Conditions in the insurance market have continued to stabilise throughout 2022. Overall, the size of rate increases that businesses have been experiencing in recent years has progressively decreased across most product lines since late 2020. However, while the pricing environment continues to improve and volatility has stabilised in some pockets of the market, specific segments remain particularly challenging, and the outlook going forward is filled with uncertainty in the wake of further global natural disasters and inflation issues.
According to Marsh’s most recent Global Insurance Market Index, commercial insurance prices in the Pacific region – where Australia and New Zealand are influential markets – rose on average by 5% in the third quarter of 2022. This continues the gradual decline in pricing increases that began in 2021 after peaking at a staggering 35% in Q4 of 2020.
Some of the most positive signs are coming out of the Directors & Officers (D&O) market as new insurers continue to enter the market, in turn driving a more competitive environment and providing some relief on pricing.
However, while the heavy pricing increases that insurers have imposed in recent years are generally easing, several issues will continue to affect the cost and availability of insurance in the future.
The Cyber insurance market has quickly become the most distressed line of insurance in the market following a sharp uptick in both the size and frequency of cyber-attacks. Ransomware and cyber extortion continue to be the main threats, causing havoc to all industries across all jurisdictions. According to a recent report published by Cybersecurity Ventures, ransomware will cost the world $20 billion in 2021. That number is expected to rise to $265 billion by 2031.
Several major brokers have reported significant premium increases across their Cyber Liability portfolio's starting at 30%, together with the reduced cover and higher retention levels. It is expected that the recent Optus and Medibank data breaches in Australia – the latter of which remains ongoing – will worsen the extremely difficult conditions for local insurance buyers.
Market conditions also remain challenging in the Casualty/Liability segment. According to several major broking firms, underwriters are seeking rate increases ranging from 5% - 10% for well performing, low-hazard risks, while high-hazard/risk accounts are generally experiencing much higher increases of up to 30% in some cases.
The increasing severity of extreme weather events worldwide is also continuing to impact the insurance sector. Claims incurred from the major flooding events that decimated parts of NSW and Southeast Queensland earlier this year have breached $5.57bn according to the Insurance Council of Australia, making it one of the largest loss events in Australia’s history.
Consequently, insurers are taking corrective measures to reduce their exposures in flood-prone areas by imposing higher deductibles, applying annual aggregated limits, or in some extreme cases, withdrawing cover altogether.
Globally, Hurricane Ian, a Category 4 hurricane that caused widespread flooding and claimed more than 100 lives across portions of central Florida in September this year, is expected to become the second-costliest hurricane ever for the US Property & Casualty industry. The ramifications of which are likely to be felt across the globe.
Early data provided by RMS (Risk Management Specialists Inc.) estimates total private market insured losses from Hurricane Ian to be between USD53 billion and USD74 billion.
Like many other industries, the insurance sector is also suffering from spiralling inflation rates locally and abroad. In addition, construction costs are rising at the fastest pace on record, driven in large part by the increasing price of construction materials, worker shortages, and inflated repair/rebuild costs. Similar issues exist in the commercial auto industry, which has also been heavily affected by surging costs of repairs, supply chain disruptions, and a lack of qualified trade professionals.
These rising inflation issues are weighing on insurers' profitability and impacting their premium reserves as the cost of claims surge. Many businesses may also find themselves uninsured where they have failed to take into account higher rebuild costs and expected delays in obtaining construction materials when setting their property and business interruption sums insured.
Many insurance buyers will continue to face various challenges that could impede their ability to secure their desired levels of insurance protection. As a result, insurers will likely remain overly cautious when deploying their capacity, with only the most appealing, well-managed risks being able to take advantage of the positive developments in the market, including the additional capacity that now exists.
For this reason, the performance of your insurance broker is crucial. As your exclusive representative, their ability to differentiate you in the market, separate you from the pack, and successfully sell you as an attractive, well-managed risk to insurers is key to achieving the best possible outcomes. Although pricing will not return to the lows of pre-pandemic or soft market levels in the short term, ensuring that you are working with the right broker is key to ensuring you are getting the best deal from the market.
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.
One of the lasting legacies of the pandemic will almost certainly be the rise of hybrid workplaces as employees engage in a blended model of remote and in-office work.
