June 8, 2004 by Canadian Underwriter
Despite much talk of the need to “tame the insurance cycle”, buyers should prepare themselves for continuing fluctuation in the price and availability of insurance, John T. Sinnot, senior advisor, Marsh & McLennan Cos. told delegates to the World Insurance Forum in Bermuda yesterday.
“Past prediction declaring the cyclical nature of our business has gone away have always been wrong.” Sinnott says. “Risk is a dynamic rather than a static element in our society.”
This has been no more evident than in the changing picture of risk seen since 9/11, not only with increasing awareness of the potential severity of man-made catastrophes such as terrorism, but also in the rising aspect of asbestos litigation and corporate governance. Taken as a whole, he says, “you have the ingredients for continued volatility in adverse directions in claims trends. Bottom-line, cycles are something we’re going to have to manage our way through.”
Added to this is a market that continues to be fragmented despite predictions of significant consolidation since the 1990s. While some reduction through merger, acquisition and insolvency has been seen in the primary, reinsurance and brokerage industries, “all these developments have been offset by the expansion of existing players or the entry of new players, especially since 9/11.”
Moving forward, Sinnott expects further instability in the tort arena with little likelihood of U.S. government action to control tort growth except perhaps in new class action legislation. At the same time, while Sinnott advocates an extension of the U.S. terrorism backstop, he warns against permanently ceding this or any risk away from the private sector.
Sinnott also predicts a move to greater transparency will take place in terms of brokers’ relationships with their clients on the heels of investigations by insurance regulators into contingent commissions. He says brokers want to do what can be done to make these agreements as transparent and understandable to their clients, and adds that the broker’s prime interest always lies in their role as advocate for the client, even while they distribute on behalf of insurers.