Liberty Mutual Re says primary carriers losing trust amid growing cat losses



Miguel Martinez-Alvarez, Head of Business Development at Liberty Mutual Re, has warned that primary carriers are losing the trust of their customers amid growing challenges to their profitability, in part due to rising levels of natural catastrophe losses.

Commenting on the uncertainty that increased nat cat events have caused for insurers and reinsurers, Martinez-Alvarez noted that, on the primary side, insurers are under pressure at both ends of the value chain.

“In the past few years most insurers have exceeded their budget for natural catastrophe events, while their reputations have suffered from an industry-wide need for more efficient processing of claims,” he wrote in a recent piece for Liberty Mutual Re.

Surveys of US property claims have shows that overall satisfaction scores for property insurers is at a five-year low, as carriers have struggled to accommodate the demands of digitisation while weathering record catastrophe losses, supply chain disruptions and workforce shortages.

One study referenced by Martinez-Alvarez found that, on average, it took 17.8 days for homeowner claimants to have their repairs completed, up from 2.9 days in the previous year.

With the cost of natural catastrophes on the increase, the Liberty Mutual Re exec noted that pressure on catastrophe modellers is mounting – particularly with the growing focus on secondary perils.

And increase in incidents of coastal and inland flooding and wildfires has been compounded by a growth in property development in areas prone to these perils.

In addition to the growing correlation between climate change issues and the increase in extreme weather-related catastrophe events, there is also disparity in the risk gaps for extensively-modelled perils such as windstorm, and scantily or unmodelled secondary perils such as flooding and wildfires.

Martinez-Alvarez believes the industry must revise its risk models in response to these shifting threats, while also utilizing new technologies for better capture and processing of the vast amount of risk data gathered by both  carriers and brokers, and analytics to turn model outputs into exposure maps and pricing matrices.

“Better use of portfolio-level data can not only inform more accurate modelling and risk pricing but can ultimately drive better claims outcomes,” he explained.

“And better claims data can be fed back to building more accurate exposure maps which can inform future modelling, creating a virtuous circle of risk analysis.”

Martinez-Alvarez also called for greater collaboration between our industry, governments and public institutions to maximise understanding of changing weather patterns and their impact.

“In a market where excess capacity is pursuing diminishing returns, the scale of uninsured catastrophic losses also presents an opportunity for re/insurers to satisfy regulators, governments and consumers that alternative risk-transfer mechanisms can be an effective and appropriate solution,” he said.

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