk.
Demand for Credit Solutions will increase, driven by client demand for growth, finance and balance sheet optimisation. Credit and political risk insurance volumes will grow, even though insurers take a prudent underwriting approach. Access to better data and analytics will improve insurance strategy and capacity. Geopolitical risk volatility expected in emerging markets, particularly those with higher debt levels and political elections.
Leverage Credit Solutions to increase liquidity, invest and improve growth.
Utilise technology platforms for operational efficiency and use data analysis for optimal insurance strategy.
Consider a multi-insurer strategy to optimise capacity.
Asia is emerging as the powerhouse of intellectual property (IP). For example, China’s IP applications rose by 10.5% between Q1 and Q3 2020. In digital economies, whoever has the best idea wins, so clients must protect their IP sufficiently.
2020 saw several major e-commerce sites suffering largescale data breaches that involved the exposure of personal identifiable data from millions of customers. Cyber risk will continue to grow even with stricter regulatory regimes in Asia. Digital economies cannot afford to ignore this further and must have adequate cyber plans in place - prevention, protection and response.
Employee wellbeing, including mental stress caused by worrying about health, job security, family and remote working, was a major issue. Business disruption and rapid adaption due to lockdowns and heath safety opened up new risks. Disruptions to supply chains and the tourism sector resulted in liquidity challenges. Focus on individual risks rather than on portfolios of risks led to insufficient cover requirements and lack of cost optimisation.
M&As will continue as some digital economies seek to combine strengths. Expect more digital economy IPOs in 2021 as conditions will be more favorable. The importance of digitisation will result in diversification, competition and race for innovation for both traditional companies and digital operators. Anticipate further regulatory conditions as fast-growing digital economies have an increasing impact on society.
Leverage sophisticated technology-oriented risk management solutions and InsurTech partnerships.
Look after your people as they drive innovations that ensure your success is sustainable.
Know and have a plan for all possible risks; ensure your acquisitions have proper risk management.
Clients planning to IPO should work with brokers on IPO strategies.
D&O was affected by multiple claim categories, including securities actions, regulatory actions, pollution events and other event-specific litigation. There were minimal COVID-19 D&O claims, but some circumstances were notified. While there has been no specific trend to date, an increase in insolvency related claims is expected.
Flat to 20%
2020: D&O:
Professional Indemnity:
[Awaiting one-line commentary explaining why]
There was a steady deterioration of market conditions on a quarterly basis. A discernible reduction in supply of capacity took place at the end of 2020. Risks at the high-end of rate volatility included industry specific, US D&O exposed, complex and claims exposed risks. Client focus on renewal results gained increased C-suite attention.
Competition will be reduced due to more insurer exits, leading to decreased capacity. Deductibles will increase. Excess layer pricing will put pressure on conventional ILF models. There will be increased volatility for hard-to-place risks, but conventional risks will be more immune. Certain insurers will address silent cyber coverage under financial lines products.
Engage in underwriter presentations.
Adjust brokering strategies according to the situation.
Ensure that you set sufficient budget expectations.
2021: D&O:
Medical Malpractice:
Lower claim volumes in 2020 could lead to surpluses for medical insurers. This may present an opportunity for plans sponsors to secure some of this surplus, but the focus should be on long-term stability. Potential strategies include retrospective profit sharing, granting wellbeing or innovation credits, and funding multi-year rate agreements.
8.0%
8.7%
Throughout 2020, the top risk remained multi-generational work forces. A reduction in screening procedures increased the risk of claims for cancer and other serious conditions. There was a marked increase in mental health conditions. Many employers faced challenges around managing health care solutions for furloughed staff.
In Asia, health care will continue to focus on preventative educations and wellness. Health care providers will offer more support to greater numbers of employees working from home. Health care providers will offer a broader range of insurance products. There will be a downward medical trend in Asia in the year ahead.
Educate employees about health, which will improve wellbeing and reduce risk.
Ensure health care providers have strong digital services and can support employees working remotely.
Provide quality health care treatment.
The health and wellbeing of employees are directly related to how resilient teams are, particularly during times of economic or social uncertainty. If employers can successfully make critical workforce changes, develop their workforce with hard digital skills and advanced soft skills, and build resilience with a view to long-term sustainability, it will have a naturally positive effect on claims in general.
Salary Increase Rate Movements*
*Based on general industries, financial services and technology, excluding companies with no increases.
