Australian capacity opens up as hard market eases: Gallagher
An easing of the four-year hard market has seen local underwriters accepting some risks that had been placed overseas during the height of the tough conditions, a Gallagher report says.
MD Placement Mark Oatway says the change in appetite also reflects the amount of time, effort and money clients have invested in risk management over recent years.
“We are shifting more risks back onshore to Australian insurers, where we previously had to rely heavily on capacity from our London and other overseas operations to get programs placed,” he says.
“However, there is still appetite and capacity for Australian risks overseas and it remains the case that without the use of overseas markets some placements would not be completed.”
The Gallagher first-half Business Insurance and Risk Market Update says the hard market has begun to show signs of abating as pricing levels in many commercial classes attract new capital.
But the easing is not universal, with areas such as cyber liability and high-hazard property industries remaining extremely difficult. Some liability covers, including for bushfire, sexual abuse, nightclubs and other recreational facilities also continue to present challenges.
“Additionally, the extent of the devastating floods on the insurance market is yet to be fully known, and we are monitoring this very closely,” Mr Oatway says.
Gallagher says clients should retain a mixed program placement with both Australian and overseas capacity.
“When markets tighten up, experience has shown us that Australian underwriters tend to take a more risk adverse approach than insurers in other jurisdictions,” Mr Oatway says. “Maintaining long-term, continuous relationships with foreign capacity providers can prove beneficial in such times.”
Mr Oatway suggests the renewed focus on risk management in the past four years heralds a new status quo in the insurance industry, and there won’t be a return to the days of the bottom dropping out of insurance pricing in the quest for market share.
Gallagher Cyber/Tech Practice Leader Robyn Adcock says the past year has marked a “coming of age” for cyber insurance, with a cover previously considered a “nice-to-have” now regarded as a “must-have” business essential.
“With cyber claims paid outstripping premiums earned, insurers have responded to the escalating cyber risk landscape by reducing capacity, increasing premiums, increasing deductibles, adding sub limits, imposing co-insurance ransomware clauses – overall restricting cover,” she says.
“And, due to the ever-evolving nature of the risks, policy conditions are changing constantly.”
Gallagher says demand for cyber insurance is outstripping supply, insurers are having to prioritise renewal business over new business, and they are looking for a “holistic approach to cyber hygiene and vigilance” that is embedded in a company’s culture.
“Companies without a track record of having previously purchased cyber insurance or that can’t demonstrate best practice cyber risk management are finding that insurance cover can be very hard to find,” Ms Adcock says. “In some cases rates have increased by over 200%.”
Other issues highlighted in the Gallagher report include the impact of extreme weather on claims handling, challenges facing the disability services sector and insurance implications from rising construction costs in regional Australia.
The report is available here.
