August insurance market overview

The insurance market continues to experience its most challenging period following a series of catastrophic weather-related events, the COVID-19 pandemic, and a spate of significant insurance losses across the globe. All throughout 2020 and thus far in 2021, insurers have been increasing their prices, reducing coverage, tightening their underwriting guidelines, and excluding cover for certain types of risks.

These challenging conditions, and the complexities that come with it, are making broker negotiations with insurers more difficult than ever. Insurers are adopting higher levels of scrutiny when evaluating risks and making regular changes to their policy terms and conditions to limit the overall breadth of cover provided.

Below we highlight some of the more common adjustments that insurers are applying in the current climate. However, with the present market conditions set to continue throughout the remainder of 2021 and well into 2022, many industry experts are predicting that insurers will continue to impose further changes that ultimately reduce their own exposures.

Cyber exclusions

The cyber risk landscape has experienced a significant shift in recent times. Cyber criminals are becoming more sophisticated and are taking advantage of the remote working conditions and shift to online workforces accelerated by the Covid-19 outbreak. As a result, insurers have been introducing new cyber and technology related exclusions under various policies, including property/business interruption, liability, and several financial lines of insurance.

Natural Catastrophe Losses

There has been a significant reduction in the willingness of insurers to cover ‘natural catastrophe’ events, such as bushfire or flood. The levels of cover available in the current market are often well below what was previously on offer, or in some instances, not available at all.

Sub-limits and Deductibles

Many insurers are introducing new or lesser policy sub-limits that cap the levels of cover available for certain perils that previously carried higher sums insured. These are often coupled with new or higher policy deductibles that further reduce the insurers own exposures while forcing the buyer to accept higher levels of self-insurance.

Infectious Diseases

The fall-out from the ongoing Covid-19 outbreak has caused many insurers to rethink the levels of cover they are willing to write with respect to infectious disease exposures. This has led to the introduction of mandatory exclusions that eliminate any type of cover for such exposures across multiple lines of insurance, including property/business interruption, liability, and some financial lines of insurance.

Premiums

According to one major global insurance broker, premium rates across the Pacific Region, where Australia is the largest market, have increased on average by 28% in the last three quarters (Q4 in 2020 to Q2 in 2021) and this trend is set to continue for the remainder of 2021 and well into 2022.

For businesses, this means there is additional complexity around the balancing act of getting the right insurance at the right cost.

In such an environment, the performance of your insurance broker / risk advisor is critical. Their ability to properly leverage your interests with insurers is now more important than ever.

The Lion Partnership is a privately owned, specialist consultancy group that supports businesses through the complex and often costly exercise of implementing efficient insurance programs.

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Josh Tobin

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