According to the survey, these are the most significant risks business currently face:
“While pandemic outbreak has dropped in the rankings, the effects of COVID-19 on supply chains remains a major issue for Australian businesses”, says Mark Mitchell, Allianz’s Regional CEO, Global Corporate & Specialty for Asia Pacific.
“This is one of the reasons why business interruption tops the list of risks for 2022 in Australia and is a close second globally,” says Mark Mitchell.
He also believes that business interruption would be expected to worsen if further government-mandated lockdowns occurred.
“While these are not expected in response to the Omicron variant, this could occur if a new, more virulent variant emerged in 2022. That said, the impact Omicron is having on the workforce and supply chains suggests that business disruption, if not interruption, will be an ongoing issue for some months and possibly longer depending on the combined impact of COVID and the expected return of a traditional winter influenza season, as is currently occurring in the northern hemisphere." says Mark Michell.
Allianz says this is the second consecutive year that cyber risks have ranked high on the list, reflecting the severity of the impact of data breaches, ransomware attacks and other digital disruptions to businesses.
Since the pandemic broke, acts of cybercrime have spiked across the globe as hackers and digital criminals take advantage of the remote working conditions and a sharp uptake in online activity brought about by the ongoing health crisis.
"It is no surprise that cybercrime is the top Asia Pacific risk for the third consecutive year and second in Australia in light of the high-profile ransomware attacks, combined with problems caused by accelerating digitalisation and remote working."
“Following a year of unprecedented global supply chain disruption, business interruption is a consequence of many of the other risks in the rankings, such as cyber and natural catastrophes and will be a perennial concern for companies the world over and in Asia Pacific. Meanwhile, the pandemic has exposed the extent of vulnerabilities in modern supply chains, and how multiple events can come together to create disruption”. Mr Mitchell said.
Poorly structured insurance is not only a waste of money, but it can also have dire consequences for a company that is left without adequate safeguards against these risks.
Navigating the world of business insurance can be difficult. So, contact Australia’s leading specialist consultancy group that supports businesses through the complex exercise of implementing efficient insurance programs.
Source: Insurancenews.com
There are however some early signs of improvement. Recent findings from multiple industry sources suggest that the purchasing environment for insurance buyers is trending in a more positive direction across some (but not all) key segments of the market. Insurance premiums are expected to continue rising in most areas, but at a lower rate than 2021.
Below we highlight some industry trends and predictions which been extracted from comments made by various rating agencies, insurers, reinsurers, and insurance brokers on what you can expect in 2022 for your corporate insurance programs.
A Demand for Insurance Spurring Record Premium Volumes
According to Swiss Re’s latest sigma study, rising demand for insurance could lead to a new record in global premiums by mid-2022, exceeding USD 7 trillion. This expected growth reflects a rising risk awareness in the wake of the ongoing pandemic, increasing demand for protection, and rate hardening across the non-life insurance commercial lines.
Swiss Re predicts that non-life premiums will grow by 3.7% in 2022 and 3.3% in 2023. This is on the back of an estimated 3.3% growth in 2021.
“Market conditions suggest that positive pricing momentum will continue across all lines and regions,” said Jerome Haegeli, Swiss Re Group’s Chief Economist. “Inflation-driven higher claims development in all lines of business continued social inflation and persistently low interest rates will be the main factors for market hardening,”
The industry outlook is also supported by a strong cyclical recovery from the COVID-19 pandemic, but economic growth is expected to slow in the next two years due to a growing crisis in energy prices, prolonged supply-side issues, and inflation risks, the study found.
Steady and Stable Despite Tricky Conditions
A recent study released by Fitch Rating’s shows that Property and Casualty (including Liability) insurers are poised to enjoy steady underwriting profits and earnings in 2022 despite challenges from higher inflation and a likely reduction in contributions from investment gains.
The study found that underwriting profitability for the Property/Casualty insurance industry is likely to improve to a combined ratio of 97% in 2022 due to continued favourable commercial lines pricing. However, if higher inflation persists, profitability and reserve strength would be expected to weaken in longer-tail segments, including certain liability lines. The report also indicated that evolving catastrophe risk exposures may add further volatility.
