Insurance Market Conditions Report: Navigating the Hard Market: Q4, 2020

Like many, the insurance industry is facing hard market conditions, which follow tightening over a number of years, with significant constraint in insurer capacity and increases in premium pricing across many insurance classes. Businesses seeking renewed or expanded insurance cover are experiencing the challenges of this demanding insurance climate. Our placement experts and insurance sector specialists provide this report to inform businesses about the factors influencing the current insurance market conditions, and to offer expert guidance to enable effective management of risk solutions for business during these hard market conditions.

Losses, largely driven by recent natural catastrophe claims, lack of investment returns and reductions in claims reserves have resulted in insurers taking a considerably more conservative approach to accepting risk.

This is evidenced by insurance cover being harder to obtain as the capacity for available risk placement is significantly lower than in previous years.

The reduction in supply is driving pricing up, causing premium and other factors relating to the total cost of cover to be less favourable ‒ resulting in more stringent risk conditions and premium rate reviews being imposed.

Critical factors affecting the availability of insurance cover

A range of significant factors have reshaped conditions in the current insurance market, including

• catastrophic natural events and recent record losses in Australia following extreme floods and bushfires during 2019‒2020, and large individual fire losses
• considerably diminished insurer investment returns coupled with higher costs from the treaty reinsurance market are forcing insurers to restructure risk portfolios
• increased litigation from class action activity and greater regulatory scrutiny have resulted in diminished C-suite insurance cover for boards and directors
• COVID-19 implications and constraints on key insurance market operators have had a significant impact on turnaround times
• for some industries, accountability pressures from the insurers’ shareholders are making obtaining insurance cover more difficult in sectors engaged in activities with environmental impacts, such as mining and coal-based energy, for example.

Our advice for responding to hard market conditions

With supply pressures from insurers driving more stringent requirements for documented risk management, and resulting in reductions in cover offered by insurers, our Gallagher broking experts are advising the importance of

• managing renewals early to enable lead time for presenting, reviewing and negotiating risk options with insurers (6+ months for large businesses/insurance programs)
• re-assessing risk programs and policies, and considering innovative strategies for structuring and risk options
• developing detailed submissions to insurers that demonstrate strong risk management
• taking a diverse approach to the insurance market, looking at accessing both local and international insurance providers where required, and applying expertise in market selection to tailor cover and pricing options.
  
  

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Download the Insurance Market Conditions report.

Specific market conditions for key insurance/risk classes

Property risks
With reduced capacity for certain property risks recent renewals on property premium rates are often priced 10% higher for lower risks, and significantly higher for more challenging risk types, such as use of combustible panelling for temperature control or cladding treatments.

Obtaining property insurance requires analysis of policy limits and sub-limits to offset the full impact of the hard market when obtaining cover on competitive terms.

Public and products liability
Insurers are taking a broad approach to imposing standard rate increases, with public liability cover subject to increases of 10% upwards, irrespective of claims activity or turnover increases.

Businesses attracting larger increases include those with poor loss histories, policies below insurers’ minimum premium requirements and circumstances where there is low adoption or lack of appropriate risk management practices, or higher hazards.

Professional and financial lines (critical protection for executives and C-suite).
Significant pressures are evident in professional and financial lines insurance classes. The business impacts and economic uncertainty created by the COVID-19 pandemic add to the effects of increased litigation from class action activity and greater regulatory scrutiny for directors and boards. These factors have already contributed to material increases in premiums, restrictions in policy coverage and constraints in insurer capacity.

The need for executive management teams to make material decisions impacting customers, employees, shareholders and other stakeholders throughout the pandemic also potentially heightens their risk exposure.

Workers' compensation
Australia wide, workers’ compensation jurisdictions have indicated a potential freeze of workers’ compensation premium rates or looked to waive selected fees, such as plant registration.

Employers who have moved their workforce to home-based activity need to be aware that for the purposes of workers’ compensation, the employee’s home has become a designated workplace, and this brings the need to need to consider health and safety issues that may arise in these environments.

For more in-depth information on the current market conditions and their effects, or to explore any of the four key areas in detail, download the Insurance Market Conditions report.

 

Utilise our business insurance market expertise 

Being informed and supported with expertise from an insurance broking partner to work with your business to understand, advise and develop optimal client risk management and renewal strategies, is essential to ensuring your business is protected through the dynamic cycles of business and risk markets.

Gaining optimal risk solutions for clients in hard market conditions requires the combined expertise and capability Gallagher provides through

• a partnership approach between the organisation, Gallagher brokers and the insurers
• detailed risk management information
• global expertise in accessing insurance markets in order to offset local market constraints.

As an experienced broker and risk advisor we work to explore all the options available to your business, discuss a range of pricing and funding options and ensure that you are appropriately protected against all insurable risks.

Connect with an expert

 

Further reading

https://blog.ajg.com.au/navigating-business-insurance-renewals-in-challenging-conditions

https://www.ajg.com.au/corporate-insurance-solutions

Physical assets insurance

Professional risks insurance

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Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 23831