Insurance Market Update

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The insurance market is showing signs of improvement, with declining premiums and increased competition from new insurers. Notably, Directors & Officers (D&O) liability and Cyber insurance rates have dropped. Effective risk management and the right insurance broker are crucial for securing the best terms and pricing.

After several difficult years of rising premium costs and unfavourable policy conditions, the insurance market continues to show signs of improvement.

New insurers continue to enter the market and aggressively grow their presence, opening up fresh capacity for insurance buyers. London, Singapore, and other international domiciled insurers are becoming more active in the Pacific region, driving greater competition in the market. This is positively affecting premium rates, which continue to decline for most classes of insurance.

According to new figures released by global insurance broker Marsh, insurance pricing in the Pacific region (which is dominated by Australia and New Zealand) dropped by 2% in the first quarter of 2024.

The most positive results came from the financial and professional lines market, with Directors & Officers (D&O) liability seeing the largest reductions in pricing.

PROPERTY

The Property insurance segment is in the midst of a “two-paced” market cycle. Competition is strong among insurers for quality risks with favourable loss records, whilst the more challenging, less appealing risks (including organisations with severe loss records) continue to be heavily scrutinised by insurers.

Several brokers have reported pricing fluctuations of 0% - 5% for clean risk accounts with minimal natural catastrophe (NATCAT) exposures, while other, less attractive accounts (e.g. those with high-risk exposures or substantial losses) are experiencing increases ranging from 10% - 25%.

Insurers continue to impose NATCAT sub-limits (flood, cyclone, bushfire and hail) or, in some extreme cases, are withdrawing their support altogether for organisations with properties/assets in disaster-prone areas.

Insurers also continue to scrutinise the adequacy of their clients' declared property and business interruption values and 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.

Several brokers have also reported that insurers are again offering long term agreements (LTAs) to some organisations that incorporate attractive pricing models that generally offer declining premium rates over time.

CASUALTY (LIABILITY)

Conditions across the Casualty/Liability market remained relatively stable for most businesses and industry sectors in the first quarter of 2024. According to several major brokers, insurers are generally handing down nominal inflationary increases in premiums of approximately 5% - 10% for low risk or non-loss affected accounts.

Conditions were far less favourable for particularly challenging industries (e.g., Rail, Power and Utilities, Sporting Associations) and other high-risk classifications, such as organisations with major US exposures or ecclesiastical/faith-based institutions. In these cases, insurer capacity  was lacking and pricing increases were far higher, on average, at 10% to 25%.

Bushfire exposures remain a particular concern for insurers, while social inflation continues to be an evolving threat. Legislative changes and litigation funding are also weighing on insurers’ minds.

DIRECTORS & OFFICERS

Conditions in the Directors & Officers (D&O) market are particularly promising following a prolonged period of premium increases and restrictive underwriting. Premium rates have stabilised and, in many cases, reduced, although not to the lower levels seen five to six years ago.

Global insurance broker Aon released a report in mid-2023 noting that several insurers were releasing (or had already released) new or refreshed policy wordings in an attempt to retain their clients and attract new business. Additionally, brokers have highlighted reduced M&A activity, both locally and abroad, as a further reason behind the softening market.

However, while conditions are improving and cover is becoming more affordable, several new and evolving exposures present various challenges for companies purchasing D&O insurance. Insurers continue to closely monitor ESG (Environmental, Social, and Governance) policies, cash flow management, anti-money-laundering compliance, cyber risk management, and inflation and recessionary pressures.

An increasing onus on company directors to effectively demonstrate their ability to manage such issues will continue to influence insurers’ appetite and impact the cost and availability of D&O insurance going forward.

The Cyber Liability market is also steadily improving, with fresh capacity from overseas markets leading to a more competitive environment. According to Marsh, Cyber insurance rates in the Pacific region dropped on average by 2% in the first quarter of 2024.

LOOKING FORWARD

Many experts predict conditions will continue to improve throughout 2024, barring any unforeseen major events. However, whilst there are strong signs of stability, a certain level of uncertainty persists. Factors such as global economic volatility, ongoing geopolitical instability, supply chain challenges, inflationary pressures, and continuing labour shortages are some key issues that will likely influence insurers’ behaviour moving forward.

Organisations that can demonstrate strong risk management processes to insurers increase their chances of receiving better terms and pricing. However, some hard to place risks will still face certain difficulties.

This underlines the important role that your insurance broker plays in managing your organisation's insurable risks. As your spokesperson and exclusive representative in the marketplace, the interconnection between your brokers performance and the terms you receive from insurers are irrefutable. The cover you maintain, the premiums you pay, and the overall strength of your insurance strategies are directly linked to their ability to effectively ‘sell’ you to insurers.

Ultimately, the value in finding and working with the right insurance broker can be immeasurable.

As Australia’s leading insurance broker tender consultant, The Lion Partnership has developed a comprehensive tender management service that has proven to be a highly effective and uncomplicated solution for any organisation that is looking to test, challenge, benchmark and/or critically analyse their insurance programs. Find out how we can help your business.

Also read : Cyber attacks emerge as a key risk concern for Asia Pacific business leaders

 

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