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More positive outlook for Australian insurance buyers, says Marsh

The general outlook for insurance buyers in the Australian insurance market is more positive as we move into the second half of 2021, according to Marsh, despite an unprecedented 17 consecutive quarters of premium rate increases.

In its Australian Mid-Year Insurance Market Update 2021, Marsh says that while property insurance and D&O insurance premiums have continued to rise, the rates of increase have started to moderate and there are some signs of competition returning for loss-free quality property accounts, as insurer results begin to improve. The broker adds that the casualty market continues to face challenging conditions, experiencing the largest premium increases since 2012, with capacity tightening for certain high-hazard industries/exposures, while the cyber insurance market is in a state of flux with insurers refining their underwriting strategy and increasing premiums significantly.

“Overall, the general mood in the Australian insurance market is positive. The first half of 2021 saw improved insurer results compared to the prior year, which largely attributed to the increasing premium rates imposed in recent years. If this profit trend continues through the rest of the year, we expect market competition to increase, resulting in a better purchasing environment and outcomes for insurance buyers,” said John Donnelly, head of global placement, Marsh Asia-Pacific.

The report notes that for the Australian property insurance market, “the first signs of premium increase relief have now become apparent after the market peaked in 2020, where average rate increases were 25%-30%”, adding: “A key driver of this shift was the relatively low catastrophe count during the first six months of this year, both in Australia and globally.”

For the casualty market, the report says that market uncertainty continues to grow as a result of the pandemic, the precedence of particular catastrophe claims, and the emergence of an intensifying cyber risk landscape. “The challenges experienced throughout 2020 have remained well into the first half of 2021 for local and global casualty (liability) insurance markets. Unlike other insurance classes, where price increases have started to moderate, liability pricing has continued to rise in the Pacific region. The second quarter of 2021 saw the largest year-on-year premium increase (18%) since 2012,” the report states.

Marsh says that overall, the financial and professional lines insurance market is in a much more stable position, than it was 12 months ago, with the rate of premium increase showing signs of moderation. “The first half of 2021 saw insurers showing more willingness to work towards favourable solutions for clients. Insureds with a poor loss history can still expect insurers to change, or restrict significantly, their contracts at renewal with regards to premium, deductibles and policy coverage, in an effort to minimise their exposures,” states the report.

However, D&O continues to be a difficult class. Marsh notes that despite early signs that premium increases were starting to moderate at the start of 2021, the significant premium increases seen during the past two to three years have continued into the second quarter and were observed across most of the June renewals. In the first half of 2021, Australian D&O premiums increased by 34% for publicly listed companies.

“Marsh’s ongoing advocacy for changes to continuous disclosure laws that had played a role in driving class actions and D&O insurance prices in recent years finally saw a permanent change to continuous disclosure obligations passed through parliament in early August 2021. This is a significant and positive development, which we hope will have a profound impact in the D&O space in reducing claims activity, reducing pricing and improving the availability of coverage in general,” says Marsh in the report.

The report reveals that the number of Australian organisations purchasing cyber insurance grew by 23% in the first half of 2021, compared to the same period last year. “Insurers and insureds alike have been impacted by the surge in frequency of ransomware strikes, cyber extortion, and other external attacks. The growing ransom demands and the increased costs to remediate business interruption have increased insurers’ scrutiny of companies’ cyber risks and related mitigation efforts. The worsening loss ratios have also led to corrective actions from the market, such as limiting capacity and co-insurance requirements, in order to maintain portfolio profitability,” says the report.

It also notes that demand for environmental liability insurance continued to increase in the first half of 2021, driven by greater concern for environmental exposures, as companies developed their ESG policies, and by contractual requirements in infrastructure and other large projects. “The environmental insurance market has continued to transition, with rate increases of 5%-20% seen across the board… Insurers have continued to focus on profitability and have been willing to walk away from accounts if desired terms and pricing are not achieved. Due to stricter underwriting controls, there is a greater requirement for detailed, quality risk information and a longer lead-time for the underwriting process,” the report states.

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