Market update – Insurance casualty and specialty casualty market

In the 2019 financial year to 30 June 2020 there was a reduction in capacity, insurers imposed more restrictive terms of cover, more onerous excess structures were imposed and premiums increased.

The Pacific region experienced an overall rate increase of 18% which was significantly higher than other markets such as the UK (6%) and USA (5%). Despite this, Australia continues to be viewed as under-priced on the basis of loss history. Lloyd’s of London syndicates continue to exit the Australian market. They are either withdrawing their support or significantly limiting appetite and authority of Australian Underwriting agencies. The capacity issues being experienced are driven by the Lloyd’s strategy. The direction means that the Syndicates are no longer supporting Australian agencies. In doing so, there is less competition, and hardening market conditions are compounded. Many of them cannot find alternative security in the market and therefore must withdraw from industries, professions and product classes.  In some circumstances, they are completely closing (their business).

We expect that rates will continue to increase by at least 10%. It is likely that insurers will impose more restrictive coverage terms – in particular for contractually assumed liability cover, and otherwise policyholders should be prepared for significantly higher excess structures.

Some notable exceptions to these relatively mild rate increases have been witnessed across retail, hospitality, tourism and leisure sectors. These segments have experienced rate increases of up to 100%. In circumstances, increases have been higher, particularly if there has been no correction in the past two years, or if there has been a withdrawal of an agency or Lloyd’s syndicate is imminent next renewal. Rate increases are being imposed on an exponential scale for businesses with reported claims and notifiable circumstances.

In the ordinary course, turnover is used to measure the reasonableness of premium at renewal. Current market conditions mean policyholders in the retail, hospitality, tourism and leisure sectors are experiencing rate increases regardless of their well-publicised decreasing turnover due to COVID-19.