Hone In: April 2019

As we navigate through 2019, we recap on the current market conditions and how these may impact you. We have focussed on some key segments, and outlined the approach you should consider in today’s insurance environment.


2019: An “as predicted” market place.

After almost two decades of favourable buying conditions, 2017 and 2018 saw the beginning of significant change; a change and market dynamic which will continue and accelerate in 2019.

The general insurance market in 2019 is operating as we predicted for clients.

We are still seeing effects of altered underwriting disciplines established towards the end of 2017 and throughout 2018.

We’ve witnessed a wide variation in outcomes for clients with several influencing factors in play.

Factors include:

Accounts considered as “vanilla” continue to attract competition from insurers

This has allowed insureds to consider a wider level of buying options with minimal impact on pricing.

Accounts at the high hazard end of the spectrum are still encountering severe purchasing conditions

Property with expanded polystyrene (EPS) construction or risks within the Recycling & Waste Management industry remain hard to place, with a lack of local underwriting appetite and capacity. This has forced a return to mature underwriting markets, such as London, in order to obtain capacity, albeit at reduced levels. The influx of submissions has been met with an application of “technical” pricing, which are many multiples of expiring. Significant increase in pricing is also coupled with reduced cover, leaving clients in the position to self-insure their risks either partially or in entirety.

Certain covers for Directors & Officers Liability (side ‘C’ shareholder class action protection for example) continues to provide purchasing challenges for buyers

Strict underwriting guidelines, risk appetite and preferred attachment points remain the key drivers for pricing. With this in mind, the need for insurers to adequately balance their underwriting portfolio has seen buying opportunities remain, especially for traditional, more benign covers such as side ‘A’ and ‘B’.

2019 has already witnessed a spade of natural events, causing further restrictions in coverage for many clients

Key contributing events include:

Cyclone Penny in December and Trevor in March, which impacted Northern Queensland and Northern Territory
Heavy flooding in Townsville (deemed to be a catastrophe), according to the Insurance Council of Australia there is an estimated $887m in insured losses to the market
In New South Wales, Victoria and Tasmania, many communities have suffered loss through bushfires
Whilst the financial impacts vary from market to market, insurers have dealt with this in their own approach, through increased pricing, reduction in limits, exclusion of certain perils (wind, flood, storm surge) or a withdrawal for all risks above the 25th parallel.

Key segments and industries–challenges and opportunities.

Construction & contractor industries

Throughout late 2018, we saw early signs of a pricing shift within the Professional Indemnity (PI) product segment. Fast forward six months, whilst pricing corrections continue to be widely applied, clients whom operate in the construction, namely Design and Construct (D&C), and contractor industries have come under significant insurer scrutiny as this market moves from correcting to hardening.

Like other product classes and industry segments before it, a prolonged soft market, diminished profitability, volatility and claims severity have all played their part in a significant reduction market appetite and capacity. Insurers are now more selective about the risks they write, brought on by a reduction in capacity they can deploy as well as pricing.

Blackened remains of Grenfell Tower contrasting with a church spire after the tragic fire.

From a coverage perspective, insurers are re-engineering their portfolios and applying exclusionary language around cladding and Aluminium Composite Material exposures.

Remains of Grenfell Tower fire

This follows the fatal Grenfell Tower and most recently, a Victorian court case, post-Lacrosse Tower fire.

In the case of the Lacrosse Tower incident, courts identified the liability of consultants across the building chain, including building surveyors, architects and fire engineers for failure to exercise reasonable care.

This is causing huge concern for the wave of industry PI renewals that will fall due across the second half of this year; the risks are clear for the construction industry in all states. It is not uncommon to see a doubling of premiums and a majority of insurers electing to exclude cladding related exposures in its entirety or offering a minor write-back for legal defence costs.

For our clients in these industries, it is important to note that risks presented to underwriters at the last minute are being viewed in a poor light. It is imperative that proposal forms are submitted well in advance of renewal dates, as this allows optimum time to negotiate the most favourable terms from the market.

Professional Indemnity

For many Australian and international PI risks, London has been the traditional market, owing to various reasons: the capacity available, breadth of appetite, levels of coverage offered and pricing.

However, in Quarter 1 of 2019, we saw capacity returning to local carriers.

This follows Lloyds of London’s 2018 DeDirectors & Officerscile 10 performance review into the worst performing classes across syndicate portfolios. International PI (non-US) was identified as the second worst performing class. In turn, this has resulted in seven PI market closures that participated on a large portion of Australian D&C business.

With no sign of new market entrants in London to replace these departures, there is a continued impact on availability and cost of capacity. Insurers remain under little or no pressure to grow their top-line market share, as 2019 and 2020 budgets remain static.

What does this mean for your business?

As we have seen in other distressed segments, insurers are willing to walk away from unprofitable or under-priced business. This can further exacerbate issues faced by clients.

With the market in such a state of flux, we are actively educating our clients to expect some turbulence when renewing their PI programs. It is no longer a buyer’s market. Given the lack of pressure to grow existing portfolios, new or existing insurers are less inclined to offer the same coverage, limit or premium as provided in previous years.

This can be navigated by commencing the renewal process early, having a robust strategy and strong market engagement.

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