Fitch expects 2022 to be the fifth successive year of pricing increases, although at a lower rate than in 2021. Fitch’s analysts also believe that the risk of rising inflation will remain manageable for the industry in 2022.
AM Best has also revised its 2022 commercial lines market segment outlook from negative to stable across a number of key markets/geographies despite several near-term challenges including inflation, an uneven economic environment, and continued pressure on jury awards and settlement costs.
AM Best analysts cited the relatively modest negative impact of the COVID-19 pandemic, continued strong pricing momentum, and favourable rulings to date on many business interruption coverage disputes.
They also revised their outlook ratings from negative to stable for both commercial property and financial lines of insurance. However, the outlooks for commercial motor, general liability, medical malpractice, and professional liability lines remain negative.
Cyber Market Conditions Continue to Harden
Increasing claim payouts and shrinking profits is causing insurers to reduce the amount of cyber cover that they are willing to provide at a time when the demand for coverage is higher than ever.
All throughout 2021 insurers were looking to limit their exposures by limiting coverage and capacity while charging higher rates across the board, regardless of an organisations size or profession. According to one major global broker, rates increased on average by 50% for attractive, high-quality risks with minimal to no claims experience, while those with poor claims records or lacking security controls experienced significantly higher increases ranging from 100% to as much as 300% in some cases.
Insurers have also been adopting higher levels of scrutiny when evaluating risks, asking for more information around organisations cyber security controls than ever before.
S&P Global believes that the ongoing pandemic and remote working conditions emanating from the crisis have caused insured losses from cyber-attacks to skyrocket. This, in turn, has led to a heightened awareness of the risk and increased demand for cyber re/insurance.
“The trend toward digitalisation will inevitably lead to a higher likelihood of cyber incidents. Prices in the cyber re/insurance market could therefore rise sharply over 2022-2023, even doubling in some cases,” said S&P Global.
Anticipated / Expected Percentage Increases Across Major Classes
Property / Business Interruption:
Liability:
Construction:
Healthcare Professional Indemnity:
Marine Hull & Liability:
Navigating the world of business insurance can be fraught. So contact Australia’s leading specialist consultancy group that supports businesses through the complex exercise of implementing efficient insurance programs
1. What is your relevant industry experience?
Getting the right insurance broker can be a major asset for your business and its risk-management approach. They should be able to advise you on the best cover for your circumstances and source the most competitive prices in the market. Like any profession, however, some brokers are better suited and have more experience in specific areas than others.
For instance, some insurance brokers maintain dedicated practice groups that work exclusively with organisations from particular industries. Others have created unique placement facilities or insurance schemes that leverage the group buying power of organisations from the same sector to achieve more competitive pricing and greater levels of cover for their clients.
Brokers that specialise in or work with a large number of organisations from a specific industry are also more likely to have greater awareness of any outside influences that affect companies who operate within that sector, whether it be legislative reform, or new or emerging risks impacting certain segments of the market.
Ultimately, the more a broker knows about your industry, the greater their ability to deliver the most appropriate, cost-effective insurance solutions available in the market, so do your due diligence.
2. Do you have access to a broad range of domestic and international insurers?
The truth is that many brokers use only a small number of insurers, or in some cases give preference to specific insurers. This may be acceptable in some cases, but it can potentially lead to a scenario whereby you do not get the best deal on your insurance.
Some brokers have developed exclusive online quoting software that limits their marketing efforts to those insurers who subscribe to such platforms. Others have limited access to international insurers, which means that you may be missing out on more competitive markets that can deliver better results from either a pricing or coverage perspective, or sometimes both.
So be up front about asking your would-be broker which insurance companies they represent, which markets they have access to (both locally and overseas), and which insurers they would recommend for you, so you can determine whether they are the right fit for you.
3. What would your recommended go-to-market strategy be for us?
This is a key question in the current climate. Insurers are being highly selective when deploying their capacity. They are scrutinising clients more than ever as they determine which businesses they are wanting to insure.
This means that your broker’s performance during the renewal process is more important than ever before. The manner in which your business is presented to both new and prospective insurers is crucial. Businesses that fail to demonstrate a high level of risk maturity, or those who enter into negotiations with insurers using poor-quality information, will likely find themselves more susceptible to the harsh market conditions. Remember, in today’s market, insurers will typically fill any gaps in information with premium.
