Aon: Reform Or Say Goodbye To Premiums

"The message from buyers to the insurance market is quite simple: streamline the processes or lose the premium," said Dennis Mahoney, chairman and chief executive officer of Aon Ltd., in a statement. "[The past year] has proved that companies are quite prepared to consider increasing their levels of risk retention and finding alternative ways to cover their risks if they feel they are not getting value for money or the price is simply too high. Once this premium has left the market, it may never come back."

"Our research over the year has also indicated that terrorism is not being taken seriously by many U.K. companies," cautioned Mr. Ma-honey. "This is despite recent warnings that the U.K. is under serious threat of a terrorist attack."

The market review is based on Aon's own research published in a series of four reports over the course of 2003. It reflects the views of Aon's clients and industry contacts.

Aon said insurance buyers are frustrated by the unpredictability of the roller coaster insurance cycle and lack of recognition for the level of risk and quality of risk management practices. There is a real opportunity for carriers to use the structural change that is taking place in the industry to repair balance sheets and to smooth out the cycle, Aon said. This would make the pricing of risk for buyers much more predictable and more closely aligned to the risks involved, according to the brokerage.

In 2003, Aon's survey of corporate buyers found that many insurers were rated poorly in providing value for the money, an efficient claims service, and in the speed and quality of processing documentation. Increased risk retention levels in 2003 have proved that companies are quite prepared to consider alternatives to manage their risks, Aon noted.

Underwriting discipline came under intense pressure in 2003, with buyers demanding and expecting rate reductions. At the same time insurers and reinsurers were keen to increase, or at least retain, market share but were still very aware of the need to maintain a level of profitable underwriting to make good previous losses and under-reserving, and to continue the rebuilding of battered balance sheets in the face of low and uncertain levels of investment income, Aon noted.

The market in 2004 will depend on how they stand up to these conflicting dynamics, the brokerage added.

U.K. companies began to show signs of frustration with the insurance market, with four out of 10 organizations surveyed by Aon indicating that the market was not meeting their business needs nor providing the amount of cover they required.

Terrorism also continues to be a non-issue for many insurance buyers. Only 27 percent of organizations surveyed have a specific plan in place to address a terrorist attack. U.K. companies were far too complacent about the risk of terrorism, which did not feature in Aon's latest survey of "Top Ten" risks. Most continue to fail to take into account the impact that the very real risk of terrorism could have on their business, Aon said.

Copies of the four reports: "2003 Biennial Risk Management and Risk Financing Survey;" "Conflicting Dynamics of Reinsurance–Holding the Line?" "2003 European Property Report–On the Edge;" and "Insurance Costs for Food and Beverage Companies–July 2003;" are available through www.aon.co.uk.