July 2022 Market Update – Property

The past 12 months have been extremely challenging for the property insurance market following extreme catastrophe events. Globally, the market has been impacted by Hurricane Ida and the severe flood events in central and western Europe. Australia experienced the Perth Hills fires and severe flood events of February and March across New South Wales and Queensland. The Insurance Council of Australia described the flood events as the most costly in Australian history, costing a staggering $4.8billion to date and potentially rising.

We predict rate increases to continue off the back of these losses, but not at the same rate as the trend of 20-30% uplifts. We observe for ‘clean’ risks the average uplift to be 10-20%. Insurers remain conservative in their underwriting approach focusing on preferred business’ that demonstrate sound risk management procedures, including continuous maintenance protocols and monitoring.

The first half of 2022 has revealed two notable developments in insurer appetite:

Natural Disasters:
Natural disasters continue to curb insurer appetite. Climate change experts predict the frequency and severity of weather events to continue. Policyholders who have property situated in areas impacted by, or prone to, weather events (flood, fire, storm and tempest) will struggle to obtain affordable insurance. We anticipate policyholders insuring these assets will look to alternative forms of risk transfer. Increased flood mapping and modelling by insurers has severely restricted the availability of flood coverage and it is essential for Insureds to demonstrate they are flood ready where possible. Sub-limits per situation and overall policy aggregate limits are still able to be achieved on Group policy placements.

Supply chain and inflation concerns:
COVID-19 has had a direct impact on the supply chain, including the availability and pricing of building materials as well as labour shortages. This has caused the cost of rebuilding to increase. In-turn declared values and indemnity periods have increased. See our article on “How soaring construction costs could be impacting your insurance”. Claim costs continue to rise as a direct result of the increase in material and labour.

Policyholders need to be cognisant of these trends when setting their property insurance cover. The broker’s role here is imperative: education is key. Detailed underwriting information that sets out innovative loss control strategies and business continuity plans will assist to generate underwriting interest across the class. We otherwise refer to our article “Stand out from the crowd: How to approach renewals in a hard market”.