Companies single-mindedly pursued compensation costs and workforce reduction. Companies failed to attract and retain the right people. Many did not equip the workforce with the requisite skills. Companies empowered and provided flexibility in the face of uncertainty without communicating clear accountability. Leaders missed opportunities to accelerate towards the future of work.
There will be a greater mix of office-based and remote working, with employees making more decisions than before. Digital transformation will accelerate to create a digitalised workplace and workforce. Objective workforce decisions will be based on data and analytics enabled by new HR tools and processes. There will be a concerted drive to promote diversity, equity and inclusion to tap into a more diverse workforce as well as to fulfil corporate social responsibility.
Build resilience with a view to long-term sustainability.
Develop your workforce with hard digital skills and advanced soft skills.
Recover and reshape the business by making critical workforce changes.
5.93%
3.16%
5.55%
2.95%
China
Australia
3.73%
3.50%
Hong Kong
9.00%
8.70%
India
6.83%
6.90%
Indonesia
2.70%
2.40%
Japan
4.76%
4.65%
Malaysia
5.26%
5.50%
Philippines
3.86%
3.65%
Singapore
4.20%
3.90%
South Korea
3.30%
Taiwan
4.56%
Thailand
Claim notifications are becoming more frequent. Common claims are in relation to financial statements, tax issues, stock and inventory, and material contracts. There will likely be increased claims activity fueled by more insurance policies being placed and businesses looking to alleviate losses.
-5% to +10%
Rates are expected to fall for some key developed jurisdictions, and to hold for emerging markets.
Deal timelines between signing and closing have increased as parties seek longer periods to fulfil condition precedents. Most insurers are more commercial in their approach to risks associated with COVID-19, and are no longer mandating blanket exclusions. As Asia recovers economically, premium rates have remained flat and coverage is comprehensive. Seller-flip buy side policies continue to be on the rise as sellers want a clean exit.
Markets will grow as investors seek new opportunities in pharmaceuticals, renewable energy, technology and bio-technology. Distressed transactions will emerge in tourism, retail and hospitality as these industries continue to struggle. Tax liability insurance and litigation risk solutions are increasing as risk transfer mechanisms in M&A transactions. US-China cross-border transactions could being to pick up over the year ahead.
Engage proactively with a consultancy early on in the M&A process.
Understand how warranties and indemnities (W&I) insurance can accelerate negotiations.
Introduce transaction liability solutions to facilitate M&A transactions.
There have not been significant changes in claims volume. However, major losses that continue to trend upwards in quantum and complexity have been impacted - directly and indirectly - by the pandemic and the broader hardening of the insurance market, resulting in a prolonged assessment and adjustment of the loss.
There were no major property losses in Asia for both Cat and Non Cat events. However, the regulatory judgements in Australia and the UK (which ruled in favour of assureds on COVID-19 business interruption claims) could have a significant impact on 2021 renewal rates, especially in these territories.
The prolonged hardening of insurance rates risks clients being underinsured due to budget constraints. Severe global supply chain disruption could prevent clients meeting contractual obligations, causing a spike in claims. Clients who are expanding could pay more for additional capacities now than pre-COVID-19 due to portfolio rebalancing. More companies sought non-traditional solutions as an option or alternative when traditional markets could not meet their insurance needs adequately.
Insurance rates will continue to rise, though this will vary between markets, geographies and lines of business. Closer scrutiny will be applied to policy conditions and premium payment terms will be tightened. Capacities for High Hazardous sectors will be reduced. Infectious disease clauses will be applied even more stringently.
Relook at indemnity periods to ensure you are not exposed.
Reassess the adequacy of Policy and Catastrophe (Cat) limits, and Deductible limits.
Start the renewal process earlier due to longer lead times.
Featured Country: Korea Korea has suffered significant large loss frequency across all lines as a result of a record long monsoon season, five typhoons, several industrial property risk losses and marine hull claims. While a large component of the natural perils losses are retained by insurers, many reinsurance programmes have been substantially affected leading to pressure on terms and conditions for 2021 renewal.
The experience was generally moderate across the region with moderate/severe in the Philippines and Vietnam (flooding and typhoons), and severe in Korea (typhoons).
Leverage existing long-term reinsurer partnerships, and attract new partners, to manage capacity and costs.
