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.

Also read - Climate change – what it means for your insurance premiums.

 

 

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.

Also read Your important complete cyber liability market update.

 

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.

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