The CEO for Commercial Risk Solutions at broking giant Aon has told Emerging Risks that businesses and their risk managers need to focus on greater resilience in the year ahead in the face of a wave of developing risks.
Lambros Lambrou was speaking after the broker issued its Q4 2022 Global Market Insights Report which evaluated how a range of risks and factors affected the insurance market in 2022.
The report said the market continued to see a deceleration of hard market trends and additional capacity mobilised from new markets. Insurers have focused on reducing volatility, while some placements renewed with increased limits as valuations were scrutinised from inflation-driven exposure increases, while other limits were restored from limit reductions in 2020 and 2021.
Aon said for insurers, inflation has driven up loss costs, and impacted pricing.
As costs rise, Aon said insurers may need to rely more on operational efficiency and investment earnings to help minimise any shortfall between premium revenue and claims payouts.
Looking at the year ahead the broker said organisations are reducing uncertainty by building supply chain resilience, deploying strategies such as dual sourcing, contracts with improved supplier terms, supply chain financing or holding increased quantities of inventory.
ESG and climate concerns continue to dominate risk agendas with board composition, board oversight, climate, cyber, risk assessment and human capital management emerging as key underwriting considerations.
Geopolitical risks were a major issue for 2022 and Lambrou told Emerging Risks that the year ahead will require businesses to invest in risk management in the face of a dynamic risk landscape.
“In 2022, we saw the need to innovate new products and extend existing products that are experiencing increased demand driven by geopolitical conflicts,” he explained. “While many of the major geopolitical and macroeconomic events that accelerated supply chain risks are not new, companies continue to be challenged by these risks in their supply chains due to the conditions created by these events. These risks are evolving and highly interconnected, and it is more vital than ever that businesses commit to building resilience and maintain a well-informed, broad and strategic approach to risk.”
The report warned ongoing cyber threats will drive an increase in cyber security investments, likely leading to innovation in the cyber security landscape.
It is an issue that Lambrou feels will become more acute for companies of all sizes.
“While cyber threats will continue in 2023, we expect that this will drive an increase in cyber security investments and that there will be innovation to tackle the ever-evolving cyber security landscape,” he explained. “The prominence of long-term hybrid working, rise in ransomware and widespread data breaches will drive a material increase in cyber security investment as this risk will be a priority for most companies around the globe.”
“Insurance will continue to play an important role in managing cyber risk in 2023,” Lambrou continued. “The marked shift in the cyber insurance market is that it has become more buyer-friendly compared to earlier in the year. Businesses with mature, best-in-class cyber risk profiles have options in the market as the pricing environment decelerates materially and more capacity becomes available. Underwriting scrutiny remains elevated and proactive risk assessments will continue to be key to engaging constructively with insurers.”