July 2023 Market Update – Property

Trending across property insurance rates is rather mixed. There is significant appetite and competition for preferred risk, yet for non-preferred risk there is little to no appetite.

What is common is that accurate building replacement values have never been more critical. The rise in the cost of construction and high inflation are to blame.

According to the Australia Bureau of Statistics, the inflation rate rose 7 per cent over the 12-month period preceding April 2023.

The significant rise in the cost of construction materials, paired with labor shortages and global instability, continues to impact supply chains. The consequence is that replacement values are increasing. To meet the rise, insurers must deploy more capacity. If declared values are not adjusted appropriately this presents under-insurance risk to policyholders.

During the last six months we have observed insurers focus on property values, often requiring new insurance replacement valuations. There is also a focus on reviewing policyholders’ supply chain procedures and ensuring there are proactive maintenance programmes in place.

Business interruption remains a focus of insurers following the High Court ruling in October 2022 surrounding COVID19 claims. Insurers are thoroughly reviewing business interruption portfolios attached to any property insurance.

Despite these broader market trends, across Bellrock’s own portfolio we are experiencing:

Premiums generally levelling out with insurers returning to profitability.

Prudent operators are investing in risk management (including surveys, valuations and business interruption advice).

Highly protected, well-maintained properties which are not significantly exposed to natural catastrophes have access to additional capacity.

Capacity restrictions for assets exposed to frequency losses and catastrophe.

Policyholders must review replacement values and business interruption calculations to account for inflation. They should also review business continuity and disaster recovery plans coupled with financial advice to ensure appropriate cover is in place for consequential loss. Engagement of external third-party experts is critical to ensure adequacy.

Parametric insurance is becoming more viable as a method of risk transfer. This is evident where insurers are imposing significant natural catastrophe excess structures and sub-limits to cover.