When capacity returns, clients will not bring back risks to market

Commercial clients will get used to retaining risks and may not put them back on the market when capacity returns, warned Aon chairman and chief executive Dennis Mahoney.

Mahoney said that because rates had risen dramatically, more people were taking on greater amounts of self-insurance as they could not afford to pay higher premiums.

Underwriters were also asking clients to retain more of the risk to share any losses that might arise in the event of a claim.

When the market softens and high self-insurance levels continue, this could result in smaller premiums for underwriters and consequently reduced commission for brokers, he said.

"People have got used to that in previous cycles and they will be increasingly taking on bigger retention," Mahoney said.

He predicted current rate hikes would also have an impact on captives.

"There will be more growth in captives, but not as much as people expect since most companies already have one," he said. "We will see a greater utilisation of existing captives."

Mahoney said he suspected discussions were already taking place to create more industry-wide mutual captives or single product vehicles.

It is understood that large UK contractors are talking about setting up a mutual insurance company, as underwriters are reluctant to write large construction projects.

He also urged colleagues to adopt the London Market Principles (LMP), which aim to modernise the way Lloyd's and the Company Market process policies and claims payments.

He said Aon would reward those who "are embracing change for the benefit of all by giving them a preferred recommendation to clients".