Many brokers often boast about their depth of resources across multiple disciplines or claim to have stronger relationships with certain insurers given their size and position in the marketplace. While advantageous, these add little to no value if they are not harnessed correctly and used to further your interests with insurers.
4. How do you structure your fees?
Organisations should always strive to get full transparency around insurance-related costs. This includes your broker’s income as it relates to the management of your insurance program.
Ideally, your broker will be remunerated solely by way of an agreed fee for service. This removes any scenarios in which your broker is incentivised to negotiate exclusively with those insurers who pay the highest levels of commission. Some brokers also have profit-sharing arrangements in place with insurers that further incentivise them to place your business with specific insurers who may not necessarily be the best fit for you.
Commissions can range anywhere from 10 per cent to as much as 35 per cent of the base premium amount. A broker can earn considerable levels of income when earning commission on an account; income that may be grossly overstated when compared to what another broker may charge on a flat ‘fee for service’ basis.
So getting clarity around exactly how much your broker earns, and by what means, will not only help to ensure their remuneration is fair and reasonable, but also helps in determining just how appropriate and cost-effective your insurance arrangements really are.
Navigating the world of business insurance can be fraught. So contact Australia’s leading specialist consultancy group that supports businesses through the complex exercise of implementing efficient insurance programs
According to Marsh, the Financial and Professional lines market was the worst affected, increasing by 25%. This eclipsed the increases experienced across the Property and Casualty market segments, which rose by an average of 11% and 15%, respectively. While less than ideal, the Q3 results reported by Marsh is further evidence that the substantial premium increases being levied by insurers in recent years have started to ease on some (but not all) key lines of insurance.
Thus far in 2021, average pricing increases across the Pacific region have dropped each quarter, according to Marsh. This suggests that the pricing pendulum has started to swing in favour of the insurance buyer. The upward trajectory of premium increases experienced over the past 24 months appears to have peaked in the fourth quarter of 2020 at 22% and is now trending downwards.
Lucy Clarke, President of Marsh Specialty and Global Placement, said that “while the risk and insurance landscape remain challenging around the world, we expect rates to continue to moderate in most lines”.
However, while the outlook is looking more positive in certain segments of the market, others remain in a state of flux.
Conditions are particularly challenging in the Cyber Liability market at present following a sharp uptick in both the severity and frequency of cyber-attacks on businesses. Cyber criminals are becoming more sophisticated and are taking advantage of the remote working conditions emanating from the ongoing Covid-19 pandemic.
According to Marsh, Cyber Liability prices increased by 96% in the U.S. in Q3 this year, up from 56% in the previous quarter. Results coming out of the UK were just as alarming, where prices increased on average by 73% in Q3 (up from 35% in Q2). Marsh attribute these increases to a surge in ransomware attacks and acts of cyber extortion, in the main.
This is supported by recent findings published by Cognyte – a global security analytics software firm – which showed that the number of ransomware attacks coming out of the U.S nearly doubled in the first half of 2021 in comparison to the entirety of 2020.
While Marsh’s Q3 figures provide for a more positive outlook, there are still a number of factors that continue to affect the cost and availability of insurance. Insurers are dealing with changing conditions around reinsurance renewals, poor investment returns, and high loss ratios; among other issues.
Organisations operating in high-hazard industries, or those with high claims frequencies or sizeable natural catastrophe exposures will continue to be heavily scrutinised by insurers and will likely be forced to accept further rating increases when renewing their insurances. Insurers also remain very focused on coverage and continue to introduce infectious disease and cyber exclusions across the board 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, insurance buyers will still be forced to deal with various challenges come renewal time. Insurers are likely to remain incredibly conservative and will continue to be highly vigilant when deploying their capacity.
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.
For many years, businesses in the construction industry enjoyed the benefits of a soft insurance environment, due in large part to an oversupply of insurer capacity. Insurer’s investment returns in the construction segment were extremely profitable, which in turn raised levels of competition in the marketplace.
However, during 2019, conditions began to shift. Rising claims activity, including several major high-profile incidents that hit insurers in both 2018 and 2019, led to a deterioration in insurers’ profitability.
What’s the impact?
