July 2024 Market Update – Insurance Market Overview

The end of the 2024 financial year saw significant increases in competition between insurers. High interest rates, continuing technological advancements and new providers are the main drivers producing favorable outcomes for policyholders.

Key factors influencing the state of the insurance market are outlined below:

High interest rates: Long-tail classes of insurance are attractive to insurers due to high interest rates. Insurers are focused on the inflow of premium (known as “top line” premium growth), in order to benefit from investing their “float” at higher interest rates.

Increased competition driven by new entrants: With insurers competing to increase their top line, premium rates are reducing.

Movement in personnel: Insurer competition has caused an uplift in middle and senior level insurance professionals changing employer. Many are carrying their existing relationships across to their new employer, offering benefits to policyholders who follow.

Role of insuretech: Artificial intelligence (AI), machine learning, and big data analytics are all being deployed by insurers. These technologies have aided underwriting, claims processing, customer service, and risk assessment, improving efficiency and customer experience.

The above trends are positive for policyholders and are likely to continue throughout the second half of 2024. Notwithstanding the present buyers’ market conditions, there are trends emerging, particularly with attacking insurers not offering comparable cover, or online platforms quoting risk not intended for digital transacting.

Significant capacity has emerged with online transacting for more “vanilla” professionals continuing to develop. The prevalence of direct aggregator sites continues to rise which are attractive to small professional practices. Often many of these policyholders do not properly classify their services/activities on these portals causing the coverage they have procured to be illusory.

We are still experiencing some poor claims management tactics being deployed, very much in sync with what we forewarned of four years ago, in our article here. In the current market Insurers who engage in these practices are losing significant credibility across the intermediary market.

In very nuanced market segments and for challenging risk profiles, there remains difficulty for some policyholders. Segments include professional indemnity for complex construction risk and financial services; complex property placements; strata (particularly plans with defects and claims frequency); and construction liability.

We consider that the insurance clock has progressed and is now at “2 O’clock”:

We summarise the state of the market below according to specific areas of risk, insurance product and industry type. For further particulars, please refer to the directory of individual market updates at the foot of this article.

The combination of increased insurer appetite, new market entrants, and local underwriting agencies signifies a favourable trend for policyholders in the Australian property insurance sector. This environment typically fosters competitive pricing with well managed risks maintaining rates on renewal and obtaining broader coverage. Premium rates are showing stability with low to moderate risks obtaining rollover or single digit increases.

After several years of large increases on high-hazard industries or risks with assets exposed to natural perils, rates have slowed. Increases of 10 to 15 per cent can now be expected. Underinsurance remains a significant risk particularly regarding business interruption claims.

Claim payments from frequency losses and escalating remedial expenses (claims inflation) have driven home and contents insurers to increase rates on domestic policies by 20 to 100 per cent.

The emerging risk of lithium battery fires is a new concern of insurers regardless of property type. See our article here.

The first half of 2024 has seen rates stabilise with more options available in the market. Policyholders who can demonstrate robust risk management are receiving favourable outcomes for pricing and coverage. Hard to place risks (EPS, recycling, chemicals) are still presenting challenges.

Insurers are facing higher costs in managing claims and dealing with inflationary pressures. As a result, well-performing policyholders can expect rollover rates up to 10 per cent.

Rates are being driven by policy performance. Policyholders with a history of poor claims performance will face rate increases. The magnitude of the increase varies but could be as high as 30 per cent, depending on the specific risk profile and fleet size.

Additional factors such as social inflation, supply chain disruptions, surging vehicle maintenance and repair costs continue to put pressure on insurer pricing.

Well performing fleets with vehicle numbers over 50 remain extremely competitive in the market.

The Australian insurance market still has a strong appetite, especially for well-managed mobile equipment fleets. There is ample capacity, broad coverage, and preferred rates. Equipment such as cranes and machinery used underground command higher rates, and limited insurer options are available. However, the return of capacity from London has gradually made pricing more competitive. Investment in risk management remains a priority for policyholders and allows underwriters greater flexibility when determining premiums.

We are observing positive improvements in market conditions overall. Capacity is increasing, and both local and international markets are showing a heightened appetite for renewals. Premium rates have become more stable, and in some cases, reductions are being secured for risks that are deemed attractive to the market. Insurers are diligently monitoring and reassessing their risk management policies and procedures. They are showing a preference for contractors engaged in lower hazard activities with a positive claims history, as evidenced by the favorable terms and conditions granted to such clients.

Australian insurers, underwriting agencies, and Lloyd’s of London are actively seeking shared project risk placements rather than assuming full liability for both single projects and annual placements. This has resulted in a longer negotiation period for advisors to secure consistent coverage. Detailed analysis of underwriting information is being carried out across the commercial, industrial, and residential sectors.

The insurance market is seeing a strong revival of interest from global insurers who are acknowledging the potential of the region and are setting up operations here. This heightened competition will bring more choices and potentially better offers for local policyholders.

Local insurers writing construction liability are also indicating positive developments, with increased competition from existing insurers and new players entering the market. As a result, the ongoing trend of rate hikes is expected to ease, presenting opportunities for cost reductions.

The Australian Workers’ Compensation landscape is navigating through a period of financial deficits, rising premiums, and increasing challenges related to mental health claims, support and rehabilitation, complex processes, and regulatory changes. Addressing these issues requires collaboration among insurers, employers, regulators, and other stakeholders to safeguard sustainable and effective Workers’ Compensation schemes that adequately support injured workers while managing costs responsibly. The financial strain outlined above puts pressure on the entire industry and contributes to rising premium rates for businesses.

