Against the backdrop of concerns that more risks are becoming insurable, Aon’s Michelle Mason discusses how risk managers - and their insurance partners - must adapt
The EMEA chief commercial officer, at broker Aon has said that risk managers and insurers have been given a stark warning on the weight of responsibilities now on their shoulders.
Michelle Mason said the biennial FERMA Forum in Madrid has created a greater awareness of the sheer scale of the risks that businesses face in a dynamic and often interconnected risk market.
“One of the most notable themes this year was the increased scope of responsibility and breadth of issues placed on insurers and risk managers today,” she explained. “Their roles now often involve advising on material risks at the C-suite level, encompassing a wide range of mega trends such as cyber and artificial intelligence (AI) risks, geopolitical and trade disruptions, climate change, energy transition, and employee wellbeing.
“In addition, they are called upon to understand and contribute to evolving reporting requirements, including CSRD, TCFD, and NIS2. To navigate this complex environment, risk managers must adapt quickly, interpret the implications for their business, and support intelligent decision-making around risk management and risk transfer strategies.”
INSURING THE UNINSURABLE
Her comments come against a backdrop of FERMA’s concerns that increasing areas of risk are under threat of becoming uninsurable.
The organisation said risk managers are continuing to adapt their insurance strategies in response to challenging market conditions, as concerns increase regarding the potential for key exposures to become uninsurable in the future.
It global risk survey warned the increasing costs of cover for core risks remains the most impactful insurance market trend for risk managers. Reduction in capacity, and exclusions of specific risks are viewed as emerging threats to the ability of risk managers to transfer key risks off the balance sheet.
It has forced the majority of risk managers to change their buying patterns following a review of areas such as coverage requirements, limits and sub-limits.
“Risk managers recognise the increasing influence of economic shifts, geopolitical uncertainty, regulatory developments, and the changing risk environment on insurance market dynamics,” said Charlotte Hedemark, president, FERMA. “In response, they are advising organisations appropriately and taking considered and necessary actions to adapt their buying strategies and prevention activities, particularly given expectations of further market hardening.”
“[Risk managers] are advising organisations appropriately and taking considered and necessary actions to adapt their buying strategies and prevention activities, particularly given expectations of further market hardening.”
Mason added strategically there are areas which are increasingly being recognised as core issues for risk managers and this is testing the ability of its risk partners such as insurers to respond.
“In EMEA, our region faces a unique set of challenges, from ongoing geopolitical conflicts to economic uncertainty, energy security concerns, and the impacts of climate change, as seen in tragic recent events like the Valencia floods,” she explained.
“Our clients need support in managing these risks, along with data-driven insights to make more informed decisions, and time to focus on high-impact areas for their organisation. They’re looking to build partnerships with stable players who understand their specific needs. We see this as a significant opportunity to help our clients by anticipating what lies ahead and offering insights and guidance in navigating this uncertain environment.”
Mason said that it was becoming clearer that risk managers were keen to access greater data and analytics.
“As the risk environment grows more complex, clients are primarily seeking two things: better quality information for informed decision-making and more time to focus on high-priority issues for their organisation,” she said.
“Aon is well-positioned to address these needs, having invested significantly in broker-led analytics to translate insurance into finance-led decision-making. This approach provides clients with greater transparency, enabling them to align their programs with risk appetite and exposure, and facilitates strategic discussions at the c-suite level.
AN EVOLVING MARKET
In terms of the current state of the market in the region and the trends influencing the insurance market and its response, Mason said she believes discipline in the underwriters’ approach was still evident.
“In general, the market reflects improved pricing and terms, with abundant capacity and better reinsurance conditions driving competition, especially for well-managed risks,” she continued.
“Well-performing property risks are seeing moderate rate reductions, and many clients are taking advantage of favourable cyber market conditions by purchasing additional limits. The market remains disciplined, focusing on profitable growth and quality risks. However, social inflation is impacting insurer profits and strategies in casualty lines, particularly for U.S.-exposed risks, prompting insurers to adopt more cautious underwriting and refocus their appetite and coverage terms.
“For clients in EMEA specifically, market improvements are evident in areas like Directors & Officers and Cyber placements, particularly for mid-sized and non-U.S. exposed risks.”
Mason continued: “Key underwriting concerns include systemic risks such as critical infrastructure, systemic and/or correlated events, war, along with ESG requirements, and exposures related to strikes, riots, and civil commotion (SRCC).
“They’re also introducing perfluoroalkyl and poly-fluoroalkyl substances (PFAS) related policy language as the legal landscape around PFAS evolves. Rising operational costs are also increasing interest in alternative risk transfer solutions, including parametric insurance, as clients seek cost-effective risk management strategies.”
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