Insurance market update Q4 2022


Overall, conditions in the insurance market have generally been trending in a more positive direction thus far in 2022. However, several factors will likely see the prevailing hard market conditions continue over the longer-term.

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.

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