Both business and leisure travel have been on the rise despite challenging economic conditions. There is a notable increase in leisure activities and incidental travel associated with business trips, especially on international trips. Insurers are finding it challenging to handle policies where over 25 per cent of the travel is leisure-related.

For standard corporate travel policies, rollover rates can be expected. For travel policies containing significant leisure-related trips, increases of 10 to 15 per cent are being applied by the market.

Inflation in medical expenses is impacting insurer rates. A trend has emerged over the past six months whereby policyholders are requesting increases in the percentage of wages benefits payable under the policy. This aligns with the need to match cost-of-living increases across Australia, a response to economic conditions and wage trends.

The trend of minor increases on personal accident policies (including the sporting sector) is expected to continue over the next 6 to 12 months. This indicates ongoing adjustments to pricing strategies in response to evolving risk profiles and market conditions including healthcare costs.

Directors’ and officers’ and management liability rates continue to reduce. Savings of up to 30 per cent are available on expiring premiums. Reductions are driven by new market entrants, particularly from Lloyd’s of London. The cover provided by many new entrants is very questionable. We continue to caution policyholders about restrictive benefits of cover offered by new entrants and their long-term strategies to commit to the class. Insolvency risk and compliance with changes to workplace relations and privacy legislation are focus areas.

Greater capacity from London together with new local entrants with considerably broader appetite has markedly improved conditions for financial services professionals. Some new entrants are imposing poor policy wording limiting the exposures that policies have traditionally covered. Financial advisors (own AFSL) are obtaining rate reductions of 10 to 20 per cent.

Investments into direct property, equities and private equity/venture capital are favoured on the proviso proposers can illustrate appropriate risk management and due diligence processes. Insurers are limiting exposure to carbon advisory and strategies involving cryptocurrency/digital assets.

Greater capacity from London together with new local entrants with broader appetites, has markedly improved conditions for accountants. Rate reductions of between 10 to 20 per cent have been observed. Some new entrants impose restrictions on professional business activities, particularly around limited Australian Financial Services (AFSL) advice. It is important that firms ensure their description picks up their past and present professional services.

Appetite remains limited for firms working with publicly listed entities, prominent levels of audit services, business valuations and providing research and development taxation advice.

There is ample capacity in the market for construction professionals with most receiving rate reductions with capacity inflows from Lloyds of London.

Activity and asset types are the only deterrent to underwriters. Insurers remain cautious about high rise residential projects however there is sufficient interest where principals and contractors can show a record of successful past projects. Appetite remains limited but is improving for design & construct contractors, development managers, consultants exposed to high rise residential, building certifiers, and structural engineers.

Premiums remain steady despite a limited insurance market. The market continues to be impacted by legal expenses for the HCCC and Pharmacy Council and s150 actions. Rollover rates to increases of 5 per cent should be anticipated.

Following recent legislative changes, insurers have started to revise their policies and implement exclusions regarding vaping products. The range of products now excluded is defined as any product used in the act of inhaling or exhaling the aerosol, which is produced by an e-cigarette or device similar in appearance or function, including vapes, vaporizers, vape pens, hookah pens, electronic cigarettes, e-pipes, electronic nicotine delivery systems (ENDS), or tank or drip systems.

There is broad appetite for real estate professionals. Insurers are cautious about strata managers, residential property managers and those with high percentage allocations of off the plan apartment sales. Appetite for valuers remains limited. Insurers are monitoring proposers by closely assessing geography, asset type and loss history following the recent flux in the interest rate environment.

Premiums are steady on excess of loss placements however insurers are continually exposed on larger claims and frequency claims on conveyancing matters remain an ongoing exposure for smaller, particularly regional practitioners. Once the policy limits reach $30M, significant capacity is available in the market and rate reductions have materialised.

The potential introduction of ABC Insurance underwritten by Liberty Specialty Markets as a new primary market is awaited pending court approval. This will have a significant impact on the market in NSW as an alternative primary insurer to Lawcover.

The market for Software-as-a-Service providers operating in B2B environment remains stable with wide appetite and broad coverage available. Appetite for US exposure (where turnover exceeds 25 per cent of total) continues to remain limited.

FinTech businesses operating in higher risk sectors such as credit card lenders, unsecured personal loans, short-term business overdrafts and lines of credit and startup business funding have limited insurer interest.

Cyber Liability premiums remain steady due to increased competition from new market entrants. This competition is beneficial for policyholders as it helps maintain favourable pricing conditions. Insurers are keen to establish themselves and gain market share in the growing cyber insurance sector, leading to competitive pricing strategies.

Insurers are expanding the coverage offered by cyber policies to meet the evolving needs of businesses facing cyber risks. This expansion includes broader policy terms and additional services such as active network monitoring which can detect and respond to cyber threats promptly, enhancing the overall risk management capability of the insured organisation.

Policyholders must be aware of the significant variance in coverage benefits across policy wordings offered by competing insurers.

Reforms to privacy laws that will affect all businesses will prompt more stringent cyber risk requirements from proposers.

The warranty and indemnity (W&I) insurance market has softened, and well-resourced insurers stocked with capital are eager to support transacting parties at competitive premium rates. Jostled by new entrants, underwriters are keen to offer an efficient underwriting experience, dispensing with superfluous processes that are often embedded within an institutionalised approach.

With the M&A market facing macroeconomic challenges, deal parties and M&A advisors recognise the need to protect a target’s balance sheet. M&A advisors and deal parties are looking beyond just W&I insurance and considering other transaction risk mitigation tools such as contingent legal risk insurances to transfer known risks (e.g., tax, litigation and regulatory matters) to the insurance market. The tide has turned from the 2021-22 M&A hard insurance market conditions, and we are looking to a future that is ripe for change and innovation in 2024.

For more in depth market updates by product class, profession and industry, please see our individual reports below: