NU Online News Service, March 23, 2:50 p.m. EDT

The long-term effects of Japan’s disaster on the insurance market remain unclear, but there are indications that some firming is taking place for risks in catastrophe-prone areas, say executives from insurance broker Aon Corp.

In a webinar today discussing the insurance and risk management implications for clients in Japan and others affected by the March 11 earthquake and tsunami, Ted Hodgkinson, chief broking officer, Asia, Aon Risk Solutions, says the early indications are that, excluding Japan, there are moderate increases between 0 and 25 percent on April 1 treaty renewals. This is due to capacity outstripping demand.

Regarding catastrophe risk reinsurance renewals, insurers are offering coverage, but the location of risk is tantamount in renewal negotiations, according to Hodgkinson.

On new business, “insurers are not offering capacity in any meaningful way,” he says. But there is more flexibility away from the current disaster area.

“This is most likely a stop-gap as insurers understand their aggregate exposures.”

There was a short-lived spike in prices initially after the disaster throughout the Asia region, but those prices have returned to more modest levels, he notes.

The future of the market-price structure will be driven by the ultimate loss from this event, along with events in New Zealand and Australia, he continues. However, a quiet second quarter, from a catastrophe standpoint, could lead to a stable marketplace.

“It is the early days, and the market seems to be acting responsibly,” says Hodgkinson. “However, there is significant potential for rapid change.”

Andrew Laing, property and casualty broking team leader, Aon Risk Solutions in London, says there will be “considerable tensions” in the global property market, outside of the United States and Asia, but where catastrophes have taken place, prices are expected to firm.

Rates should remain stable, except for those with global catastrophe exposures.

Prices will firm, and with the disaster in Japan, more of that business that is written domestically may flow into the global market. That would reduce capacity and could lead to a hardening market, Laing notes.

U.S. multinational clients have sustained losses, says Al Tobin, national property leader, Aon Risk Solutions U.S. in New York, primarily in contingent business interruption claims. Those losses have ranged from a few million to tens of millions of dollars, he observes.

Tobin says a change in rates from a catastrophic event affecting U.S. insurers would need to be in the range of $80-$100 billion. It is still too early to know if this is that event, he adds.

Henry Daar, executive vice president with Aon Risk Solutions property practice, points out that clients seeking insurance coverage should look to their contingent time element coverage for insurance recovery. This is coverage that covers interruption of business due to other businesses’ property damage.

He says this can cover the increase in costs in manufacturing or the logistics that need to be overcome to get products to market.

Clients, he says, need to do what is best for their business and take reasonable steps to keep their business going. However, they should notify their insurer of a claim as soon as possible.

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Rate Increases Possible For Japan, But Market Turn A Question

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