Aon’s Moore: Good profit “possible” amid heightened inflation

The ongoing inflationary pressures facing the (re)insurance market can be overcome through better “granularity of understanding” of what’s really relevant to the claims environment, Aon’s Rupert Moore has said.

Speaking to The Insurer TV as part of its #ReinsuranceMonth 2022 series, Moore, UK CEO at Aon’s Reinsurance Solutions, said reinsurers will be prioritising how market headwinds such as inflation will impact risk appetite in the run-up to the Rendez-Vous de Septembre in Monte Carlo, encouraging clients to be “thoughtful” when it comes to presenting their risk profiles.

“We will expect – as we go into Monte Carlo – topics such as inflation to be really very front and centre. The real guidance to clients is to be very thoughtful … understanding inflation properly, making sure that you’re going out communicating your view of risks to reinsurers.

“A lot of the changes that need to happen are on the primary side, so articulating what those changes, and how are you addressing these risks will be the key broking point for people,” he said.

Of course, this isn’t the first inflationary environment the market has had to navigate, but it is certainly one of the hardest.

According to Goldman Sachs, UK inflation could soar above 22 percent next year if energy prices continue their upward spiral.

“In terms of our business, we’ve been in inflationary environments before. It is possible to make good profit and have a sustainable business through inflationary environments,” Moore said.

“But it’s really around the granularity of understanding. So if you really want to get to the bottom of it you need to pick the right indexes, the right metrics to be able to understand what’s relevant to claims inflation, for example, in order to be successful,” he added.

Moore explained that the spike in inflation has centred on the increases in food and fuel costs, which are closely related to the global macroeconomic and political backdrop.

For instance, when wheat shipments left Ukraine, wheat prices stabilised “almost overnight” and went back to previous levels.

“That gives us hope that these things are controllable, so it really comes back to – what are the macroeconomic environments, what’s going on in the political world, how quickly do these things normalise,” he added.

Investment in climate and talent is key

In addition to inflation, Moore mentioned climate change and talent as challenges that the industry has to manage.

Specifically on talent, Moore is focused on making the industry more attractive to the younger workforce, conscious that “somewhere between 25 and 40 percent of the workforce will retire in the next five years”.

He added: “When you look at how the industry is evolving and how you need to bring together analytics, advocacy and broking, it’s very clear that we need a huge amount of diversity of skill set. So that makes insurance an even more attractive place for people to work, and you can play at many different levels in many different ways.”

Moore equalled climate risk to cat risk, acknowledging that while the last five years of results for reinsurers have, in part, been driven by poor performance due to catastrophe risk, it’s also a space the industry has spent a lot of time and money on working to understand.

“I think it’s important to understand that as an industry we’ve been investing in understanding cat risk for a long time – cat risk equals climate risk,” he said.

“Now the solution set and the dynamics are much more complicated today as there is more evolution. So what that means is we need to invest in really understanding it, [using] university partnerships to drill into what are the causes, and then give a path to quantify the impact of it over time.

“What we’re trying to do is to invest in real insights so that we can translate the emotion, the noise and the words into something tangible that you can go and then talk to investors, regulators and rating agencies, and that’s really when the confidence – from the capital side – gets rebuilt in the industry and our ability to understand and navigate what is a very complex solution set,” he concluded.

In this 10-minute interview, Moore provides more detail on: