An Insurance Market Update During Unprecedented Times

It probably won’t surprise many of you to read that Insurers in Australia & the Pacific Region have turned very cautious on concerns over the pandemic and the possible fallout for the economy. Even though there had been some evidence of a relative return of confidence to the marketplace by about June, the second wave of COVID-19, although only concentrated in Victoria at present, has caused Insurers to be on high alert to the long term consequences once more. Many experienced insurance practitioners and commentators in the industry are reporting the most challenging market conditions they have faced in the past few decades, with all classes of insurance under significant pressure and a continuing hardening of the market across most sectors of the insurance market.

The Covid-19 outbreak and its impact on the economy has created a very uncertain environment, and one where insurers are simply ‘erring on the side of caution’. According to a recent article published by ‘Insurance News Pty Ltd“ on August 11 2020,  Insurance rates for Commercial lines are up well over 30% this calendar year, fuelled in part by further deterioration in Australia’s Directors & Officers (D&O) insurance market and prices for financial and professional liability products are also increasing significantly with rates up by 37% in the June quarter, representing 12 straight quarters of double-digit increments. 

The above article also quotes Marsh President of Global Placement and Advisory, Dean Kilsura as saying ‘While pricing movements in the past quarter were significantly impacted by losses related to COVID-19, other large losses contributed to overall pricing pressures. As Insurers continue to work through claims in property and D&O, and with the full cost of COVID-19 still developing, upward pressure on pricing is anticipated for the balance of 2020’.

Put simply the long-running factors that have caused prices to harden significantly over the past few years – such as growing class actions, cladding related PI claims etc – together with the yet to be fully determined financial consequences of COVID-19 on the balance sheets of many businesses and the Insurers themselves, will most likely  continue to put a strain on capacity as insurers appetite for Professional Liability risks remains weak.

State of the PI Market:

• In the first two quarters of 2020, insurers are continuing to increase PI premiums reflecting the ‘hardening’ market;
• On average premiums have increased by 15-20% but increases in certain professions have been in the order of 200% or higher with some risks finding it difficult to obtain any PI insurance at all;
• Insureds with paid claims or open notifications continue to experience the greatest impact;
• Increased focus by PI Insurers on Insureds with ‘Combustible Cladding’ exposure;
• Volatility in the Lloyds market has led to a significant reduction of PI capacity in the Australian market;
• After Marine insurance, Professional Indemnity represents the second most exposed class of insurance for Lloyds of London and an exposure that Lloyds are now actively seeking to lessen;
• Insurers are experiencing a higher frequency and severity of PI claims than ever before.

Trends in the PI Market:

• Increased claim activity around Engineers exposed to Cladding/Non-Compliant Building Products;
• Heightened concerns regarding the PI risks of Building Certifiers, Surveyors, Property Managers;
• Increased concerns in respect to possible PI issues raised by the recent Royal Commissions into Banking, Aged Care etc;
• Increased PI exposure of Covid-19 related issues for many professionals, and particularly for Accountants and Financial Advisors who seem to be increasingly exposed to claims of negligence for failing to advise their clients correctly in the face of the large volume of changes that have taken place in recent months;
• Continued restriction of PI policy coverage offered mainly through the imposition of additional exclusions or tighter policy wordings.

There is a belief that the current ‘hard market’ has at least another 18-24 months to run and will be heavily dependent on the future severity and frequency of natural catastrophes. In short, we expect Insurers to continue taking aggressive action to firm up their underwriting performance after successive years of poor results and, adding to this, is the fact that the Rating Agencies are becoming increasingly analytical and Insurers are feeling the pressure by their shareholders to return to profitability as soon as possible.

Cos Cirocco
National Business Manager