Insurance market update: Q1 – 2023

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.

Looking Forward

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.

Venturing into the realm of business insurance can be a daunting task. As Australia’s leading specialist consultancy group, we support businesses through the complex exercise of implementing efficient insurance programs. Contact us to find out more.