Page 46 - WTW Asia Insurance Market Report
P. 46

Power and Utilities                                           What makes the power and utilities sector even more
                                                              challenging for insurers is the exposure to machinery
The insurance market for power and utilities risks is a       breakdown losses which have delivered year on year
specialist area of the wider property market and has its      attritional losses to insurers in the region of USD 5 - 25
own dynamics, but is characterized by the same pressures      million. Furthermore, in recent years we have seen, on a
experienced in the wider Property market, namely year on      global basis at least, the emergence of “mega losses” in
year declining premium levels. Indeed, such has been the      the region of USD 100 million and upwards. These losses
sustained nature of these market conditions that some         have put considerable pressure on insurers’ profit margins
commentators have suggested the term “soft” should be         which is exacerbated by declining premium levels.
replaced with “normal”, with few now expecting any broad
market hardening in the future.                               It is worth noting that the market has only seen a decline
                                                              in premiums, not underwriting discipline, with deductibles,
There exists in Asia an over supply of capacity with the      limits and coverage remaining steady. This is true
presence of the majority of international insurers and        especially with new “unproven” or “prototypical” combined
European reinsurers, various Middle East and Asian            cycle gas turbine technology, which is being used more and
regional players represented, together with the Lloyd’s       more in Asia as operators strive for ever greater efficiency
Asia platform leading inevitably to downward pressure on      gains, with original equipment manufacturers (OEMs)
premiums and soft market conditions. Conversely, whilst       looking to meet that demand. Insurers will still treat these
                                                              technologies with a degree of caution, and the deductibles
                                                              and coverage offered will reflect that approach.

“The consequent shortage of new demand
for insurance capacity and opportunity for “The challenge for insurers is to
additional premium growth has added to the manage their way to delivering revenue
already significant budget pressures faced by budgets with an acceptable margin in a
insurers and has placed further downward marketplace where abundant capacity
                                                              is leading to declining premiums whilst
pressure on premiums as a result”
                                                              losses continue unabated. ”

the demand in Asia for power continues to grow, with          Insurers are looking to address those parts of their
various state-led and internationally financed initiatives    portfolio that are failing their own risk selection criteria,
across the region to satisfy that demand, in the last couple  with strategies that range from standing firm on further
of years we have witnessed a number of projects that have     premium reductions, and possibly implementing more
been delayed or even cancelled due to regulatory, political   restrictive terms to mitigate the perceived enhanced
and financial constraints.                                    risk, to walking away from a risk altogether. However,
                                                              any attempt by an insurer to implement this strategy and
                                                              retain business is compromised by the abundance of
                                                              replacement capacity available. Premium savings then look
                                                              set to continue, but perhaps at a lessening rate of decline
                                                              overall, and very much on a case by case basis, depending
                                                              on perceived risk quality and acceptable loss record.

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