Improved insurer profitability and new capacity from international underwriters are leading to better conditions in the Construction insurance market. Generally speaking, conditions in the Construction insurance market improved throughout 2023, with multiple brokers reporting better than expected results for their construction clients.
The good news is that feedback from brokers and insurers is this trend is set to continue for the balance of 2024. New insurers (namely overseas domiciled insurers) are entering the market and looking to grow their construction client base after returning to profitability. The end result is a more competitive environment that will likely put further downward pressure on premium rates in the future.
Construction All Risk
The Construction All Risk (CAR) market is showing increased competition for quality projects; however, insurers remain cautious with clients/projects that are exposed to Natural Catastrophe (Nat Cat) perils. In many cases, insurers are still imposing higher excesses, restricting cover, and requiring higher premiums for Nat Cat exposed accounts.
Insurers also remain heavily focused on water damage claims, identified as one of the top causes of loss on construction projects, in relation to the frequency and value of incidents. Organisations that can demonstrate effective risk mitigation strategies to manage these exposures will be looked upon favourably and will likely receive preferential terms.
Overall, the CAR market's policy terms and conditions have remained relatively static. Several brokers anticipate that conditions will continue to improve, subject to unforeseen events (e.g., Nat Cat losses), in the first half of 2024 and that insurers will offer nominal rate changes of -5% (or more) to +5%.
Third Party Liability
Third Party Liability (TPL) is another area that local insurers are keen to grow, with additional interest from the London market. Premiums had been on the rise due to increasing litigation costs and claim frequency, but there is now a general acceptance in the market that premiums and deductible levels are under control, which includes Worker to Worker / Injury to Contractor claims. More insurers are looking at longer term loss records (which have the most significant impact on renewal rating) and a client's risk management and H&S protocols.
On a positive note, insurers' appetite for excess liability business within the local and overseas markets has improved and several brokers are anticipating relatively flat conditions moving forward. Much like the CAR market, a number of brokers have suggested that any movements in insurers' ratings will be fairly negligible at -5% to +5%.
Design & Construct Professional Indemnity
The Design & Construct Professional Indemnity (D&C PI) market has been one of the most distressed segments of the market in recent years, particularly for larger contractors involved in high-rise residential projects. In late 2019, average pricing increases peaked at a whopping +50% to +100%.
Fortunately, the influx of new insurers and additional capacity in the market, including insurers who previously only offered excess capacity but are now deploying primary capacity, has quickly turned things around. Conditions are expected to be far more favourable going forward, with some brokers suggesting that organisations with effective risk mitigation controls and clean loss records may realise premium discounts at renewal time of 5% - 10%, plus.
The outlook for Construction companies is generally far more optimistic than in previous years. Feedback from brokers is that insurers are adopting more personalised underwriting strategies and evaluating clients individually instead of simply imposing blanket rating increases across their portfolios.
The market is by no means reversing course entirely, but organisations that can demonstrate strong risk mitigation controls and a clear narrative on how they are dealing with the various risks/hazards specific to the construction sector will be looked at more favourably by insurers.
This highlights the importance of your insurance broker's role in the current market. As your spokesperson and exclusive representative in the market, their ability to collaborate with you and execute 'go-to-market' strategies that successfully convey your key messaging to insurers and present you as an attractive, well-managed risk is key to attracting the most competitive capacity from insurers.
Ultimately, insurance buyers need to be proactive and work with their broker to ensure they are positioned to take full advantage of the improving market conditions. However, this is contingent on having the right broker in place – one with the experience, knowledge, and technical proficiency necessary to deliver the best the market has to offer, not only in terms of pricing but coverage.
A carefully construction broker RFP (request for proposal) tender exercise can be an extraordinarily effective and uncomplicated solution to achieve this. It enables you to examine and compare, in detail, the service proposition of a wide selection of specialist brokers in an open and transparent environment so that you can make a fully informed decision on which broker is best suited to represent you in the market.
Hear what they have to say about the adequacy of your current policy coverage, the risk management initiatives they would provide you (and why), their claims management protocols, and the marketing strategies they would adopt for you specifically, among other things.
And it's important to remember that you do not have to change from your incumbent broker to benefit from running an RFP exercise. Contact us to find out about The Lion Partnership's unique RFP tender service and how it can help you.
Two of the world's largest insurance brokers – Marsh and Willis Towers Watson (WTW) – have just released new exclusive placement facilities to enhance their overall service offering to clients.
WTW International CyCore Facility (ICF)
WTW has launched a new cyber and tech Errors & Omissions (E&O) facility, called the International CyCore Facility (ICF), that offers extensive cover for established and emerging cyber threats, including malicious acts, non-malicious acts, and technical failures. It will also cover cyber incident response costs, including legal advice, IT forensics, data and cyber restoration, crisis communication costs and business interruption cover.
