As your dedicated insurance representative, we’re constantly monitoring the insurance market to better understand and assess the trends with potential to affect your business. With this in mind, we wanted to share a summary of our updated market assessment on the factors currently impacting insurance pricing in Australia.
Acacia Insurance Director Mark Williams recently teamed up with MECON Insurance CEO Glenn Ross and Lander & Rogers Partner Charles Thornley regarding the Design and Building Practitioners Act 2020 (DBA Act) to provide a prospective from an insurance adviser, underwriter and lawyer. Originally published by NIBA, please find the article below.
General insurance market update
As your dedicated insurance representative, we’re constantly monitoring the insurance market to better understand and assess the trends with potential to affect your business. With this in mind, we wanted to share a summary of our updated market assessment on the factors currently impacting insurance pricing in Australia. The recently released APRA (Australian Prudential Regulation Authority) quarterly report shows a significant decline in industry profitability for the 12 months to December 31, 2020.
This decline can be attributed to three primary factors:
- Major 2019/2020 bushfire and storm events
- Provisions for potential COVID-19 related Business Interruption claims (dependent on current court proceedings)
- Continuation of falling investment returns, due to the uncertainty of economic rebound from COVID-19 and historically low interest rates.
Pricing & Capacity
The impact of declining investment returns remains significant. It will continue to see capacity and product supply weakened, meaning premium rates will most likely trend upwards. Whilst pricing has been the primary lever used by Insurers over the past 24 months, capacity is becoming an increasing concern, with some Insurers withdrawing from what were previously considered ‘vanilla’ risks. We anticipate cover for some industries and locations will remain unattainable until more profitable levels return.
After a year of average increases (8-10% for Commercial and 15%+ for large Property assets), the recently-released APRA statistics indicate premiums will continue to rise in the vicinity of 10-15% for the next 12 months.
Other Market Forces
Below are some of the other key factors impacting the insurance market.
- Low Interest rates: Historically low interest rates continue to place pressure on Insurers’ returns. Whilst rates and investment returns remain flat, their claims reserves need to be ‘topped up’ – especially in he face of more frequent catastrophic events.
- AU$: The AU$ remains at relatively constant levels around US77cents (May 2021). This continues to see claims cost inflation higher than the general rate of inflation across the Australian economy. Significant impacts are felt in the repair costs of motor vehicles that rely on imported replacement parts and any building materials or equipment imported as part of a claims settlement.
- Insurance Company Net Retentions: In the past decade, the level of losses held locally by Australian insurance companies has increased. Global reinsurers are seeking to distance themselves from more frequent and severe cat loss events, with local insurers left to pick up the losses to their net account.
Looking to the Future
The Insurance Industry, we believe, is at 10 o’clock on the Insurance Clock. How long it remains there largely depends on the frequency and severity of future catastrophic events. It’s clear, without corrective action, the Industry cannot sustain continual year-on-year catastrophic events whilst still providing cover for ‘usual’ loss events. We subsequently believe average premium increases will remain in the range of 10-15%. The exact figures will be influenced by industry sector, geographic location, prior claims experience and approach to risk management.
Structural change and cost cycles are part of every industry. The Insurance Clock is a useful tool to represent where Insurance rates are right now and where they’re likely to be heading in the future.
With this hard market cycle, we anticipate:
✓ Period of higher premiums
✓ Getting insurance coverage could become more difficult and harder to negotiate terms
✓ Insurers reducing capacity with some risks or industry groups (e.g. recycling, financial services, directors/officers insurance)
✓ Higher excesses
✓ Focus on risk management and mitigation processes
✓ More time and additional information required to place insurance.
It’s crucial we continue to work together to maintain policy terms and conditions, even with prices on the increase. After all, as our experience consistently shows, price is ultimately forgotten when an insurable loss happens. Should you have any questions, please don’t hesitate to get in touch. We’ll be very happy to help.
Acacia Insurance was pleased to sponsor a hole and attend the Happy Days Cambodian Village School Charity Golf Day on 5 March. Happy Days Cambodian Village School is an Australian Not-for-Profit Organisation which raises funds for impoverished children in a rural area of Cambodia. Their objective is to give the children in the area an opportunity to break the poverty cycle by improving their living conditions and teaching them to make informed decisions about their future through the power of education.
An increase in mergers and acquisition (M&A) activity is one noticeable trend1 throughout the year of the pandemic (and forecasted to continue in the year ahead). At Acacia, we're frequently asked to advise clients on the insurance ramifications of acquiring a new business, both from the point of view of the acquiring entity and the business being acquired.
So, what are some of the key insurance considerations when buying a business?
On Wednesday 18 November the NSW Court of Appeal handed down a unanimous decision in a case launched by the Insurance Council of Australia concerning the application of Business Interruption (BI) claims related to two test cases, where business operations were affected by COVID-19 and their policy coverage denied.
Proposals for public and products liability insurance often ask whether the potential insured has assumed any obligations under contracts or agreements, including through hold harmless or indemnification agreements.
Unfortunately, all too many times people have indemnities or hold harmless agreements in their existing contracts and may be completely unaware. This, in turn, can expose you and your business to unintended risks or gaps in your insurance solution.
At Acacia Insurance, we're able to review contracts and advise our clients on the insurance ramifications. This is a point of difference that we pride ourselves on, and the service has helped many of our clients reduce their risk exposures. Contact us to find out more or read on to learn more about this risk.
The Acacia Insurance team thoroughly enjoyed participating in and sponsoring our charity insurance client KidzWish's golf day, which raised $25,000! The event was held on 9 Oct at The Links Golf Course, Shell Cove.
Construction as an industry is the third largest employer in Australia, which is going to be incredibly important as we fight the loss of jobs and damage to our economy caused by the global pandemic. It is also one of the most heavily regulated and riskiest industries to work for, making the right construction insurance critical.
As a valued client I thought you may like to receive a summary of our market assessment on what’s currently impacting insurance pricing in the Australian market. The recently released APRA (Australian Prudential Regulation Authority) June 2020 quarterly report showed insurance company profitability continuing to decrease.