While this should bring productivity benefits, business leaders must be conscious of reviewing their insurance cover to take into account any changed working arrangements. For example, they need to mitigate risks in relation to any in-home accidents involving employees, or respond to cybersecurity threats in relatively unprotected home environments.
Being proactive on the insurance front can help ensure continuity of cover, and potentially result in lower premiums in some cases. Until recent years, most business insurance policies have been structured around the fact that employees typically worked in a company office. COVID-19 has altered that reality, and insurance policies need to change, too.
Here are some of the key issues to consider.
1. Cyber liabilities
This is perhaps the most obvious and worrying risk that has been heightened as a result of hybrid work. As remote staff use home wi-fi connections that are easier to attack than a corporate IT network, there are potentially serious implications for a business – and its clients – if there is a serious hack. These breaches could threaten intellectual property and data sets.
The flip side is that a business which takes steps to improve its cybersecurity – such as implementing a multi-factor authentication (MFA) login system – can safeguard its operations and potentially be favourably looked upon by insurers when determining policy premiums.
2. Property damage and theft
Continuously transporting laptops and other mobile devices to and from work comes with the increased risk of damage or theft. It is prudent to alert insurance providers or brokers if your business has moved from a predominantly office-desktop setup to one that relies on remote laptop use. This can have an impact on insurance valuations and premiums.
For instance, does your contents insurance cover company-owned equipment that is used in an employee’s home and which may be damaged or lost? With such cases in mind, your insurance policy may need to be changed from a fixed location option to an all-risk location option.
3. Employment law considerations
Although there are many potential advantages with remote and hybrid work, it does raise some grey areas in terms of employment law. As a consequence, management and HR should consider the need to tailor employment contract clauses to encompass home or hybrid work. This could include complying with the law on working hours, and ensuring that staff take adequate breaks and look after their mental health.
Staff who work remotely should also have access to the same opportunities as those who are physically in a workplace, and they may even be eligible to claim costs such as heating and electricity given that they are using such utilities in the course of their work. The bottom line is that the failure to address such issues could lead to legal claims against a business – and any insurance cover needs to reflect such threats.
4. Employee health and wellbeing
COVID-19 has shown that flexible work practices can cause additional stress and a feeling of isolation for some staff. Among the findings from the 2021 Allianz report, titled Finding Balance in the Modern Workplace, is that two in five employees admit they do not have a transitional space between work and home, both mentally and physically, while 40% believe there is an expectation to work longer hours because of the pandemic. In addition, bosses need to be aware of possible health and safety legislation in relation to remote working practices.
Given rising concerns around employee welfare, insurers will likely want to know how a business is responding to such issues, including guidelines around working overtime outside the main office, compliance with management practices, and any safety concerns around designated work areas in the home.
This all means that employers can now find themselves under extra pressure to look after the welfare of their people in a blended work environment. So, it is vital to have adequate cover in place to protect against potential claims from employees.
Time for an insurance review
As workplace fallout from the pandemic continues, it makes sense for businesses to review their current insurance cover and possible future needs. This could involve changing the terms of their coverage, or simply adding new lines of coverage to meet new risks.
Devising effective insurance solutions can be difficult, of course, but seeking the support of specialist expertise whereby you get impartial and unbiased insurance advice can make a real difference. Such a process can ensure that business leaders look at their insurance policies through a remote and hybrid workplace lens.
Doing so is a smart move for businesses, their employees and their clients.
For more advice on how to navigate through hybrid workplace risks, speak to one of our experienced insurance experts.
Cyber criminals are more cunning than ever and, under the cover of COVID-19, have been targeting business supply chains and taking advantage of the acceleration of remote working.
A recent Allianz survey of the biggest threats to corporate Australia during the next 12 months puts the danger into context, with 41% of respondents nominating business interruption and digital incidents such as cyber-attacks, IT failure and ransomware incidents as the No. 1 concern. Climate change (34%) and natural catastrophes (29%) round out the top three.
Supply-chain risk management is also on the agenda for business leaders, with many cyber-attacks seeking to gain access to critical data and information.
In this potentially fraught environment, it is crucial to seek sound advice from a broker or experienced insurance consultant to get the right liability insurance in order to protect your business from financial risks relating to cyber incidents. While a wide range of cyber insurance options are available for businesses, some insurers are limiting their coverage, imposing higher deductibles and raising premiums.