Backed by a host of Lloyds Syndicates, the ICF is designed for international clients headquartered outside of Great Britain and the United States with revenues up to US$1 billion. According to WTW, the ICF will:
The launch of the ICF comes at a time when demand for cyber and tech E&O insurance is at an all-time high in the face of escalating cyber and ransomware attacks across the globe.
"Our annual D&O surveys consistently see cyber risk as a significant concern. The increased investment in AI is also causing emerging cyber risks. Hence, it's essential that we develop solutions that can meet clients' needs in different territories," commented Adrian Ruiz, head of Wholesale Cyber, WTW.
"The evolving cyber risk environment creates a need for a clear, flexible, and relevant solution which can be tailored to our client needs. The ICF offers our international clients access to extensive cyber coverage for established and emerging cyber threats," Ruiz said.
Marsh Directors & Officers (D&O) Echo Facility
Marsh has announced that its exclusive D&O Echo facility has been upgraded to provide clients with greater protection and financial stability amid continued volatile market conditions.
Available to Marsh clients globally, the D&O Echo solution has been extended to provide clients with up to $75 million of excess D&O insurance coverage, attaching anywhere above $25 million. In addition, clients can pre-purchase a reinstatement of the limit or lock in a price to purchase a reinstatement later, which can be accessed if cover is eroded by claims.
One major benefit of the new upgrade is that clients can now access significant amounts of insurer capacity through a single solution. Ordinarily, clients would need to purchase separate layers of additional capacity with multiple insurers to reach the same level of cover.
Marsh points out that reducing the number of insurers involved in the placement makes for a smoother, more efficient renewal process and streamlines the claims process, as fewer insurers would need to be consulted in the event of a claim.
Stephanie Manson, UK management liability leader, Marsh Specialty, said: "Clients have welcomed rate reductions over the last 12-18 months, (but) they remain concerned that another correction in underwriting sentiment could result in reduced capacity, substantial increases, and claims complications.
"D&O Echo provides clients globally with substantial capacity without being over-exposed to a single insurer, which helps limit the risks of market volatility and provides enhanced excess cover beyond what is available in the standard open market.”
Exclusive facilities like these are not uncommon. Multiple brokers have established specialist facilities across various specialisms that, if used correctly, can provide clients with a host of benefits, including market-leading cover and reduced pricing. The trick is knowing what if any, such facilities your broker has access to and ensuring they are effectively utilising them to your advantage.
We have spent the past decade running carefully constructed RFP projects that ensure our clients enjoy a strong, successful working relationship with a broker that has the experience, knowledge, and technical proficiency necessary to deliver the best the market has to offer. Find how we can help your business.
Aon has published the ninth edition of its Global Risk Management Survey, revealing the most pressing challenges according to business leaders worldwide. Now in its 17th year, the biennial survey polled more than 2,800 key decision makers (e.g. risk managers, finance, C-suite and HR leaders) across 61 countries to identify the top-ten risks facing organisations in the current climate.
After placing second in the 2021 survey, ‘cyber-attack or data breach’ jumped into first place as the top business risk both globally and in the Asia Pacific (APAC) region, with almost one-fifth of survey participants having suffered a loss due to a cyber-attack. Aon’s survey highlighted a growing awareness of cyber threats and the sharp uptick in ransomware attacks as key drivers behind respondents' concern around cyber-related risks, with impacts ranging from reputational and financial damage to critical operations being compromised.
According to Aon, ransomware attacks jumped 176 per cent in the first half of 2023. This is supported by a recent study published by blockchain analysis firm Chainalysis Inc., which indicated that ransomware gangs stole over $1 billion in 2023, the largest amount ever recorded.
The report said that in 2023, hackers nearly doubled the funds stolen in 2022 and exceeded previous records set during a ransomware boom during the pandemic. “Big game hunting” strategies are also becoming more prevalent, with hackers concentrating on scams that generate bigger payments within a single attack instead of the more high-volume, low-reward strategies.
In one extreme example, ransomware gang Cl0p racked up over $100 million in ransom payments by targeting the popular file transfer application MOVEIt, used by over thousands of organisations globally, including major corporations like Shell, British Airways, and federal government agencies in the United States.
Rounding out the top three risks are ‘business interruption’ and ‘economic slowdown or slow recovery’, which ranked as the second and third top risks for the second straight time. According to the survey, almost one-third of respondents experienced a business interruption loss during the last year, while fifty-five per cent had suffered a loss because of an economic slowdown or slow recovery.
One of the most notable findings was that human capital issues have become a key risk concern for businesses, driven by rising healthcare costs, competition for talent, and workforce shortages. In this year’s survey, ‘attracting and retaining top talent’ jumped five places on the APAC top-ten list, from number nine in 2021 to number four in 2023.
“In an uncertain business environment, with new skills gaps emerging and employee preferences shifting, companies are under pressure to reimagine total rewards well beyond salary”, the report stated. “Recruiting individuals with specific skills to accelerate companies’ transition plans can be challenging because many businesses are vying for a small talent pool”.
