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The chief executive of Aon, one of the world’s largest insurance brokers, has called for better modelling of climate risks, saying conditions in the property insurance market were “stressed” after a surge in claims from extreme weather.
Home insurance is becoming increasingly unaffordable in areas such as California and Australia, as global warming has made storms, floods and wildfires more frequent and severe. The problems have been partly driven by a pullback by reinsurers, whose contracts sharing the costs of catastrophe payouts underpin the property insurance market.
“The challenges are real,” said Aon chief executive Greg Case, in an interview with the Financial Times. On the effort to find insurers and investors willing to underwrite catastrophe risks at a price that is ultimately affordable for consumers, he added: “That equilibrium is getting stressed right now.”
Part of the answer, Case said, was better modelling of severe weather events in a sector that has been shocked by the level of losses coming from hitherto lower-scale events such as wildfires and thunderstorms. He called for forward-looking analytic models that better understand the risk and so improve the supply of insurance.
The industry traditionally “reflects history as a way to predict the future”, Case added. “It’s not enough in the context of climate, or cyber or generative AI.”
But he was confident the sector could meet the challenge. “At any point in time, there are these shocks . . . but over time, can we understand this risk? Can we model this risk? Yes.”
Brokers play a key role in the global economy, advising companies on risk and how to manage it, including through insurance. US-listed Aon has a $65bn market value and employs 50,000 across 120 countries. In December it agreed a $13bn acquisition of US broker NFP, expanding the business it does with mid-sized companies.
Despite a significant rise in the cost of cover that has lifted profitability among reinsurers, Case said supply in the market remained constrained. “There has not been a lot of new companies and additions to capital, which given the current levels of profitability . . . you would expect [to] happen. That suggests the investment marketplace is concerned about the overall risk.”
He said the sector needs to “bring to bear” broader forms of insurance capital including from pension funds and sovereign wealth funds through a growing insurance-linked securities market.
Case also highlighted artificial intelligence as a “very, very substantial” future risk for global business, as well as an opportunity for companies to innovate.
“[It] cuts across the entire supply chain, where we see risk from a generative AI standpoint,” he added. He gave examples such as copyright battles being fought between content creators and AI platforms, as well as the use of AI to bolster cyber attacks.
Aon’s commercial clients and their employees were “facing more volatility than ever before,” Case said, including through technological advancements and workforce disruption since the pandemic. “Over the last 15 years, the risk trends and the volatility trends have become greater and greater every year.”
