Insurance is a hot topic for everyone right now with two big questions – Why is the price of my insurance going up? and Why am I having trouble finding insurance that suits my needs?

Let’s investigate the factors that impact the Insurance Market and the effect it has on pricing and terms but most importantly, how you can prepare your business to be in the best position at renewal time.

A Hard Market

The insurance market globally is going through a turbulent period with increasing natural disasters, the COVID-19 outbreak and other market factors influencing pricing and terms.

Here in Australia, we were still cleaning up after one of the worst bushfire seasons on record and paying out claims for subsequent hailstorms and floods when COVID-19 lockdowns began in March 2020.  Fast forward 12 months, and another insurance catastrophe has occurred with devastating storms and flooding in NSW and Queensland. This event alone will generate an estimated $567 million in claims to be paid by insurers. More than 37,000 claims have been lodged to date. These events have provided fuel for the upward momentum in insurance premiums, which were already on the rise in many areas critical for businesses.

But why? Insurers need to bring in enough premiums to cover the cost of rising claims, expenses, reinsurance costs, commissions, and a profit margin. The recent spate of catastrophes and a global pandemic have hit insurer hard. This also impacts the cost of reinsurance, the cover that insurers purchase to protect them from major claim events, such as a natural disaster. Both can lead to increasing premiums and reduced appetite for risk.

Another factor to consider is that insurance typically cycles through peaks and troughs, and premiums have been increasing over the last 18 months as underwriters move to improve profitability after a long period of depressed pricing. The diagram below shows how the insurance cycle works and puts the industry firmly in a hard market.

Risk Appetite Reduced

Insurers received catastrophe claims totalling $5.4 billion last summer, leading to them becoming more cautious about the risk they take on. More than ever before insurers are wanting to drill down as much as possible before offering cover and terms, especially to understand risks at specific locations. As a result, the extent of premium increases can vary widely by location, as can the insurers capacity for taking on risk. 

Properties judged as more exposed to bushfires, cyclones or other threats will face greater increases compared to businesses in safer locations or areas of lesser weather activity, while those that can show actions taken to minimise risks will benefit.

Outside natural disasters, tourism businesses that are more exposed to high-risk activities such as abseiling, rock climbing, motorcycle tours, skiing, kayaking etc., which inherently pose and increased risk of harm, illness or injury will have a tough time finding public & products liability insurance as insurers become more selective on risk they insure.

Economic Landscape

COVID repercussions for insurers also include the wider economic impacts and financial market responses, such as low interest rates. These responses affect revenues from the investment of premiums and other income insurers would typically use to support periods of increased outlay.

The investment situation ups the ante for insurers to bolster earnings from underwriting, increasing the requirement for risks to be carefully selected and leading to less tolerance for areas that have performed poorly in the past.

Preparation is key

Considering these factors for your business will need to be well prepared for its upcoming insurance renewal, to gain the optimal arrangements from insurers for your circumstances. You may face more requests for information about your operations and questions about actions being taken to minimise the likelihood of a claim.

At Adroit we are also here to help you navigate the complex world of Insurance. If you would like to discuss any aspect of your insurance program or take up the offer of a free insurance review, contact us today on 1300 MY ADROIT

Craig Love, Senior Risk Adviser | Adroit insurance and Risk

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