July 2024 Market Update – Property

Since our January update, the property insurance market continues to improve for policyholders. There exists broader appetite generally, and there are new market participants being direct insurers and or managing agencies deploying capital across Australia.

Policyholders who have identified risk exposures and adopted strategies to mitigate loss frequency and severity have greater opportunities to receive options for renewal from their current and alternative insurers. Insurers may provide options with improved policy conditions, such as lower retention structures or lower premiums to these policyholders.

Strategies policyholders can adopt to mitigate risk include target risk analysis with respect to business interruption, business continuity and disaster planning, engaging engineers for risk surveys, adhering to risk improvement plans and ensuring valuations are up to date and reflect the correct basis of settlement.

Policyholders with risks that are claims affected are likely to incur some uplift in premium, however, the severity of increases is likely to be less where policyholders can demonstrate the development and implementation of strategies to prevent or improve loss trends.

The Cyclone Reinsurance Pool is absorbing some natural catastrophe risk exposure in QLD for home, strata and small business policies. Access to improved policy conditions and catastrophe limits may be negotiated in Northern Queensland and the inference can be drawn that the pool is having a positive effect on the supply of catastrophe cover to policyholders for cyclone cover.

Property insurance rates for niche industry risks peaked in 2022 and as new local underwriting agencies enter the Australian market, we expect rates to plateau and start to recede.

Rising claim costs, and an increase in frequency in loss events is causing a rise in home and contents premiums. We are witnessing insurers increasing rates between 20 to 100 per cent across their portfolios. Policies with higher sums insured, expensive valuables or exposures to catastrophe risk, such as bushfire, flood and wind are likely to incur higher increases.

Engaging the appropriate risk advisor will yield better results for policyholders. A specialist property risk advisor will better understand exposures, risk management strategies, engagement of external loss experts and the insurers to procure coverage from.

We encourage policyholders to consider the following when assessing their risks:

Understanding supply chain risk, including the risk that loss at a key customer and or supplier may have on the business.

Prevention of access exposures, and ensuring policy extensions are included and adequate.

Correct calculation of business interruption values in accordance with policy basis of settlement and adequacy of indemnity periods.

Engagement of consultants to correctly quantify material damage values and anticipated escalation costs to reinstate damaged property.

Engagement of external risk engineers to identify hazards and exposures and create strategies to mitigate the risks associated therewith. At Bellrock, we believe it is fundamentally prudent for any client to seek external third-party experts in the relevant expertise areas – see our article here.

Work closely with your insurance advisor to implement or update risk management framework including the mitigation plans around natural catastrophe exposures. Demonstrating proactiveness will lead to fruitful discussions with insurers and provide underwriters with comfort over these risks.

Consider and explore alternative non-traditional insurance risk transfer methods to complement or offset your insurance programme. These can include parametric insurance or captives.

As always, insurers will remain focused on insurance advisors issuing comprehensive insurance risk submissions. Adequate lead times will be imperative to procure competitive terms and bespoke insurance programmes for clients to consider and adjust according to their needs.