Global market conditions have altered due to factors such as low profitability, ongoing catastrophe losses and financial market Volatile, tempered by strong capital levels. Several downgrades and withdrawals have affected supply and demand dynamics, especially proportional capacity in Asia. Extended period of negotiation due to discussions on exclusionary language and coverage issues. Insurers sought increased original rates, but it was challenging to get consensus from their clients, especially loss-free insureds.
The market will continue to harden, with increased focus on terms and conditions, and development of new clauses. Recent negative rating actions will reinforce discipline in the future. There will be a greater appetite for reinsurance, with capacity targeted at insurers who differentiate underwriting and portfolio management. There will be an increased demand for customer credit insurance/ personal accident (PA), credit, personal cyber risk and critical illness.
Partner: Leverage existing partners and attract new ones through differentiated underwriting and portfolio management.
Grow: De-risk exposures to grow portfolios and support new product development.
Protect: Structure an optimal reinsurance programme to protect balance sheet, reduce volatility and optimise performance.
Client-/programme-/line of business-specific with loss making programs attracting up to risk adjusted +15%.
“To manage reputation risk from crises or black-swan events, brands should follow five key steps: risk preparedness, clear leadership from the CEO, effective communications, rapid, credible actions and, demonstrating commitment to change.” Dr. Deborah Pretty, Founder, Pentland Analytics.
Between 1980 and 2020, 270 significant crisis events had an average impact on shareholder value of -7%. Over US$2 trillion in shareholder value was destroyed from poorly managed reputation crises during the period. 36% of reputation crises stemmed from a failure of governance or business practices, including: • Bribery • Corruption • Price-fixing • Executive misconduct
Graphic describing:
Experience was generally moderate across the region with moderate/severe in Philippines and Vietnam (flooding and typhoons), and severe in Korea (typhoons).
Critical pre- and post-loss decisions determine the impact on shareholder value. Technology has heightened reputation risk by making it easier, cheaper and faster to spread news. Companies with a robust risk management framework are more likely to emerge from a reputation crisis as a winner. Reputation risk remains a top concern among corporate executives, despite improvements in risk management awareness.
Increasingly, reputation risk management strategies will include cyber risks to gauge exposure properly. Customers, employees and the public are placing greater demands on management to atone for their poor decisions. Greater investment will be required in risk preparedness for a broader range of adverse events. Regulators and investors will include a broader range of exposures in the scope of their risk assessments.
Respond swiftly and commit to meaningful improvement.
Plan for adverse events and be genuine and transparent in your communications.
Manage your brand when a reputation event occurs, and take control of the narrative.
1. 2.
In any cyber insurance claim, communicate early and often with insurers to reach alignment on incident response, engagement of experts, and payment of ransoms to avoid challenging discussions on coverage and loss adjustment. Increasingly, insurers will engage preferred panel law firms and incident responders when a cyber attack occurs.
Cyber extortion will remain a major threat and will range from basic ransomware to threats connected to denial-of-service attacks and stolen data publication. Clients focused on how work-from-home arrangements increased their vulnerability to cyber attacks, and this factored into underwriting questions. Maintaining security standards and cyber hygiene was a challenge, and spear phishing employees remained the dominant method of initial compromise. Accumulation was a significant concern for insurers and reinsurers as vulnerabilities discovered in widely used software created potential for a global cyber catastrophe.
As General Data Protection Regulation (GDPR)-like regulations take effect, insurers will focus on data privacy controls and governance, especially in Southeast Asia. Ransomware attacks will remain a major threat and will combine with other threats, including extortion demands and stolen data publication. Underwriting will be much more rigorous, and insurers will avoid risks that do not meet accepted standards. “Silent Cyber” endorsements will force insurers to innovate and offer affordable physical damage cyber cover.
Assess coverage for cyber exposures across all policies.
Invest in a secure remote working infrastructure.
Test your resilience to a simulated ransomware attack.
Pressure for innovation has driven an increase in patent filings, leading to an increase in litigation. The risk of trade secret misappropriation has increased substantially, due to employee turnover and work-from-home policies. Some Asia clients sending products overseas might come into dispute with the International Trade Commission. More Standard Essential Patent pools asserting their rights have increased litigation and expenses. More companies have been asked to take on unlimited liabilities around IP-related contractual indemnity obligations.
The trend of an increase in IP infringement litigation will continue into 2021. IP infringement liability insurance will be more commonly required through contractual indemnities, especially for technology firms and SMEs. Trade secret matters will continue to increase in both frequency and severity. IP liability insurance coverage continues to evolve and become more valuable for the insureds. While IP liability insurance capacity is continuing to grow across geographies, IP liability insurance pricing trends are on a slight decline.
