2023 Executive Outlook | Stéphane Lespérance, Aon Canada

Stéphane Lespérance, president, Aon Canada

Given today’s challenging and shifting market, it’s critical for brokers and their clients to be strategic about how they buy insurance and how they are trading with their carrier partners.

Commercial markets are showing some signs of softening, and so more options are available this year in the marketplace. However, working ahead of time with a clear strategy is paramount. This means clients must ascertain what they need and value, invest in risk information, assess whether they should retain risk versus transfer to insurance, and have plans to drive the process by being proactive and starting their renewal cycles early.

A longer-term focus that allows for strategic changes is critical in the current market. Although 2022’s seen some signs of improvement, the insurance market remains challenging. Overall market conditions are stabilizing but remain highly complex, with insurers maintaining strict underwriting discipline and placing heightened focus on technical underwriting and risk selection.

Factors causing market shifts include: inflation, social inflation, global supply chain interruptions, NatCats, ransomware attacks, and the increasing emphasis environmental, social and governance (ESG) policies.

Inflationary pressures are affecting pricing, although most insurers remediated their portfolios in 2020-21 which made overall variance in rate movement less significant. Carriers continue to focus on profitability, and many now look ahead to profitable growth. Given new entrants to the market throughout 2022, we expect increases to capacity and limits.

Social inflation and global supply chain interruptions are affecting all market segments and industry classes – not only through pricing but also capacity. Severe climate events observed in recent years are projected to continue, resulting in close underwriting scrutiny around NatCat exposures and aggregate limits.

Rising frequency and severity in ransomware attacks have also materially impacted insurer profitability, pushing carriers to restrict coverage and require minimum risk control measures before finalizing coverage. Markets are protecting their portfolios against large, widespread events by restricting coverage and imposing sub-limits on ransomware and contingent business interruption coverages in cyber policies. Insurance carriers continue to look at their underwriting performance, and cyber threats are creating greater volatility and uncertainty.

And insurers are increasingly focused on ESG, since they’re expected to balance ethical commitments with growth. All industries should expect more underwriting questions around sustainability and diversity, and this information is expected as part of a fulsome submission. How insureds answer these questions may impact how capacity will be deployed on some risks.