Insurers could struggle to sustain levels of profitability if they continue to take on less premium for more risk as rates fall, Aon has warned.
The broker's ‘2006 European Property, Liability and D&O Report', has 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, according to the report, 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.
Climate change also continues to be a key underwriting concern for insurers, with an expectation that it will trigger more natural catastrophes, the report found.
Oliver Schofield, leader 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.”