‘Rapidly changing market trends’ featured in the top ten for the first time at number five, with shifting geopolitical risk factors and fluctuating market risks (including a slowdown in raising capital, lower M&A activity, and organisations’ direct accountability for ESG DEI considerations) putting pressure on companies to keep pace.
Two surprising omissions from the top ten were ‘climate risks’ and ‘artificial intelligence’ despite these topics dominating recent headlines. Aon said in a news release that the results suggest a lack of awareness about the potential impact of these issues on the corporate risk profile, particularly concerning climate risks, which – according to Aon – caused $313 billion in global economic losses in 2022.
“What is more confounding are the risks that are noticeably unaccounted for in leaders’ assessments of the challenges they must address, notably climate risk,” said Andy Marcell, CEO of Risk Capital and CEO of Reinsurance Solutions at Aon. “Climate is not an emerging risk, but an urgent one, with increasingly monumental implications for businesses of all sizes. Leaders need insights from advanced analytics and modelling alongside innovative parametric solutions that will help them make better decisions today and protect them in the future.”
However, while climate change does not feature in the top ten, it does impact four of the top ten risks: business interruption (#2), changing market trends (#5), supply chain or distribution failure (#6) and regulatory or legislative changes (#7). For instance, the growing frequency and intensity of extreme weather events considerably increase the risk of business interruption and supply chain/distribution failure. At the same time, the rapidly evolving net zero transformation has countless implications for market trends and mandatory climate disclosure requirements for businesses.
The top 10 risks in the APAC region according to Aon’s 2023 Global Risk Management Survey are:
Interestingly, only two of the top five current risks identified by business leaders in the APAC region are insurable – Cyber Attack and Business Interruption – and half of the overall top 10 are presently uninsurable.
Get the full results of Aon’s Global Risk Management Survey in the Pacific Region here.
The cost of climate related disasters highlights the critical need for businesses to enhance their resilience against climate risks.
The insurance industry has been heavily impacted by several recent extreme weather events fuelled by climate change. Natural disasters like floods, hurricanes, wildfires and droughts have led to a surge in insurance payouts, averaging USD$110 billion annually since 2017, more than double the average of USD$52 billion over the preceding five-year period.
Extreme weather events are also worsening across Australia and New Zealand. Since the Black Summer bushfires in Australia that burnt an estimated 24.3 million hectares and destroyed over 3,000 buildings in the summer of 2019-20, there have been 11 declared insurance catastrophes resulting in more than $13 billion in claims.
New Zealand has also recently endured more than its fair share of natural disasters. According to the Insurance Council of New Zealand (ICNZ), there have been more than 40 natural disaster events in NZ since 2019, headlined by Cyclone Gabrielle and the Auckland Anniversary floods in early 2023.
A recent report by the NZIER (New Zealand Institute of Economic Research) revealed that the insured damages from climate related disasters in 2023 alone reached an estimated $3.5 billion, with close to 120,000 claims. The same report stated that a further $2.3 billion in losses went uninsured.
A survey completed by PwC (in collaboration with the Centre for the Study of Financial Innovation) in late 2023 also identified climate change as the most significant risk facing reinsurers as they continue to bear the brunt of catastrophe claim costs.
The alarming frequency and severity of climate-related disasters highlight the critical need for businesses to enhance their resilience against the physical and operational risks resulting from climate risks. However, effective preparation is contingent on having access to the right information. Without this, the effectiveness of any risk resilience initiative can be called into question.
This underlines the important role that your insurance broker can play in cushioning the consequences of natural disasters. Several leading brokers in the market have developed, or have access to, a range of scientific tools and resources that can help organisations explore, quantity, and manage their climate related exposures. Examples include natural catastrophe modelling and loss scenario testing, physical risk engineering assessments, assistance with regulatory reporting, and developing climate change risk frameworks.
These services not only help organisations make more informed decisions around climate risk, but they also put organisations in a better position to manage the adverse effects of climate change on the insurance market.
With climate change driving new extreme weather records, it is becoming increasingly difficult for insurers to measure, predict and apportion risks effectively. Insurers have historically used models to hedge risks that were not designed to predict uncertain events, such as natural disasters that may be exacerbated by climate change.
Anil Vasagiri, head of property solutions at Swiss Re Reinsurance Solutions, said: “Natural catastrophe risk assessment that is traditionally rooted in the past will be highly inadequate to measure or quantify the likely impact of climate change”.
This leaves insurers overexposed to climate risk and needing to adopt corrective measures to manage their portfolios better. Many industry experts are concerned that insurers will continue to scale down cover or withdraw their support altogether for businesses in disaster-prone areas.
For example, Vero recently publicised their intentions to impose further changes under their property policies for New Zealand businesses in high-risk zones, including higher excesses for flood claims, limits or exclusions on flood cover, and higher premiums.
The pressure on companies to act on climate change continues to increase, with disclosure regulations encouraging companies to address climate-related risks proactively. Partnering with an insurance broker with the expertise and resources necessary to help manage such risks is an important consideration that all businesses should investigate.
