Aon’s Peiser: Lengthy hard market will lead to uptick in RFPs in ’24

Aon’s Joe Peiser has predicted that the longevity of hard market conditions will result in an uptick in requests for proposals (RFPs) in 2024, while also commenting that he’s observing more underwriting discipline among carriers than at any point in his career.

  • Peiser: Rate fatigue could lead to more competition, RFP activity in ’24
  • “Risk differentiation” expected as underwriting cycle moves to more nuanced phase
  • D&O has not yet found a bottom as “clean capital” continues to chase business
  • Rising investment income positive for both insurers and clients
  • Growing sophistication of carrier data to lead to less volatility in the UW cycle
  • On E&S shift: “I hate to say it, but I think a lot of it's there to stay”
  • Construction capacity shortage amid global building boom a rising concern

Speaking to The Insurer in a wide-ranging interview following the release of Aon’s third quarter Global Insurance Market Insights Report, Peiser also said he expects D&O market conditions – as well as those in cyber – to remain soft.

Peiser, a highly regarded industry veteran, was appointed global CEO for the broker’s commercial risk solutions business in August.

“I think there's going to be more RFP activity among brokers and marketing [of] programs by risk managers,” Peiser commented. “And the reason I say that is it's been a long hard market for these clients.”

Peiser expressed the view that RFP activity didn’t pick up in 2023 because clients achieved significant decreases in D&O and cyber, which offset increases in property.

“And next year, while they'll still be seeing some rate decreases in D&O and cyber … they're still going to have another rate increase in property and I think that rate fatigue is going to manifest itself in a lot more competition,” he said.

More “differentiation” as cycle moves to more nuanced phase

With underwriters remaining cautious on property and concern growing around casualty loss development, Peiser also predicted the market will see “a lot more risk differentiation” in the underwriting process.

“The days of remediation are long over. Underwriters still want to grow, [but] they want to grow with some discipline, so they’re sharpening their pencil, but they’re not sharpening their pencil on everybody,” he explained.

“They are genuinely looking at risk differentiation – much more so than we saw two years ago [when] there was much more of a blanket underwriting approach,” he added.

A number of publicly traded carrier CEOs have been vocal about public D&O pricing reaching inadequate levels and have threatened to pull back, but Peiser said this has not yet materialised.

“Not yet. There's certainly talk about that, but it's not translating into activity,” he added, arguing that the continued competition for D&O business is being driven by new capacity – “particularly MGA capacity” – that has not yet experienced losses.

“It's a classic cycle issue: new capital came in, it's clean capital, they don't have losses to pay, and they need to grow and [their competitors] are getting losses, but they don't want to lose market share – it’s a classic cycle.”

Peiser said there have been some cases of big mainstream carriers walking away from deals where they think pricing is too cheap, but described those instances as “the exception”.

Rising investment income positive for both carriers and clients

The Aon executive described the increased investment income carriers have started to generate from higher interest rates as a “positive” development that is putting “less pressure on underwriting”.

“That's a positive for insurers and it's also positive for our clients, because it means a little less pressure on underwriting,” he commented.

Peiser acknowledged that in some sense, underwriting conditions have begun reverting to the state of play of only a few years ago – with concerns around casualty loss development and cheap D&O pricing – but he said that challenges remain in the property space.

He also agreed with the perception that after an extended period of volatility across lines, the broader P&C landscape could be heading for more of an equilibrium than has existed in the last several years.

“If you look at this as a supercycle, we're near the end of the supercycle. And I don't anticipate any dramatic softening of rates – no dramatic softening across the board, like we've seen in past cycles.

“Not that the cycle is dead, but I think that there's so much more discipline in the insurance market than I've ever seen in my whole career,” he argued.

“With the exception of D&O and maybe some [in] cyber, there hasn’t been any rogue underwriting during the past five or six years as rates are going up, and that’s a long period of time.”

Data, analytics advancements drove insurance-led hardening

Peiser said what’s been unique about the current hard market is that until now it has been insurance-led.

“Hard markets in the past were started in the reinsurance world. In this case, the insurance market was hard and then the reinsurance market got hard, maybe three or four years in,” he said.

Peiser attributed the recent insurance market-led hardening to an increase in sophistication among carriers.

“The data and analytics that insurers have to examine their own portfolio are much more sophisticated than ever so they can spot loss trends in their own portfolio,” he commented.

Carriers, he said, no longer need to “rely on the reinsurance market to tell them what's happening”.

“I think when you have that kind of insight into your own book of business, we're not going to see the softness that we saw after the 1986 hard market or after the 9/11 hard market. I just don't see it getting that soft again,” Peiser commented.

“We're still going to have micro cycles, but I don't think we're going to see dramatic soft cycles for sure, [or] probably not dramatic hard cycles for a long time.”

Acknowledges structural shift to E&S

Questioned on the booming growth in the E&S channel in recent years, Peiser said it has taken him “a few years to become convinced” that the shift isn’t just cyclical.

“This is a systemic change in the industry,” he acknowledged, noting that the non-admitted segment has gone from being around 10 percent of the market in 2018 to around 20 percent today, a shift that he described as “a huge change”.

“I hate to say it, but I think a lot of it's there to stay, because there's so much volatility now, insurers need the freedom of rate and form they get in the E&S space that they don't get in the admitted space,” he commented.

“And when you look at new capital formations and expansions by traditional carriers – it’s kind of all in the E&S space.”

Peiser would not be drawn on market chatter around Aon’s interest in the segment, but added: “We would be negligent to not be looking at it.”

Warns of shortage in construction capacity

Asked to make a big prognostication, Peiser warned of a potential shortage of capacity in the construction market in the years to come.

“If you look out five years, what's going to be really problematic is going to be capacity for construction,” he said.

“Because there's a construction boom going on all around the world and all the financiers of construction projects really like things to be insured,” he continued.

“And I don't think there's enough capacity right now to handle the demand that we're going to see in the next few years,” Peiser went on.

“That's going to be the story that we're all dealing with two or three years from now,” he concluded.