Record Winter Losses Are Challenging Policyholder Relationships: Aon

U.S. insurers suffered record-breaking winter storm losses during the first quarter of 2021 while also grappling with several high-profile cyberattacks, according to a recent report released by Aon.

Maybe claims departments are becoming a little testy.

Aon’s quarterly Global Market Insights report suggests that the claims experience may be souring insurer relationships with policyholders.

“The property claims process has become especially challenging when insurers on shared programs take different coverage positions despite the use of consistent wording,” Aon said in an overview of the U.S. claims environment.

The report goes on to note that defense counsel interactions are “problematic.”

“Friction continues between insurers and insureds on the selection of defense counsel and payment of defense counsel rates/bills as well as on litigation strategy decisions, settlement valuation, and requests for settlement authority and funding,” the report says.

The remark about defense counsel follows a thread that was included in Aon’s insight report for the third quarter of 2020.

“In the third-party arena, coverage counsel, retained by insurers, are driving complexity and cost of settlement, sometimes engaging in ways which reduce the value of long-standing relationships between clients and insurers,” Aon said then.

The latest quarterly report notes that globally, insurers suffered $21 billion in natural disaster losses during the first three months of 2021. That was the highest catastrophe loss experienced since 2011 and 25% about average for the past 10 years. Most of that came from the polar vortex that descended into Texas and surrounding states in February. Aon said the extreme cold caused a projected $20 billion in damages, the most expensive winter weather peril on record in the U.S.

Also during the first quarter, there were high-profile hacks and a general escalation of cyber threats, Aon said. The brokerage said there is a lack of clarity on cyber coverage triggers, which is also adding to tension between carriers and their customers.

“As ransomware claims increase in frequency and severity, insurers are spending a great deal of time especially on the business interruption portions of the claims,” the report says. “Requests are perceived as extra-invasive, as the trigger of coverage is not as clear as, for example, a property claim might be.”

At the same time, insurers are tightening cyber coverage with sublimits and coinsurance penalties for ransomware losses. Similarly, insurers are seeking to limit their property exposure.

“There has been a shift amongst some insurers writing single-insurer placements to reduce blanket total insured value limits,” the report says. “Coverages are tightening, especially for contingent business interruption and any indirect business interruption coverage such as civil or military authority, ingress/egress, and service interruption. Strikes riot and civil commotion exclusions continue to be required.”

The report says that U.S. insurance prices have increased for 12 to 13 consecutive quarters. Escalating loss costs and low interest rates are driving the trend.