What followed was an unprecedented number of insurers withdrawing from the construction market. Earlier this year, Marsh – one of the world’s largest global insurance broking firms – reported that as many as 15 leading global insurers exited the market over the preceding 12 – 18 months, resulting in a loss of $US1 billion ($1.27 billion) in market capacity.
What’s to come?
For those insurers that remain, underwriting profitability has become key. Insurers are adopting various corrective measures in an effort to improve the performance and profitability of their construction portfolio. For instance, insurers have generally been applying across the board premium increases, regardless of the client’s business activities, geographical exposures, or individual claims performance.
Global insurance broker Willis Towers Watson (WTW) – a prominent figure in the Construction insurance space – recently reported average premium increases of 15-25% for Annual Contract Works policies and 30 - 60% for Construction Liability.
Conditions in the Professional Indemnity (PI) construction segment are perhaps the most difficult, with WTW reporting even higher premium increases ranging from 50 - 100% on Primary Design & Construct Professional Indemnity insurance placements.
Various brokers are also reporting that insurers are being far more selective with the levels of capacity that they are willing to deploy on certain risks and are quoting on less favourable policy conditions to both new and prospective clients. A variety of coverages that were once readily available are now either no longer available or have been reduced through the application of narrower policy language. Lower policy sub-limits, new and/or more restrictive policy exclusions, and higher deductible levels are all common (and often mandatory) requirements of insurers in the current environment.
Further reports suggest that some organisations have been unable to secure the desired or necessary levels of coverage needed to meet their contractual obligations or were simply unable to afford the significant premium demands of insurers.
According to WTW, renewable non-conforming cladding and structural defects are two of the larger risk concerns for insurers, particularly for organisations trading in the high-rise residential sector. Renewable energy and waste to energy are also particularly challenging areas with many insurers not willing to provide cover. New and changing reforms around mandatory insurance for those in the construction industry may also affect the market even further.
The market outlook
Unfortunately for construction businesses, the market outlook moving forward remains bleak. A number of leading brokers anticipate that the increasingly difficult conditions in the construction insurance market are set to continue for the foreseeable future.
“This trend is set to continue through the second half of 2021”, Marsh stated, “with no respite in sight, particularly from a pricing perspective”.
It is critical that construction businesses work closely with their appointed insurance broker to devise well thought out ‘go-to-market strategies that help to minimise the overall implications of the distressed marketplace. For this to happen, early insurer engagement will be key. Insurers are scrutinising construction-based risks more than ever, and they are demanding higher levels of quality information when evaluating both new and prospective clients.
Critical to all of this is the performance of your insurance broker. As your exclusive representative in the marketplace, their ability to properly leverage your interests with insurers is now more important than ever.
Help is a hand, our specialist services are designed to ensure that you are partnered with the most suitably qualified insurance broker – one that has the experience, resources, and expertise necessary to deliver you the most appropriate, cost-effective insurance solutions in the present market. To talk to one of our team to learn more.
While there are numerous methods that organisations can employ to protect themselves, for most companies, insurance invariably forms a key component of their overall approach towards managing their exposures.
Critical to this is the performance of your appointed insurance broker. They are your spokesperson and your exclusive representative in the marketplace. Their ability to leverage your interests with insurers is key to ensure your insurance capital is invested wisely. They are a key contributor to their clients' long-term security, helping to protect them against potentially crippling financial losses should a major catastrophic event (or series of events) ever occur.
Indeed, the interconnection between your broker's performance and your insurance program is irrefutable. The premiums you pay, the cover you maintain, the benefits you enjoy, the claims service you receive, and the overall strength of your insurance program is directly linked to their performance.
So, with insurance being a significant overhead for most organisations, it makes sense to ensure you are working with the right broker and making the best use of your investments in insurance.
The question is: how can you be sure that you're working with the right broker, and how can you be sure that you are getting the best deals from insurers in the market?
Our Statement of Capability process can help answer these critical questions and more. It is an extremely effective and uncomplicated solution for any organisation looking to review their existing insurance arrangements and receive maximum returns on their investments in insurance. Learn more.
The insurance market is experiencing one of it's most challenging periods on record, due in large part to a series of natural catastrophes and a spate of significant insurance losses across the globe, combined with a sustained period of low interest rates and falling investment returns for insurers.
