LONDON, 16 October 2006 - As premium rates continue to fall, insurers are taking less premium for more risk, leading to significant concern about sustaining their profitability levels, according to Aon's ‘2006 European Property, Liability and D&O Report’, which found that an overwhelming majority of insurers have reduced rates over the last 12 months and many now offer broader cover to fend off the competition. 

The situation is set to get worse for insurers as nearly half across property and liability business areas expect to give further rate reductions in 2007.  Consequently, insurers cited sustaining profitability as their number one business concern. 

Emerging ‘Eastern Europe’ is a contributing factor placing downward pressure on rates.  Twelve of the fastest-growing 15 countries in Europe are from Eastern Europe and are destinations for companies keen to move to a low-cost working environment with state-of-the-art facilities located away from natural disaster zones.  These companies will enjoy a reduced labour cost and are further removed from an increasingly litigious Western European culture.   

Climate change continues to be a key underwriting concern for insurers, with an expectation that it will trigger more natural catastrophes. 

Worryingly, terrorism is of little concern, with buyers and insurers ranking it as their lowest insurable property concern.

The spread of US litigation and governance issues has created concern in the boardroom as D&O liability buying patterns show that higher limits are being purchased.  Just over 50% of insurers report that their clients are buying higher D&O limits. 

The report has identified a continuing trend towards greater risk quality - over half of insurers say that buyers are providing more and better quality risk information than two years ago.  Some 90% of property insurers will consider further premium reductions to encourage this trend towards more qualitative and quantitative information.   

Whilst competition is driving 80% of property insurers to offer policy enhancements for the same premium as last year, buyers are generally happy with the cover provided, although there are some gripes in the liability arena over inadequate capacity for product recall, pharmaceutical/chemical and environmental risks. 

In 2005, product recalls doubled in Europe (from 388 to 701)*, prompting increased demand for this cover.  Insurers are responding with over 50% offering product recall cover and a further 30% either planning or considering doing so in 2007. 

However, there could be trouble ahead as the breadth of cover is not keeping up with the growing complexity of buyers' exposures - for example, contingent business interruption and financial loss-related risks.  Some 33% of buyers believe insurers could do more in offering protection from emerging risks, particularly financial loss, product liability/recall and food and beverage related exposures.  

Commenting on the findings, Oliver Schofield, executive director of Aon’s Global Property Practice, said: “This remains a buyers’ market.  Insurers are genuinely concerned about future profit sustainability in the context of climate change, continued fierce competition and the impact of the Eastern Europe effect.  Barring a sequence of major catastrophes or a significant market failure, the downward pricing trend in the property market is set to continue throughout 2007.” 

Simon Thompson, director of Aon’s Global Liability Practice added: “Following four years of profits, insurers are competing strongly for market share and there is no evidence yet of the indicators necessary to bring the soft market to a halt.  EU legislation in product recall and now environmental matters are creating greater responsibility for buyers.  Both offer the prospect of increased income for insurers provided they make good their promises to provide more cover.

Adam Codrington, executive director of Aon Professional Risks, commented: “Recent highly-publicised cases, such as the NatWest Three and Sportingbet, have increased already significant concern in the boardroom about the quality and appropriate levels of D&O insurance.  Our clients are paying more attention to their cover, in some cases increasing limits by 50% or more.”

• Source: EU commission RAPEX

To view the full 2006 European Property, Liability and D&O report please click here

Notes to editor:

About the survey

The third ‘2006 European Property, Liability and D&O Report’ was completed by 140 property, liability and D&O European domiciled underwriters and 104 European headquartered multinational companies during July 2006.  The respondents were drawn form a wide range of industries including chemicals, pharmaceuticals, electronics, tobacco, transport, leisure, steel, financial services, automotive, energy and waste management.

About Aon

Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

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