Hard slog: Insurance Advisernet’s Shaun Standfield says conditions could last another two years
coverage priorities, it has also increased interaction with brokers. “In many respects this is motivating a good quality conversation with clients about risk management for their business,” it says. Marsh says the impact of COVID-19 on pricing “is relatively minor but it is there”. “It has given insurers an additional reason to increase premiums,” Mr Donnelly says. “The market has also imposed communicable disease exclusions on major classes of insurance. This has caused quite a deal of confusion and disruption in the market with lack of consistency in the wordings and strategies being adopted by different insurers.” AUB Group says there has been “a discernible increase in the level of discounting of broker fees and commissions across the market”, while MGA says the pandemic has caused some clients to cancel cover. “Some of our clients have decided not to renew as their businesses have not returned to ‘normal’ as yet or are unable to afford the premiums,” Mr McDonald says. He adds that the stance insurers have taken in relation to rent default covers in domestic landlord policies since COVID-19 hit has had a “major impact”. “Clients are unable to move policies between insurers if rent default was previously selected. Most insurers are honouring cover if had previously but won’t offer it as new,” he says. “This places clients in an impossible situation if they wish to keep rent default, as they do not have an option to source alternate quotes if the holding insurer applies premium increases, excess changes or policy endorsements.” Insurance Advisernet says management liability insurers are taking a cautious position “given that certain risks associated with Employment Practices Liability & Crime generally trend upwards in losses during
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recessionary periods”. Insurers are reducing limits and increasing deductibles in such areas, he says. Insurance House’s Mr Currenti says most clients are not cancelling cover but many “have reduced turnover and coverage, especially those business which have been forced to shut down”.
Do you expect the market to continue to harden? If so, for how long? PSC believes the hard market has 12-18 months to run “at a minimum”. “We were already in a hardening cycle with bushfires, floods and now [there’s] a pandemic thrown in on top to challenge the operating ratios of insurance companies both here and overseas,” Mr Stewart says. CBN’s Mr Crawford agrees. “This is a market unlike many have seen, or perhaps [are] unlikely to see again in our careers,” he says. “We expect the market to continue to harden over the next two years. With this we expect mergers and acquisitions will rise, new players may enter and some likely may leave.” Insurance House’s Mr Currenti believes the pandemic has injected a new sense of uncertainty. “Before COVID I would have said that we still have 12 months of a hard market. I am now not sure,” he says. Insurance Advisernet says it’s hard to see new capital entering when margins remain tight and predicts technical underwriting will remain for some time. Mr Standfield believes the hardening market will run for 18-24 months but the severity and frequency of natural catastrophes will be a key factor. Marsh says the market will continue to harden during this year and into next, as increased reinsurance costs are passed on to buyers.
“The increased pricing and restriction on wordings will continue until the market globally restores profitability and maintains that profitability for a reasonable period of time,” Mr Donnelly says. Aon says insurers are increasingly taking aggressive action to firm up underwriting performance after successive years of poor insurer performance. “With rating agencies casting a watchful eye on the industry and investors more willing to demonstrate a removal of capital, insurers must prove that they can return to profitability,” it says. “We see the current environment continuing in the medium term, although there is light at the end of the tunnel for those mid-market buyers in benign geographies in medium-hazard occupancies. “These clients are very much the target for the majority of insurers and this will soon become the battleground for competition as insurers shed premium in other areas to 0 reduce portfolio volatility.”
Every penny counts: CBN Chief Executive Richard Crawford warns clients are under pressure
