July 2022 Market Update – Casualty (General Liability)

The Australian Casualty insurance market has remained relatively stable since our last Market Update was published in January (see here). We observe:

Personal Injury claims brought by non-employee workers such as contractors and labour hire personnel continue to attract higher deductibles due to the significant costs associated with defending those matters.

There is limited appetite for high-risk business activities and these sectors are therefore more vulnerable to higher rate increases and alteration of terms at renewal due to lack of competition.

Policyholders that can demonstrate robust risk and contractual management practices are much more likely to receive favorable renewal outcomes; and

Claims-affected accounts must be able to demonstrate learning from prior incidents as well as preventative measures being implemented to mitigate the risk of similar losses occurring in the future. This is the same for all policy classes in the hard insurance market.

One of the more prominent International Casualty Lloyd’s of London syndicates, Liberty Specialty Markets Europe, has withdrawn from the Australian market and this will mean that certain Commercial Casualty policies need to be placed locally in Australia, often at a higher rate than what has been experienced for the past few years. However, there is still ample capacity in the Australian and Lloyd’s markets and insurers are actively looking to write new business.

One underwriting practice that is emerging that is slightly different than in previous years is insurers reducing their capacity levels for hard to place risks. Most insurers have traditionally offered underlying policy limits of $20M – $50M. We observed capacity being ‘cut’ for policyholders with high-risk business activities. As a practical example, an insurer offering a $20M policy limit will now only provide a $2M primary and will provide and umbrella $18M.

This follows the trends observed in the professional indemnity market which began reducing and managing its exposure in 2017. It remains to be seen whether this practice will become widespread. Currently, it is reserved for high-risk activities such as adventure tourism and labour hire where personal injury claims are both high-frequency and high-severity.

In our January market update we advised that policyholders could expect average annual rate increases in the range of 5 to 10 per cent. This remains the case for upcoming renewals. For higher-risk business activities and claims-affected accounts, rate increases can be exponentially higher, and for these accounts, additional work is required to present thorough submissions to underwriters which demonstrate efforts are being made by the policyholder to address risk management.