Property still challenging, generative AI risk under close scrutiny
Property remains challenging even as reinsurance capital has rebounded and the insurance impact from the likes of ChatGPT and other generative artificial intelligence (AI) is being more closely scrutinised as more businesses use the technology, Aon says in a quarterly report.
The reinsurance market capital increase in the first half of the year was principally driven by retained earnings, recovering asset values and new inflows to the cat bond market, according to the broker’s Q3 Global Insurance Market Insights report.
However, capacity for natural catastrophe-exposed property risks remained constrained and expensive, driving continued use of alternative solutions including index-based products, self-insurance and captives.
The report’s section on Australia says the market remained difficult in a number of areas. Price increases have continued but some clients that have differentiated their risk quality and have proven a positive approach to insurer mitigation requests experienced “superior” results.
“Capacity constraints eased for risks perceived to have benign exposure while catastrophe-exposed risks remained challenged,” the report says.
“Underwriting was rigorous, onerous, and slow. Single-threaded authority points often resulted in late delivery of terms. Pressure on limits eased relative to earlier in the year.
“Looking ahead, the Australian summer will drive forward-looking market trends.”
Aon says a benign natural catastrophe season is expected to accelerate the two-speed Australian market wherein new business and target risks will be fiercely competitive and insurer retention will be pressured as a result.
However, if this summer was to experience significant catastrophe events, it would likely create greater market conservativism and significant pressure on natural catastrophe limits, deductibles and pricing.
The report’s spotlight feature on generative AI says the developing technology will impact many lines of insurance including Technology Errors and Omissions/Cyber, Professional Liability, Media Liability, Employment Practices Liability.
The insurance impact will depend on how the technology is used and insurance policies can potentially address AI risk through affirmative coverage, specific exclusions, or by remaining silent, which creates ambiguity.
“The insurance market’s understanding of generative AI-related risk is in a nascent stage,” says the report.
However, insurers are defining their strategies around the rapidly changing AI risk landscape, including clarifying coverage intent/addressing “silent AI coverage” through revised policy language and developing creative AI products and solutions.
Click here to access the report.