As one of Australasia’s leading insurance consultancy groups, we have helped more than 200 organisations test the insurance broker market to ensure they are partnered with the most fitting broker – one that has the experience, knowledge, market relationships and technical proficiency to deliver the best solutions. Contact us to find out more.
Appointing an insurance broker is a big deal and should be treated as such. Their role in helping guarantee your organisation's security should not be taken for granted. As your spokesperson and exclusive representative in the marketplace, the interconnection between your brokers performance and the quality of your insurance program is irrefutable. The cover you maintain, the premiums you pay, the claims service you receive, and the overall strength of your insurance strategies are directly linked to their performance.
In reality, brokers can bring tremendous value to businesses in various ways beyond simply arranging insurance; however, the importance lies in finding the right broker for you and your organisation. All brokers are different, and no one broker has exclusivity on good ideas. And while most brokers are confident in their ability to work with just about anyone, like all other service providers, some are far better and more experienced in specific areas than others.
There are several important factors that businesses need to carefully consider when selecting which broker to work with. For example, some 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.
Some brokers have created their own exclusive insurance products that are often developed to address the unique needs of organisations from a specific industry, while others rely on standard, “off-the-shelf” insurer products that require a series of endorsements to meet their clients needs. Different brokers have invested heavily in the digital and technology space. They can provide clients access to secure online applications that offer many benefits while others continue using more traditional forms of client engagement and communication.
Another area to consider is what, if any, ‘hidden’ or undisclosed fees a broker may be earning. Brokers will often collect additional commission/brokerage when placing a client's business or have incentive-based remuneration models in place with insurers (e.g. profit shares, contingent commissions, volume bonuses, etc.). Others have developed and utilise mandatory quoting platforms that generate extra income for their business, which can discourage them from seeking quotes from outside insurers who do not subscribe to such platforms.
Many brokers also like to brag about the endless array of services they offer, but the question is: how will these resources be deployed, and at what cost? A broker’s performance is only as good as the individuals overseeing your account. And while a broker’s credentials, experience, industry knowledge, depth of resources and market relationships are all important, they add little to no value if they are not utilised correctly.
Finding and working with the right broker can deliver significant benefits; however, partnering with the wrong broker can have dire consequences. Poor broker performance can derail the stability of any business in the unfortunate event of a large loss that is not adequately insured. Significant financial loss, legal liabilities, loss of assets, reputational damage, loss of customers – these are just some of the many consequences that can result from having inadequate insurance cover, not to mention the premium capital that has already been wasted.
Overall, the insurance you purchase (a significant expense for many businesses) is there to protect you, and your broker is there to make your life easier and ensure your insurance is cost-effective and provides you with the necessary protection you need. For this reason, it is important for any business to test the insurance broker market regularly, and there is no better way to test the market and compare the intricate offerings of a group of brokers than a well-run Request for Proposal (RFP) process.
A well-constructed RFP process can deliver multiple benefits. It can be an excellent corporate governance exercise that allows you to test multiple vendors all at once in a fair, open, and transparent environment. You drive and control the process, and (if structured correctly) it can be a highly effective way of determining the strengths and weaknesses of your existing insurance strategies.
The primary goal of any RFP is to find the best partner to work with – someone who demonstrates a deep understanding of your industry and needs. However, many RFPs fall over or fail to deliver the results that the company sets out to achieve, not through a lack of effort, but more often than not, because of a flawed process that was destined to fail from the outset. Working with an experienced, independent tender consultant is a highly effective way to overcome this. Their experience and knowledge can be invaluable and ensure you achieve the best outcomes when running an RFP exercise.
Ultimately, the value in finding and working with the right insurance broker can be immeasurable, so companies should take the time to make sure they are not wasting valuable time and money on an unreliable or under performing broker.
We have spent the past decade running carefully constructed RFP projects that ensure our clients enjoy a strong, successful working relationship with a broker that has the experience, knowledge, and technical proficiency necessary to deliver the best the market has to offer. Find how we can help your business.
That’s according to new figures released by global insurance broker Marsh, which showed that insurance pricing in the Pacific region (which is dominated by Australia and New Zealand) increased by 2% in Q2, compared to 7% in the prior quarter.
The most positive results came out of the financial and professional lines market, with increased competition leading to a softer, more competitive environment.
FINANCIAL LINES MARKET
Conditions in the Directors & Officers (D&O) Liability space were especially promising, driven in large by new market entrants – particularly in the UK – creating competitive tension against existing providers. According to Marsh, D&O pricing generally decreased by 10% or more for quality risks.
However, while conditions are improving and cover is becoming more affordable, several new, emerging exposures for company directors and officers will be a crucial focus for insurers going forward. ESG (Environmental, Social, and Governance) policies, cash flow management, cyber risk management, and inflation and recessionary pressures are just some of the issues that insurers continue to monitor closely.
