Aon to help insurers transfer emerging liability risks to the capital markets

Insurance and reinsurance broker Aon is working in collaboration with Praedicat to develop named peril liability reinsurance products to help insurers transfer emerging liability risks such as those related to nanomaterials and 5G to traditional reinsurers and also the capital markets.

The idea is to address product liability risks from new and emerging technologies, developing “named peril” reinsurance products that allow the exposure to be more easily transferred.

By focusing on the named peril approach, Aon hopes that this will also make these emerging liability risks more attractive to insurance-linked securities (ILS) funds and capital market investors.

Aon and Praedicat believe that reinsurance coverage gaps exist when it comes to these emerging liability risks, and so aim to “encourage the development of a robust casualty catastrophe market that could offer new and diversified exposures to the reinsurance and insurance-linked securities sectors.”

In particular, the pair are targeting the general liability and directors’ & officers’ (D&O) market for both current year and historical policy year exposure, to offer tailored risk transfer solutions to clients.

Andy Marcell, CEO of Aon’s Reinsurance Solutions, commented, “Innovation has always been a key part of our business, and we continually look to deliver new products to solve the market’s needs. Our collaboration with Praedicat is a step in building an innovative robust liability catastrophe market, which will eventually match what already exists on the property side.”

Bob Reville, CEO, Praedicat, added, “We are delighted to work with Aon to increase the size of the casualty insurance market by encouraging sustainable solutions to emerging risk. For us, Aon’s commitment to closing coverage gaps and solving clients’ problems with innovative solutions made them the ideal partner.”

The pair note that reinsurance products for large-scale emerging liability risks, such as casualty clash, have often been seen as too expensive be cedents.

They explain, “By tailoring the coverage to a defined list of emerging risks on a named peril basis, the products are expected to provide the transparency needed to facilitate greater coverage certainty at risk-appropriate prices.”

Praedicat’s modelling analytics will be used to help structure the risk transfer products.

Emerging risks are a significant element to casualty exposures, as too is accumulation risk that spans over multiple policy years. Praedicat’s risk model is designed to help understand the likelihood and severity of a casualty event, providing the granularity needed for insurers to take risk transfer action.

Jessica Schuler, Senior Vice President, Praedicat, further explained, “The model has the functionality to allocate future losses to historical policy years and project when claims may arise. This flexibility will allow Aon to carve up the exposure along the time dimension to meet reinsurers’ appetite. In addition, the solutions will be designed to support the reinsurance transaction lifecycle from identifying the risk to underwriting, understanding accumulations, transferring the peril and reserving and managing claims.”

This ability to carve up liability exposure may suggest that shorter-tailed elements of the risk can be carved out as well, which would serve to make it more appealing to ILS funds and capital market investors.

Amanda Nguyen, Senior Managing Director in Aon’s Reinsurance Solutions, also said, “This collaboration is another step for Aon to support and provide our clients with innovative solutions, during a time where increased litigation activity has shed light on growing casualty accumulation exposure and uncertainty. Aon is committed to supporting our clients’ ever-evolving needs and we look forward to working collaboratively with the market to design products of value and help meet clients’ strategic goals.”

Insurance capacity to support emerging liability risks is critical to enable innovation to continue apace, but insurers need access to the reinsurance capital to enable them to provide the broad liability covers necessary.

By enabling insurers to buy reinsurance on a named peril basis, the risks can be made more granular and understandable, which could ultimately open up more capacity, including from the capital markets.