September insurance market update

The insurance market outlook is more optimistic, but there’s still a long way to go.

Many of the challenges that plagued insurance buyers throughout 2020 have continued in 2021, most notably rising premium costs, reduced insurer appetite and capacity, and restrictions in cover. However, while the insurance market continues to be a particularly tough and volatile environment, several leading brokers are reporting early signs of improvement, with results thus far in 2021 suggesting that the rating increases levied by insurers have peaked on some (but not all) key lines of insurance.

For instance, a recent study published by global insurance broker Marsh reported that premium increases for Property and several financial lines of insurance – two of the worst affected forms of insurance in today’s market – started to taper off in the first half of 2021. According to Marsh, property pricing in the Pacific region (which is dominated by Australia) rose on average by 14% in Q2 of 2021; down from 20% and 31% over the previous two quarters, respectively.

Marsh attributed the shifts in pricing to the relatively low natural catastrophe losses during the first six months of the year, both in Australia and globally, notwithstanding the severe storm events in March 2021 that caused widespread flooding in Western Sydney and the Far North Coast of NSW.

Marsh further reported that pricing for financial and professional lines of insurance increased on average by 37% in Q2 of 2021, which, while significant, was still lower than the preceding two quarters, which saw average increases of 48% and 51%, respectively. It is also hoped that recently legislated changes to continuous disclosure obligations will not only help to reduce the high volume of Directors & Officers (D&O) claims in recent times, but also have positive implications with respect to insurer pricing and the availability of coverage.

In short, premiums in the property and financial lines segments continued to rise in the first half of 2021, but the increases, while still considerable, were lower than previous quarters and appear to be trending downwards.

An introduction of additional insurer capacity into the market from international insurers (e.g. Singapore) is also expected to gradually drive market competition in both the local and global markets moving forward. This in turn may help to alleviate some of the pressures experienced in the marketplace over the past 18 – 24 months.

While these are all positive signs, the insurance market remains extremely challenging. A number of critical factors continue to affect the cost and availability of insurance. Considerably diminished insurer investment returns, the economic downturn accelerated by COVID -19, increased litigation from class actions, and historically high claims activity over the past decade have all contributed to one of the most challenging insurance landscapes in living memory.

Insurers remain fixated on reducing their own exposures to risks and continue to adopt often severe corrective measures in an effort to improve their underwriting performance and portfolio management. And while evidence suggests that the trajectory of premium increases for certain lines are leveling out, prices continue to increase across a number of other classes of insurance.

An example of this is Cyber Liability insurance. A series of high-profile cyber events continue to affect the market globally. Premium hikes in excess of 80% have become commonplace in the cyber space, with multiple sources pointing to an escalation in both the frequency and severity of cyber related events, particularly ransomware attacks and acts of cyber extortion, as the principal drivers behind the increases.

An increasingly litigious environment has also had an adverse impact on General Liability coverage, with various brokers reporting that insurers are applying across the board rate increases in the order of 10%, regardless of claims activity. Clients operating in what are deemed to be high-hazard industries or those with high claims frequency have been experiencing significantly higher rating increases in the vicinity of +25%.

Even though early indicators suggest that premium levels are starting to stabilise in the local property market, insurers remain highly cautious about extreme weather-related events and natural catastrophe perils and continue to impose limits around flood, wind, hail, and bushfire exposures.

Early reports suggest that the insured losses emanating from Hurricane Ida, which has been described as one of the strongest storms on record to hit the US mainland, could reach $US15-25 billion. The ongoing flood events occurring throughout several European countries, some of which have been catastrophic leading to deaths and widespread damage, is also expected to have implications on the global market moving forward.

Organisations that operate in high-hazard occupancies, have poor claims records, or have significant natural catastrophe exposures will continue to be heavily scrutinised by insurers, and will likely be required to accept further rating increases when renewing their insurances. Insurers also continue to apply mandatory infectious disease exclusions and cyber and electronic data exclusions across multiple policies in response to both the ongoing COVID -19 crisis and escalating loss activity stemming from cyber-related attacks.

Overall, while there have been some signs of improvement, it is far too early to suggest the worst is behind us. Insurers are likely to remain incredibly conservative and will continue to be highly selective when evaluating both new and existing businesses.

For businesses, this creates additional complexity around getting the right insurance at the right cost and is why the performance of your insurance broker is so important. As your representative in the marketplace, their ability to properly leverage your interests with insurers is now more important than ever.

Our specialist services provide you with a comprehensive assessment of your existing insurance arrangements to ensure you enjoy the best the market has to offer. Learn more.

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Josh Tobin

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