The Cyber Liability market continues to show signs of improvement after a turbulent 24 months involving a series of large ransomware and cyber extortion attacks that caused havoc to all industries across all jurisdictions. Marsh reported that the average pricing for Cyber insurance in the Pacific region dropped from 25% in Q1 of 2023 to just 8% in Q2. Results were far more favourable globally, with the average premium increase reducing to just 1% from 11% in Q2.
Much like the D&O market, insurers continue to adopt strict underwriting protocols when evaluating Cyber risks. Robust cyber security measures are now a non-negotiable for many insurers, with multi-factor authentication, business-grade firewalls, and anti-virus software a must.
PROPERTY & CASUALTY MARKET
Competition among insurers remained strong in the Property market for quality risks with positive loss records. Conversely, organisations with sizeable geographical (NATCAT) exposures, unfavourable claims records, or those operating in high hazard risk sectors experienced a more challenging environment, particularly for those with U.S. or New Zealand locations.
Several brokers have reported average pricing increases for their Australian clients of 0% - 5% for clean risk accounts with minimal NATCAT exposures, while other, less attractive accounts (i.e. those with high-risk exposures or substantial losses) experienced increases starting at 10%.
Insurers also continued to impose restrictive policy conditions across several key areas, particularly for NATCAT perils and contingent business interruption coverages.
In New Zealand, insurers continued to deal with the fallout of the Auckland Anniversary Weekend flooding and Cyclone Gabrielle. These two events, which hit within three weeks of each other between the end of January and mid-February, resulted in significant commercial, rural, infrastructure and domestic losses and set new annual loss records for extreme weather events across the country.
Latest figures released by the ICNZ (Insurance Council of New Zealand) estimate that the final cost of insured losses emanating from these two events alone will reach a staggering $3.5bn.
These tragic events made what was already a challenging environment even worse. One major insurer announced in mid-March 2023 that April renewals onwards and immediately for new business they would require a 20% increase in overall premiums, to be made up from a mixture of rate, sum insured increase or excess variations.
Insurers also continue to scrutinise the adequacy of their client's declared property and business interruption values. They often require up-to-date valuations to ensure the disclosed figures are accurate and consider ongoing inflationary pressures and rising construction costs. Without these, many organisations are being pressed to accept unfavourable co-insurance/average provisions that can be extremely detrimental in the event of a loss causing major property damage.
Generally speaking, conditions across the Casualty/Liability market remained relatively stable for most businesses/industry sectors. According to several brokers, insurers are generally handing down nominal inflationary increases in premiums of approximately 5% - 10% for low risk / non-loss affected accounts.
For particularly challenging industries (e.g. Rail, Power & Utilities, Sporting Associations) and other high-risk classifications, such as organisations with US exposures or ecclesiastical/faith-based institutions, conditions were far less favourable. In these cases, availability of capacity remained challenged.
Overall, the first half of 2023 saw a continuation of the positive results that begun in 2022. Improved insurer results and a generally healthier market produced a more competitive environment across most classes of business; however, certain pockets of the market remained particularly challenging.
Many experts predict a two-tiered market will likely unfold throughout the remainder of 2023, barring any unforeseen major events. Insurers will continue to target attractive, in-appetite risks, whilst the more challenging, less appealing risks (including organisations with severe loss records), will continue to be heavily scrutinised by insurers and will likely experience higher rate increases and capacity issues.
Outside of an organisations individual circumstances, other factors such as global economic volatility, ongoing geopolitical instability, supply chain challenges, and inflationary pressures are just some of the key issues that will likely influence insurers’ behaviour moving forward.
Climate change also continues to impact the frequency and severity of costly weather events. Increased bushfire risk remains a concern for the year ahead in Australia, with the Bureau of Meteorology (BOM) stating that the El Nino climate driver has come into effect amid soaring temperatures and extreme fire danger across parts of south-east Australia.
Insurance buyers need to be proactive to ensure they are best positioned to achieve the most favourable results in the current climate. Only the most appealing, well-managed risks will be able to take advantage of the positive developments in the market and attract the most competitive capacity from insurers, who are increasingly selective regarding which risks they want or are willing to insure.
For this reason, the performance of your insurance broker is crucial. As your spokesperson and exclusive representative in the market, their ability to work with you in effectively selling your risk to the market is vital to ensure you enjoy the best the market has to offer in terms of cover and pricing.
As Australia’s leading specialist consultancy group,we have more than 200 organisations test the insurance broker market to ensure they are partnered with the most fitting broker – one that has the experience, knowledge, market relationships and technical proficiency to deliver the best solutions. Contact us to find out more.
The insurer said at the time that "despite every effort", it was unable to secure the necessary capital contributions from shareholders, who pumped $170m into CCI just 18 months earlier to help cover sex abuse claims amid significant losses.
The requirement for a further capital injection arose from a continuous surge in the number of new claims arising from historic abuse matters as well as the liability impacts of factors such as Australia's erratic weather.