Global broker Marsh reports that premiums spiked 20% to 30% in Australia in the first quarter of 2021, followed by a 60% to 80% rise in the second quarter, compared with the same periods from 2020. Many insurers are also changing the way they assess risks and are adopting stricter underwriting guidelines, with the focus being on an entity’s business-continuity and incident-response plans.
Protecting your operations and data
In tandem with cyber insurance, businesses should be taking mitigating action to safeguard their operations, people and data, including via the following basic steps.
Businesses that implement such basic cybersecurity measures are likely to be looked upon more favourably by cyber insurers, potentially leading to cheaper premiums and more comprehensive cover.
Make your insurance fit for purpose
At its core, cyber liability insurance can help your business cover the costs of recovering from a cyber-attack. As with any insurance product, it is important for your business to have clarity around what the insurance actually covers, and it does not cover.
Standard coverage should include costs related to elements such as:
Each business may have different cyber-insurance needs, so the role of your insurance broker is critical, along with the possible assistance of external insurance specialists who can help advise on the best possible cover. Their capabilities and expertise could mean the difference between your business surviving a cyber-attack, or being put out of operation.
Seek specialist advice
Given such high stakes, it is wise to conduct an audit of existing insurance policies to ensure they will be suitable and effective in the event of incidents such as ransomware attacks.
While cyber insurance is important, getting just any generic insurance cover is not the answer, especially at a time when cyber threats are becoming more common and sophisticated. Poorly structured insurance can often be a waste of money and fail to prevent a business from experiencing significant distress.
The message is clear – work closely with your insurance broker and other specialists to ensure that your cyber risks are clearly understood, and that you have insurance cover when you need it most.
Determining the most appropriate form of cyber insurance for different businesses can be difficult speak to one of our experienced insurance experts to discuss the complex exercise of getting the right cyber cover.
The Directors & Officers (D&O) market has been one of the most challenging and stressed segments in the insurance marketplace for some time. High volumes of claims activity, particularly concerning securities class-actions, have dramatically impacted insurer profitability, leading to inflated premium costs and reduced market capacity.
Fortunately, some encouraging signs suggest that the volatile conditions that have disrupted the D&O market in recent years are starting to stabilise. The market is by no means reversing course entirely, but several key performance indicators suggest that the general outlook for insurance buyers is far more optimistic as we head into the second half of 2022.
According to multiple industry sources, the D&O market is finally returning to profitability following a sustained period of inflated premium costs that peaked in late 2021. Major legislative reforms to Australia's class action regime, which the Federal Government announced during the pandemic, has also boosted insurer appetite in the marketplace.
These developments, together with a dip in securities litigation frequency, are attracting fresh capacity from new insurers entering the market, driving a more competitive environment and providing some relief on pricing.
For example, a recent report published by Aon showed that the average rate increases experienced by their ASX 200 clients (primary rate per million dollars of capacity/sums insured) had dropped to less than 7% between 2020 and 2021; down from +18% in the previous year. They further reported that average premium increases for private companies had also dropped (in the main) for well-performing risks with no ongoing claims.
“We expect increases for this segment to ease further as the year goes on, particularly for companies whose risk profile is appropriately aligned with an insurers risk selection criteria”, Aon stated.
Increasing competition in the marketplace has also positively impacted self-insured retention levels (deductibles). As a result, insurers are becoming less inclined to impose higher deductibles – a common requirement in recent years – with many insurers generally willing to maintain the existing levels.
However, while the D&O market is showing signs of improvement and pressure on pricing is starting to ease, Aon caution that some insurers profit margins are still limited.
“For the first time in many years, the Combined Operating Ratio (“COR”) fell slightly below 100%”, Aon stated. “As D&O insurers' target for COR is between 80% and 88%, the market still has some way to reach a margin that allows them to deliver an acceptable dividend to shareholders”.
While the market outlook moving forward is generally trending in a more positive direction, securing D&O insurance will continue to be a challenge for some industries and businesses, particularly those impacted by COVID-19 and/or those with historical claims issues.
Many brokers believe that insurers will remain conservative when deploying their capacity and are likely to persist with targeted policy exclusions or limitations that enable them to control their own exposures more efficiently.
