Insurers are reducing aggregate exposures – what can brokers do?

Melbourne-based Brady said the insurance market continues to feel volatile. The result can be much more work for brokers compared to a few years ago, especially around renewals time.

“We’re working a hell of a lot harder just to achieve the same results we were three or four years ago,” he said.

Defence mechanism: insurers reduce capacity

Brady said, currently, particularly in property insurance, the main “defence mechanism” for insurers when the conditions are relatively tough is to reduce their capacities.

“If you’ve got a property, for example, that’s worth $20 million in total, instead of one insurer taking the entire $20 million of risk, they’ll reduce their capacity and only provide a small percentage of that overall exposure,” he said.

Brokers are left to find excess capacity to fill the slip and bring the cover up to 100%.

“That’s something that is becoming even more frequent, even with lower grade risks, which we would ordinarily expect a single insurer to take,” said Brady.

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He’s also noticed that, across his firm’s different insurance areas, strict renewals objectives and risk requirements are becoming a lot more common. Brady said a typical example is cyber insurance where, he said, “the losses have been astronomical, in particular over the last 24 months.”

Accumulation of risk is a worry

“We’ve noticed that when underwriters are offering cyber terms the actual coverage is being narrowed right down so that the insurers are reducing their overall risk,” he said.

Brady said this narrowing of coverage can happen when insurers are concerned about their accumulation of risk.

“If they’ve got 1,000 policies with 1,000 different insureds but they’re all connected to a common network or use a common third party software vendor, that can cause that insurer an accumulation of risk,” he said. “If something catastrophic was to happen it would obviously be completely undesirable.”

As a result, insurers’ underwriting processes for cyber coverage are becoming more thorough. Today, he said, qualifying for cyber insurance can depend on having password management protocols, a disaster recovery plan, breach response and incident response plans.

“All of these, three or four years ago, were only reserved for the top corporate type clients but that’s filtering right down even to the SME space and becoming a lot more common,” said Brady.

The flow on effect for brokers: “You’re working three times as hard just to keep on top of the portfolio that you’re managing,” he said. Brokers are filling capacity and managing and administering risk requirements and underwriting objectives.

January is proving to be a busy time for Brady’s firm. He said they’re dealing with “particularly complex renewals.” There are also outstanding property claims.

“I’m sure most brokers will agree that claims management is becoming notoriously difficult,” he said. “Property claims in particular are typically taking much longer and insurer responses can be painfully slow.”

The ongoing underinsurance issue, he said, is also a key challenge.

“Construction prices have increased exponentially over the last 24 months, coupled with surging demands the need for constant and proactive engagement with clients on asset values remains a key focus for us and the wider broking community,” said Brady.

PI “is still turbulent”

He also said the professional indemnity (PI) insurance space “is still turbulent, with capacity remaining one of the key issues.”

Last year, during an interview with Insurance Business, Brady detailed PI coverage challenges.

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“We’ve got three risks on my desk right now that are looking for excess layer cover that, at the moment, we just can’t find,” he said. “So what do we do?”

He said finding an Unauthorised Foreign Insurer (UFI) could be the only option.

“I think the market’s hardening, we’ve got an avalanche of regulation and legislation changes as you know,” said Brady. “There are lots of things on the boil.”

During the interview in May last year, Brady said the main issue was insurers not making money and getting hit with more and more claims.

“What I probably think is the main driver behind a lot of the pressure on the financial lines sectors is the return on investment from the insurers that are putting away money to try and make money off the premiums – it’s not making any returns,” he said.