CCI remains solvent and is managing claims for existing policyholders – including for abuse-related matters – using its capital reserves. However, it was announced earlier this month that the insurer was planning to enter a scheme of arrangement amid uncertainty over the quantum of long-term sex abuse and other claims and to avoid formal insolvency.
CCI chairman Joan Fitzpatrick said that further claims could possibly emerge that could threaten CCI's solvency, resulting in significant impacts on policy holders. A scheme of arrangement, she said, would seek to ensure that a formal insolvency process was avoided.
"Based on estimates of claims as at end of May 2023, CCI currently has sufficient assets to meet its liabilities as they fall due," Ms Fitzpatrick writes.
"However, the claims situation is uncertain both in respect of Professional Standards (abuse claims) and other lines of business underwritten by CCI and is subject to significant complexity".
Many industry insiders believe that CCI's decision to enter into run-off will considerably impact the market. Though CCI typically focused on specific business sectors, namely aged care, education and religious organisations, their departure leaves a void likely to result in major capacity constraints across the entire market.
For many organisations, CCI was one of the few insurers (both locally and abroad) willing to provide sexual abuse and molestation cover – a significant risk that many service providers require insurance for – after the royal commission into child sexual abuse triggered an insurance market collapse. Insurers began pulling out of the market due to a high frequency of claims and associated financial losses, causing significant capacity and pricing pressure in the market.
Certain organisations were forced to accept limited coverage comprising targeted exclusions at very expensive rates, while others could not maintain cover given the significant costs involved. This led to various groups, including disability support workers and other care providers, to terminate certain essential services which they could no longer afford to offer, given the high risks associated with such activities.
Sexual molestation cover is still available; however, markets are limited, coverage is expensive and contingent on an organisation's loss history, its exposure to these risks, and what risk management is in place to prevent sexual abuse from taking place.
For this reason, many organisations that previously utilised CCI will be heavily reliant on the performance of their insurance broker to find the most appropriate solution. Their ability to effectively canvass the market and execute the most effectual insurer engagement strategies will be critical to obtain the most competitive, viable long term solutions in the commercial insurance market due to CCI's exit.
After several years of premium increases, restrictive policy conditions and limited capacity, conditions in the Directors & Officers (D&O) market are stabilising, with cover becoming more available and affordable. An influx of new insurers (particularly from London markets) and generally broader market appetite has created healthy competition in the marketplace, especially for private companies, smaller listed companies, and excess layer policies.
According to a recent report published by global broker Marsh, D&O pricing in the Pacific region – where Australia is the largest market – reduced on average by 10% in the second quarter of 2023, and in some cases more. However, while conditions are steadily improving as competition grows, new, emerging exposures for company directors and officers will be a crucial focus for insurers going forward.
Environmental, Social and Governance (“ESG”) is high on the agenda with regulators and shareholders and has become a significant area of focus for insurers. In Australia, ASIC has issued greenwashing infringement notices (where a company makes false or misleading statements about the positive impacts their product or service has on the environment) to several major corporations and has commenced civil penalty proceedings in the Federal Court against both Mercer Superannuation (Australia) Limited and Vanguard Investments Australia for allegedly making misleading statements about the sustainable nature and characteristics of some of their investment options.
The regulator also recently published a media release highlighting six key areas that company boards and their advisors need to pay attention to for reporting purposes, all of which pertain to financial performance and clear disclosure. It is expected that Insurers will seek out underwriting information from both new and prospective clients regarding compliance with these concerns as part of the renewal process. A copy of ASIC’s media release can be found here.
Many industry insiders expect the improving market conditions to continue; however, ongoing economic and claims volatility will continue to be in focus for insurers as they reassess their budget projections and future appetite. Insurers will continue to favour certain risk types, 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.
These alternative options allow businesses to better manage their financial exposure, enhance their ability to recover from climate related events and promote long term sustainability in the face of evolving environmental challenges.
Understanding parametric insurance:
Parametric insurance sets itself apart from traditional insurance models by focusing on the probability of a predefined event occurring, such as an earthquake or a major cyclone, rather than indemnifying actual losses incurred. What makes it unique is that policyholders do not have to experience physical damage to receive a claim payout. The coverage is automatically triggered once the predefined event occurs, ensuring a prompt response. Parametric insurance policies are relatively new to the Australian and New Zealand markets, and their popularity is starting to rise for larger organisations with sizeable exposures to climate related risks and adverse weather patterns.
A real world example
Imagine a company with substantial property or assets located in a cyclone prone region. By opting for parametric insurance, they can establish a triggering event based on cyclone category size within a defined radius. The policy coverage is activated if a cyclone hits within the predetermined area. As the cyclone's wind speed intensifies, the amount eligible for a claim also increases. In other words, the more significant the event or category size, the larger the claim payout.