Explore insurance options to transfer that risk.
Implement processes that mitigate risk from overseas.
Identify and quantify your risks.
In 2020, IP litigation increased mainly due to COVID-19. This will continue despite the virus. Innovation and new technologies are being developed, and IP filings continue to increase. This shows that IP litigation will continue to increase over the next 5 years. To that end, companies have been employing the IP Infringement Risk Assessment to develop a data-driven understanding of their IP infringement risk and quantify the potential impact of IP insurance to hedge balance sheet risk.
+10%*
Due to the uptick in IP litigation and a general increase in technological innovations.
Trade secrets issues from the likes of Huawei, UMC, and Hytera resulted in damages of US$50 million to US$900 million. Several patent infringement cases also resulted in multi-million-dollar verdicts.
+5% to +25%
Affinity claims have generally low severity due to their lower limit, which is reflected in the lower cost of the cover. The claims volumes vary between programmes and insurance products provided. Traditionally, programmes with higher frequencies are Mobile Phone Insurance and Auto Extended Warranty.
N/A
Closing of the retail sector across several markets affected revenue and led to significant financial loss. Many policies excluded infectious disease cover, leaving customers exposed. SMEs were significantly underinsured and were left exposed, resulting in bankruptcies and layoffs. ‘Digital first’ was a key strategy for banks to sell insurance as they recognised the effects of the pandemic on customer behaviour.
Travel insurance will play a vital role in the “back-to-normal” roadmap. Diversifying revenue streams for consumer-orientated organisations will increase in importance. Products that were previously sold as desirable will be incorporated with core products. An increase in online transactions will lead to fraud and identity theft.
SMEs should consider all-risk cover to navigate future unforeseen events.
Take advantage of insurance offerings to add value beyond your core product.
Boost customer confidence you’re your digital platform through Personal Cyber Insurance.
High level of civil and political unrest across Hong Kong from 2019 to early 2020 resulted in significant property damage and business interruption losses. Some businesses looked to the SRCC coverage provided under their property insurance for indemnification, while others took the extra step of arranging broad form, standalone Political Violence coverage. Many other businesses with no insurance coverage struggled to recover from the financial impact of these losses.
Flat to 20%*
The poor loss experience in 2019 was primarily driven by the civil and political unrest in Hong Kong. This has largely dissipated in 2020 because of Covid-19 restrictions and the imposition of the new security law by Beijing. As things currently stand the loss experience across Asia for 2020 has been moderate.
*These are generic rates across Asia for 2020 although we saw significant spikes in Hong Kong as a result of the civil / political unrest in 2019 – 200% to 300% rate increases for renewals were not uncommon.
There was a shift in the political violence risk landscape, with business focusing on losses from civil and political unrest. Property carriers increasingly imposed sub-limits for traditional risks. Businesses turned to the specialist Political Violence market to plug this gap. There have been violent protests in Hong Kong, Thailand and Indonesia over the last 12 months, and the trend is likely to continue as we feel the socio-economic impact of Covid-19 in conjunction with pre-existing political tensions. Businesses began exploring NDBI solutions.
Market hardening will continue into 2021. Localised market hardening will accelerate as aggregate capacity is erodes. There will likely be an increased reliance on market facilities to deliver pre-agreed blocks of capacity. Insurers will become increasingly restrictive with terms and conditions, require more meaningful deductibles, and have less appetite for contingent business interruption. There will also be a general tightening of policy wordings.
Assess your exposure to non-damage business Interruption (NDBI).
Conduct a Threat and Vulnerability assessment along with a PML study to properly understand risk exposure.
Consider broad-form political violence cover rather than standalone terrorism cover.
D&O:
+8.0%
+8.7%
Medical trend rate (gross)
Medical Trend Rates
+2.5%
+2.8%
General inflation rate
Source: 2021 Global Medical Trends Rates Report
Between 1980 and 2020, 270 significant crisis events had an average impact on shareholder value of -7%. Over US$2 trillion in shareholder value was destroyed from poorly managed reputation crises during the period. 36% of reputation crises stemmed from a failure of governance or business practices, including:
Managing Reputation Risk
-7%
• Bribery • Corruption • Price fixing • Executive misconduct
US$2
Over
trillion
36%