These challenging conditions, and the complexities that come with them, are making broker negotiations with insurers more difficult than ever. Insurers are adopting higher levels of scrutiny when evaluating risks, increasing premium costs, and making regular changes to their policy terms and conditions to limit the overall breadth of cover provided.
In short, the annual renewal process has become far more rigorous and challenging than ever before. As a result, brokers are increasingly delivering difficult news to their clients and presenting renewal outcomes that are far from ideal.
Consequently, insurance has leapt to the top of the agenda for many organisations who are now questioning the suitability of their insurance arrangements, including broker relationships. The question is: what’s the best way to go about this? More often than not for most companies, the answer is a Request for Proposal (RFP) exercise.
Download our Mastering the request for proposal process white paper to read more >
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.
Cyber criminals have become more sophisticated and are taking advantage of the shift to remote working conditions and online workforces accelerated by the Covid-19 outbreak.
These issues have contributed to a significant increase in the financial losses sustained by insurers emanating from cyber loss events, particularly concerning ransomware attacks. According to Coveware – a leading ransomware response firm – the average demand for a digital extortion payment was more than $220,000 in the first quarter of 2021, up 43% from the previous quarter.
A leading global broking firm also reported a 100% rise in claim notifications from clients reporting ransomware incidents in 2020 compared to 2019.
The extent of cyber losses experienced in the marketplace has triggered a series of remedial actions from insurers as they look to improve the performance of their portfolio. And while capacity in the market remains, insurers are reducing their coverage, imposing higher deductibles, and applying notable premium increases across their entire portfolio.
For instance, a recent report issued by global broker Marsh stated that premiums increased by 20-30% in Australia in the first quarter of 2021, followed by a whopping 60-80% in Q2, compared to the same periods from 2020, respectively.
S&P Global Ratings - an American credit rating agency - has also released a report that says insurers' are intending to reduce their pay out limits moving forward, especially where contracts include ransomware or business interruption components, while at the same time increasing retention levels through 2021-2023.
Many insurers are also changing the way they assess risks and are adopting stricter underwriting guidelines when considering both new and existing clients, focusing on the organisation's Business Continuity and Incident Response Plans.
Organisations seeking to navigate this hardening environment will need to demonstrate a high-level of cyber risk maturity to insurers. This will require clients to collaborate with their insurance broker to devise effective strategies that ensure any investments they have made to bolster their cyber risk management and resilience strategies are communicated to insurers clearly and effectively.
Clients should also carefully examine the make-up of their existing insurance program as insurers apply cyber and technology related exclusions across various financial and general lines of insurance, particularly concerning acts of ransomware. This will require the majority of all cyber exposures to be managed using a dedicated cyber insurance policy that should ideally be tailored to address the client's specific needs.
In such an environment, the performance of your insurance broker is critical. Their capabilities and expertise in the field of cyber security could be the difference between having the right cover at the right price or having cover that is both insufficient and overpriced.
Please don't risk it. Contact us today to discover how you can leverage the expertise of multiple insurance industry experts to achieve the best cyber-security measures for your business.
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.
The stakes are high, too, with Marsh’s quarterly Global Insurance Market Index reporting that international commercial insurance pricing increased by an average of 15 per cent in the second quarter of 2021. Prices in the Pacific region, where Australia is the largest market, rose by a staggering 23 per cent.
In such an environment, the performance of your insurance broker is critical to ensure you maintain an optimal insurance program, regardless of the market cycle. However, they are not a silver bullet, and it is crucial that your broker understands your business’s situation and needs to deliver the best insurance policies possible, and within budget. Following are some smart ways to get the most out of your broker.
1. Conduct a broker tender process
An independent insurance consultancy can help businesses implement and manage a competitive tender process for the provision of insurance broking services.
Even though you may be satisfied with your incumbent broker, such a check makes sense and can often reveal weaknesses in your insurance approach that might otherwise go unnoticed, whether that is related to costs, cover or even the broker itself. Such a tender analysis should factor in whether the broker has specialist expertise and a proven record in your particular sector.
2. Set appropriate KPIs
In locking in a broker, it is important to factor in pre-agreed key performance indicators (KPIs) that match your business’s particular insurance requirements and service expectations. By clearly defining those deliverables, which should be linked to the broker’s remuneration, there is greater transparency and both parties are more likely to be satisfied over the long term.