Flexibility and usage of claim proceeds
Parametric insurance empowers organisations to allocate claim proceeds according to their specific needs. Whether it's repairing damaged assets, offsetting revenue loss resulting from a cyclone, or covering additional expenditures, the flexibility of utilising claim funds ensures effective resource allocation in the aftermath of a disaster.
A streamlined claim settlement process
One of the significant advantages of parametric insurance lies in its efficient claim settlement process. Unlike traditional policies that often involve lengthy quantification and assessment procedures, parametric insurance payouts do not require such exhaustive evaluations. As long as the predefined event has been independently verified, the insured sum is automatically paid out, minimising funding delays. This streamlined approach enables organisations to access necessary funds swiftly, expediting their recovery efforts.
While parametric insurance presents an innovative solution, it requires careful analysis and accurate structuring to ensure effectiveness. The policy will only respond and pay out for loss events explicitly defined in the policy, necessitating precise structuring to avoid scenarios where the predefined event occurs, but the cover is not triggered. Companies should consult experts to tailor parametric insurance policies to their specific risk exposure, mitigating potential drawbacks.
Parametric insurance for vulnerable industries
Parametric insurance is increasingly gaining traction among large organisations vulnerable to weather related events, supply chain disruptions and commodity price fluctuations. Industries such as construction, mining, renewables, energy, oil and gas, and agriculture recognise the value of parametric insurance as a strategic risk management tool. Embracing this innovative approach enables companies to protect their assets and enhance resilience in the face of climate related risks.
As climate change amplifies the frequency and severity of natural disasters, traditional insurance policies may no longer suffice. Parametric insurance emerges as a game-changer, offering proactive protection against climate-related risks. By leveraging predefined triggers, expedited claim settlements and tailored policy structures, companies can bolster their organisations' financial stability, mitigate losses and ensure swift recovery. Embrace the future of risk management with parametric insurance and fortify your company's resilience.
Determining the most appropriate form of parametric insurance can be difficult. Speak to one of our experienced insurance experts to discuss the complex exercise of getting the right cover.
The 7% increase has ended a run of eight straight consecutive quarters of pricing reductions. After peaking at a whopping 35% in Q4 of 2020, average premium increases in the market have steadily declined over the past 24 months until now.
Several global reinsurance brokers have also reported that a combination of high inflation, interest rate hikes, fractured energy markets, the Ukraine war, and losses emanating from Hurricane Ian has caused “significant volatility” in the reinsurance market, resulting in “one of the hardest reinsurance markets in living memory”.
Property & Casualty
Current conditions in relation to Property and Business Interruption insurance remain challenging for most, but not all, buyers. Organisations with limited natural catastrophe (NATCAT) exposures and/or low hazard occupancies are seeing more favourable results. In contrast, organisations with sizeable geographical (NATCAT) exposures, significant loss records, or those operating in high hazard risk sectors continue to face capacity issues and experience more challenging conditions.
Marsh’s Quarterly Market Index Report (QMIR) revealed that Property insurance pricing increased 8% in the first quarter of 2023, up from 4% in the previous quarter.
Marsh Head of Global Placement, Asia Pacific, John Donnelly, highlighted ongoing inflationary pressures, rising reinsurance costs, and catastrophe risk as the key drivers of the first quarter property increase.
Looking ahead, insurers are expected to continue to impose modest rate increases and will likely remain overly selective when deploying their capacity, particularly with respect to NATCAT perils.
Inflationary pressures and rising construction costs are also causing Insurers to become increasingly focused on obtaining property valuations to ensure their clients declared values are accurate. Without these, insurers are pushing to include unfavourable co-insurance/average provisions, which make clients liable for a percentage of any claim costs where the declared values are less than the true replacement value.
With increased frequency and severity of water damage losses occurring across Australia and New Zealand, insurers are also now redefining the definition of Flood within their wordings, utilising more restrictive language that limits the breadth of cover afforded to policy holders.
Conditions also remain challenging in the Casualty/Liability segment. Social inflation issues are having a material impact on claims costs and causing difficulties for insurers when setting loss reserves. Consequently, insurers are responding through a combination of higher claim reserves, premiums, and increased deductibles, particularly for work injury losses.
While capacity generally remained sufficient for most buyers, premiums continued to rise. Several brokers have reported average pricing increases of up to 10% for low risk / non-loss affected accounts, increasing to as much as 25% for claims affected or high-risk accounts. The worst affected are those organisations that are exposed to/or contain bushfire exposure, sexual abuse/misconduct risks, large worker to worker risks, and organisations with USA exposures.
Financial & Professional Lines
Conditions in the financial lines market vary depending on the specific policy type. The favourable Directors and Officers (D&O) market conditions that began in 2022 have continued thus far in 2023.
New insurers continue to (re)enter the market (particularly London insurers), driving a more competitive environment, particularly for private companies, smaller listed companies and excess layer policies. Marsh’s QMIR showed average premium reductions from -5% to -10% in the D&O space for Q1 of 2023 – the third straight quarter of declining pricing.
