Aon Corporation announced a new series of seminars, led by insurance and brokerage experts, that are targeted to industry leaders in order to provide an assessment of future challenges they will face. In the first such seminar held in Chicago Nov. 9, it was noted that the insurance industry faces a “fragile and volatile” future in the wake of the Sept. 11 tragedy, but the downswing began long before.
Michael D. O’Halleran, chief executive officer of Aon Risk Services and president and chief operating officer of Aon Corporation, predicted losses of as much as $80 billion for the industry. Meanwhile, experts participating the series of Aon-sponsored seminars said cumulative losses could “exhaust the industry’s capacity” or the ability to cover losses from capital reserves.
Entitled “The New World of Risk,” the seminar has been held in Chicago, Atlanta, and Houston, and is being repeated regionally for the insurance industry audience in New York (Dec. 3).
The discussions focus on insurance specialties such as casualty, property, aviation, reinsurance, employment practices liability and natural gas.
Saying the industry faces a “new world of risk,” O’Halleran predicted significant changes for coverage, capacity, and mounting losses stemming not only from the Sept. 11 tragedy, but from trends that have been taking place for several years. He said the greatest challenge would come as business interruptions caused by the tragedy are more clearly identified and assessed in the coming months.
“This is a snowball that is really starting to gain momentum,” O’Halleran told about 125 Aon insurance industry clients gathered at the Hyatt Regency Chicago. “The aftermath of the World Trade Center disaster is a white-water world.”
O’Halleran said the destruction of the World Trade Center has had a “profound influence on the economy” and emphasized that real losses across the board could easily range between $60 billion and $80 billion, more than double many of the current predictions. “They are deep and diverse,” he said.
Industry net income had fallen to 5.8 percent following the devastation of Hurricane Andrew in 1992, but steadily rose to 36.8 percent by 1997. It then plummeted to 2.5 percent prior to the September 11 tragedy, with much of the fall occurring in 2000. Despite this negative forecast, O’Halleran emphasized that capital reserves needed to underwrite insurance claims could exceed $40 billion or $50 billion by January of next year. “But it is not all bad news,” O’Halleran said. “We are all looking at how we can be creative. We are not just looking in a negative way but in a positive way.”
A number of speakers documented a weak pre-Sept. 11 economy that has contributed to the industry losses. The speakers discussed the current state of the market for property/casualty, D&O, professional liability, aviation and reinsurance. Topics also included changes in coverage, capacity and pricing, and alternate strategies in dealing with the future marketplace.
The speakers included a number of senior executives from Aon’s risk services and reinsurance areas. Carol Murphy, leading the discussion on the casualty arena, said healthcare costs, for example, have been accelerating beyond the rate of inflation for several years. Other speakers included: Gary Marchitello, addressing property; Ron Moyer, addressing D&O/EPL coverage; Joyce Howard, addressing aviation; and Ken Selzer, addressing reinsurance. The discussion group was led by Lawrence Geneen, a senior vice president of Aon.