Aon managing director of broking James Baum said there are a number of macro-factors facing the insurance industry.
Mr Baum said the diversity of funding in the macro environment, for example, could indicate a move away from the traditional cyclical market, with current market conditions becoming the new norm.
“The increasingly broad funding base of the insurance industry in Australia raises questions as to whether there would be the same level of withdrawal of capital from the market in the face of a catastrophic event as in the past,” said Mr Baum.
“With insurance forming a smaller part of their portfolios, there is less likelihood of new investors, such as pension funds, withdrawing their support.”
An unexpected rise in US interest rates, Mr Baum said, will have profound implications for investments and markets in general, including insurance, as “interest rates are already priced in”.
The insurance industry should also remain aware of the “continuing economic uncertainty prevailing in the eurozone and the UK”, despite more positive news elsewhere.
“Failing to remain alive to the possibility of sudden unexpected downturns would be to deny the lessons of the past and the reality of today,” Mr Baum said.
Large Chinese insurers and reinsurers developing an interest in non-Chinese-owned assets could also have implications for the industry, according to Mr Baum.
“These insurers offer a very cost-competitive avenue, particularly where large amounts of capacity are required,” he said.
“It is likely that over time, as differences in business culture become better understood and managed, there will be a major move toward these providers.”
There are also numerous micro or more industry-specific factors that Mr Baum believes need to be considered in the insurance market outlook.
These include heavier regulation leading to a greater compliance and risk burden, and increased competition reducing premiums and customer loyalty.
Mr Baum said increased competitive pressure may, however, also lead to greater innovation, both in policy types and policy working, as insurers work ever harder to attract and retain clients.
“Big infrastructure projects coming on-stream in response to moves at federal and state government level may also change the insurance outlook, especially in the project-specific professional indemnity space.”