However, while conditions are steadily improving as competition grows, there are new, emerging exposures for company directors and officers that will be a key focus for insurers going forward.
Environmental, Social and Governance (“ESG”) is high on the agenda with regulators and shareholders and has become a significant area of focus for insurers. In Australia, ASIC has issued greenwashing infringement notices (where a company makes false or misleading statements about the positive impacts their product or service has on the environment) to several major corporations and, in late February, commenced civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited for allegedly making misleading statements about the sustainable nature and characteristics of some of its super investment options.
The Professional Indemnity (PI) market continues to perform at varying rates, depending on occupation and industry type. Competition remains healthy for more minor miscellaneous risks that are generally profitable for insurers; however, specific high-risk industries (e.g. architects, engineers, accountants etc.) continue to face various challenges and capacity issues, with only a handful of insurers willing to underwrite their business.
Conditions in the Cyber Liability market are also stabilising after a turbulent 24 months, primarily driven by a high volume of ransomware and cyber extortion attacks that caused havoc to all industries across all jurisdictions. The market is by no means reversing course entirely; however, pricing increases have moderated and are beginning to trend downward.
According to Marsh’s QMIR, the average pricing for Cyber insurance in the Pacific region dropped from 28% in Q4 of 2022 to 25% in Q1 of 2023. Results were far more favourable globally, with the average premium increase reducing to 11% in Q1.
However, while the Cyber Liability market is showing signs of improvement, and pricing pressure is starting to ease, the risks posed by cybercriminals are still enormous and securing appropriate cover will continue to be a challenge for many businesses, particularly those with limited or weak cyber-security systems. Robust cyber security measures are now a non-negotiable for many insurers, with multi-factor authentication, business-grade firewalls, and anti-virus software a must.
Current market conditions are expected to continue across most major business classes. However, while conditions have generally been trending in a more positive direction over the past 12 months, many insurance buyers will continue to face various challenges that could impede their ability to secure their desired levels of insurance protection.
Insurers will likely need to be more cautious when deploying their capacity. Only the most appealing, well-managed risks will be able to take advantage of the positive developments in the market and attract the most competitive capacity from insurers, who are increasingly selective regarding which risks they want or are willing to insure.
For this reason, the performance of your insurance broker is crucial. As your exclusive representative in the market, it’s imperative that your broker understands your organisation and adopts all the right tactics to extract the best results from the market.
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The first tragedy to unfold – major floods that hit the North Island from 27th January to 2nd February – is expected to cost the insurance industry over $1 billion, with $111m in insured losses already being paid. So far, about 47,300 claims have been lodged in relation to the floods, the majority of which cover house and contents claims valued at around $565 million, with a further $320 million in estimated losses for commercial claims.
At the same time, around 30,000 claims have been lodged due to Cyclone Gabrielle – the deadliest system to hit NZ since Cyclone Giselle in 1968 – which hit NZ less than two weeks after the floods, from February 12th – 16th.
“What we're talking about is these two events exceeding the record year for insured losses for extreme weather events and we've got ten months of the year to go. It is huge,” ICNZ CEO, Tim Grafton, said.
ICNZ’s Consumer Affairs Manager Sarah Knox was also quoted as saying that it would be years before all of the flood damage claims were settled, given the unprecedented scale of the floods.
These events are expected to create further challenges in an already distressed Property insurance market. Insurers have been imposing premium rate increases across their portfolios over the past several years following several catastrophic weather events worldwide, causing billions of dollars in insurance losses. And while some positive signs came out of the market that conditions had started to stabilise towards the back end of 2022, these latest tragedies will undoubtedly be another major setback for insurance buyers going forward.
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Some encouraging signs
The volatile conditions that have disrupted the Cyber market in recent years are stabilising. Of course, 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 moving forward. Preliminary data released by Marsh shows that cyber-insurance pricing increased by 10% from a year earlier in January, a fraction of the 110% annual increase reported in the first quarter of 2022. Marsh further noted that claim frequency declined in the fourth quarter of 2022, even as severity remained elevated.
According to several major brokers, the improving conditions can be attributed to a change in insurers’ underwriting philosophies (i.e., how they write policies and their risk appetites) and more robust cybersecurity measures being adopted by businesses.
“What we’re left with is a very, very, very different market than what we went into two or three years ago,” said Paul Bantick, the global head of cyber risks at London-based insurer Beazley Plc. “We have a mature market that has stood up against a huge test.”
Signs of improvement
These developments attract fresh capacity from new (international) insurers entering the market, driving a more competitive environment and providing some relief on pricing. However, while the Cyber Liability market is showing signs of improvement, and pricing pressure is starting to ease, the risks posed by cyber criminals are still enormous and securing appropriate cover will continue to be a challenge for many businesses, particularly those with limited or weak cyber-security systems.
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.
In such an environment, the performance of your insurance broker is critical. Their capabilities and expertise in cyber security could be the difference between having the right cover at the right price or having insufficient and overpriced cover.
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.
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