3. Ask how premiums will be calculated
Many businesses simply buy insurance without realising what drives their insurance premiums, and what level of information is necessary to negotiate the cheapest possible rates. A good insurance broker should be able to advise about some of the factors at play here.
For example, approaching an insurer for renewal terms using low-quality or ambiguous information surrounding a company’s risks (and subsequent insurance needs) can push up premiums, as insurers typically fill any gaps in information with premiums. Your broker should inform you of this and offer strategies that ensure your company risks are clearly conveyed using high-quality data that presents your business to insurers in the best possible light.
Be sure, too, that you are not paying any hidden commissions or fees to your broker.
4. Review your policy wordings
Carrying out policy wording reviews of your key classes of insurance is important – and something a good broker should be across. They must be able to provide feedback on areas of possible improvement because subtle differences in the wording of policies can make all the difference as to whether coverage exists or not.
5. Examine your broker’s research capacity
Solid research should be at the heart of a broker’s insurance recommendations. That research helps identify any existing or emerging industry risks, and it informs relevant insights into insurance needs.
No one broker has exclusivity of good ideas, so businesses should quiz brokers about their research practices, knowing that the best research is likely to lead to the best insurance outcomes.
Help is at hand to analyse your business’s insurance policies and to check if your broker is getting you the best available deal with the lowest possible fees. So click here now to contact a specialist consultancy group that can guide you through the insurance maze. Don’t delay.
To find why you should test the adequacy of your insurance arrangements periodically, find out more.
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.
Many businesses adopt a set-and-forget approach when it comes to their insurance coverage – and it can be a costly error.
The failure to instigate a proper review can lead to a scenario where high insurance costs are locked in, or inadequate coverage is maintained that does not reflect the changing needs of the organisation. Given that insurance for corporations and large businesses can cost hundreds of thousands of dollars a year, it is worth asking the question of boards, CEOs and CFOs – would you be so hands-off with other critical aspects of your business operations? Not a chance.
Pressure on premiums
A passive policy on insurance is especially risky at a time when the insurance sector’s profits fell almost 50 per cent to $2.3 billion in the 12 months to June 30, 2020, according to KPMG Australia’s annual General Insurance Industry Review.
The slump resulted from factors such as the catastrophic bushfires in Queensland, NSW and Victoria, and severe storm activity across the eastern states. Ongoing fallout from the COVID-19 pandemic and a rush of business-interruption insurance claims has only accentuated the challenge for insurers. In turn, some have been forced to increase premiums and deductibles, and reduce the levels of cover they are willing to provide to cover their losses.
For businesses, this means there is additional complexity around the balancing act of getting the right insurance at the right cost. Even many large corporations may lack internal insurance resources, exposing the company to possibly over-paying for their insurance, or leaving the business exposed if it has insufficient coverage.
This is where an experienced external insurance consultant can be valuable in examining insurance rates while weighing up coverage and costs.
Test and review
To put the rise in insurance premiums into perspective, the Global Insurance Market Index from international broking company Marsh indicates that commercial insurance prices soared by an average of 15 per cent around the world in the second quarter of 2021, down slightly on the first quarter.
Pricing rose 23 per cent on average to June in the second quarter of the year in the Pacific region, where Australia is the largest market. Marsh put the increases down to rising property insurance rates, as well as spikes across the financial and professional lines of insurance.
Such price hikes and the enduring uncertainty caused by the pandemic suggest that it is crucial for companies to test and review their insurance program. Over time, business conditions change, and insurance may need to change with it.
For corporations, here are some broad actions they should consider to protect their operations.
This is far from being an exhaustive check list. Remember, though, that poorly structured insurance is not only a waste of money, but it can also have dire consequences for a company that is left without adequate safeguards. Business leaders and managers ignore such risks at their peril.
[Sources]
https://home.kpmg/au/en/home/media/press-releases/2020/12/general-insurance-sector-profit-halved-2020-kpmg-report-9-december-2020.html
https://www.insurancebusinessmag.com/au/news/breaking-news/commercial-insurance-price-increases-continue-to-break-records-245543.aspx