Environmental, Social and Governance (“ESG”) risk is an emerging exposure for many companies and one that has become a major area of focus for insurers in the D&O space. Cyber security has also become a key focus, with many insurers placing higher demands on company directors to ensure appropriate reporting and cyber security systems are in place.
An increasing onus on company directors to effectively demonstrate their ability to manage these issues will continue to influence insurers’ appetite and impact the cost and availability of D&O insurance.
Ultimately, D&O insurers continue to impose higher premiums, but the rate of increases are declining. Companies that experienced severe adjustments in recent renewals are generally seeing smaller increases, while 'high-risk' accounts are still experiencing spikes in pricing.
Securing the right cover at a reasonable price will still be challenging for many organisations in what remains a complex D&O market. Organisations with ongoing/open claims, poor corporate governance, or weak balance sheets may struggle to see any benefit from the improving market conditions.
For this reason, your insurance broker's performance is crucial. As your spokesperson and exclusive representative in the marketplace, their ability to successfully sell your risks to insurers is critical to ensure you secure the best deal available in the current climate.
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.
Extreme weather events continue to ravage communities around the world, with devastating bushfires and floods across Australia highlighting the risks in our own back yard, and hurricanes and fires terrorising North America. The rest of the world is not immune, either.
The losses have been enormous. According to Munich Re, climate-related insurance losses have hit more than US$100 billion a year globally, presenting challenges for governments and businesses alike while underlining the need for relevant and affordable insurance to mitigate risk, especially in relation to physical and liability risks.
For business leaders, tackling this insurance issue has become an important part of their due-diligence role.
Stress-test your enterprise
With more catastrophic events appearing to be inevitable, businesses face the prospect of spikes in insurance premiums or, worse still, not being able to get cover at all if they are deemed to be too great a financial risk to insurers.
So, it is crucial for businesses of all sizes to stress-test their exposure to climate risk to ensure their policies are relevant and that they match the latest market offerings. Over time, business conditions change and insurance may need to change with it.
The starting point to protect your business is to conduct a comprehensive review of environmental risks and insurance policies. Do you have cover for major weather events, and is it fit for purpose if an event does actually occur? To spread out their risks, insurance companies typically sell a diverse range of policies that cover a wide variety of scenarios, yet different businesses will always have different needs. This means a one-size-fits-all insurance approach is unlikely to be adequate.
For example, climate change presents particular challenges as many insurance policies are written on a one-year basis, whereas business and property owners need to assess risks that could happen over the lifetime of their operations.
Given such factors and, depending on the scale and complexity of your business, an insurance review can become a messy process for the uninitiated. This is where engaging with a broker or an external insurance specialist makes sense in so much as you can explore the best insurance offerings in domestic and international markets with greater certainty.
The role of advisers
Climate risk insurance covering areas such as property and casualty can help protect businesses from the ravages of extreme weather events. Given that insurance protects people and properties, it is no understatement to suggest that insurers and brokers have a significant responsibility to their clients when it comes to risks faced due to climate change.
Those threats are becoming more pronounced, leading to possible scenarios whereby insurance becomes too expensive for some businesses or making it impractical for insurers to provide coverage. The fallout from recent flood events in cities such as Lismore, NSW, and Gympie, Queensland, are a reminder of this dilemma.
As climate risks become more significant and immediate for businesses, the role of the broker will become more and more crucial as they educate and help their clients consider all forms of risk, climate risk included. Talking to clients about their strategies to mitigate climate risk, and bringing insights and research to the table, is essential.
Although an experienced broker can help you ensure that you maintain an optimal insurance program that factors in issues such as climate risk, the challenge in many cases is to find a broker who truly understands your business’s specific requirements and who can deliver the best possible on-budget insurance policy.
An independent insurance consultancy can help businesses implement and manage a competitive tender process for the provision of insurance broking services. Such a check can reveal any insurance shortfalls and give you confidence that your broker, your policies and premiums are appropriate.
The one apparent certainty in the years ahead is that climate-related risks are going to keep rising for businesses and communities. In combatting that danger, insurance will be an increasingly vital tool – if you make the right policy choices.
Seeking assistance from experts to ensure that you get the most appropriate cover at the right price is simply a smart business move.
For more details on mitigating climate risks and finding the best insurance deal for your business, speak to one of our experienced insurance experts.