By: Ian Maybury, National Manager Health and Community Services Lockton Companies Australia
Property insurance continues to see increased pressure on pricing with the availability of capacity reducing and the price of that available increasing. This has resulted in clients with higher risk exposures such as catastrophe risk, high risk occupancies, poor constructions or adverse claims history receiving significant increases (in excess of 20%) in addition to increased deductibles and decreasing level of cover. Mid-tier property accounts ($50m to $300m) was not as significantly impacted (5-10% increase) as rate increases have occurred over the past few years, however corporate accounts that have not yet been impacted by the changing market were increased by as much as 25% despite good claims history.
Directors’ and officers’ liability insurance (D&O) also continues to harden, with most clients confronted with increases of 15% or above including private companies or not for profit entities.
Professional Indemnity (PI) is another class which is experiencing increased pricing and deductibles as well as decreasing cover however, this is yet to significantly impact medical malpractice. Other classes such as casualty and motor were not affected.
On property, professional indemnity (PI) and directors' and officers' liability (D&O) pricing was impacted even for good performing accounts. The cost of capacity was increasing rather than it being a performance based increase.
Changes are being driven by increasing reinsurance costs, insurers' portfolio performance as well as risk selection.
The property market for large accounts in Australia will likely continue to retract, with underwriters not willing to provides substantial lines of capacity which will drive the need for increased quota share and broadly increased premium costs. Contingent business interruption (BI) and sub limits under industrial special risk (ISR) will also come under scrutiny as insurers are less willing to give cover away. Risk retention and focus on risk management by clients will become an even greater focus.
On other classes such as professional indemnity (PI) retention will increase as insurers seek to “share the risk” rather that purely seek premium increases.
For further information, please contact Ian Maybury under:
By: Bradley Green, Manager - Power & Energy Lockton Companies Australia
Power - Renewables
Rates for wind and solar projects are increasing +10% to +20% for clean risks and significantly more for claims impacted accounts. Australia has a history of large defects related losses because of sub-standard engineering, procurement and construction (EPC) during construction, and the default of a large EPC contractor midway through several large projects. Australian risks also have sustained continued natural catastophe losses with a number of solar projects located in cyclone and hail exposed areas.
Domestic insurers are pricing in natural catastrophe exposure, which is driving premium rates although full cover or higher sub-limits are available for nat cat from domestic insurers in comparison to the London market.
Lead insurers are offering small capacities and requiring additional participants to complete a placement. These support insurers try to drive split-slip premiums, which can further impact pricing.
It is anticipated that this firm market will continue for the next 12 months as insurers conservatively rate Australian renewables risks which continue to have defects claims manifest. All local markets are now applying a COVID-19 exclusion and we expect this to expand to restrict coverage for all infectious diseases.
Hydroelectric generation remains relatively stable with +5% - +15% increases in line with the general property market.
Power - Non-Renewables
Thermal coal risks remain in focus in Australia by environmental activists, and there are a limited number of insurers who are not restricted by group level corporate cocial responsibility (CSR) policies. Of those that do write thermal coal risks, they describe themselves as “cautiously open” to writing risks, but will likely avoid writing high-profile projects. This lack of capacity continues to drive rates, with a number of insureds considering the sustainability of the commercial insurance market and the benefits of Alternative Risk Transfer (ART) solutions such as captives. Coal exposed risks will continue to see capacity shortened into the future.
Non-coal exposed generation remains relatively stable with +5% to +15% increases in line with the general property market. Support remains for non-coal generation which will limit future rate increases.
Energy – Upstream
Australia has a limited indigenous upstream market with most risks led by London or Singaporean based carriers. Generally, support by Australian insurers will follow form of the lead, and we are observing +5% to +10% for clean Australian risks.
Exploration and production (E&P) companies will have lower declared footage this year as spudding is deferred due to COVID-19, ensuring a safe workforce and a lower commodity price. This will have an impact on insurers’ premium pool, however this is not anticipated to impact premium rates.
Energy – Midstream / Downstream
The midstream / downstream energy segment remains relatively stable with +5% - +15% increases in line with the general property market.
COVID-19 has had a huge impact on the sector given the withdrawal of demand, largely led by the aviation sector. Midstream refineries in particular will be suffering large downtime losses which will result in a significant reduction in forward values. This will have an impact on insurers’ premium pool and the impact on premium rates may be further realised later in the year with H2 renewals, however at this stage rates remain in line with current increases.
For further information, please contact Bradley Green under:
By Victoria Gash Manager Mining Services Lockton Companies Australia
We are seeing contract works (section 1) premium increases in civil construction of 200-300%. Rate increases are affecting both claims-free as well as loss impacted portfolios. Changes are mainly driven by civil construction activities and sites above the 25th parallel as well as large contract values. I expect that the market will continue to harden/deteriorate in the next 12 months.
For further information, please contact Victoria Gash under:
By Richard Shillington National Manager, Construction and Projects, Lockton Companies Australia
We are seeing evidence that insurers are tightening policies for contract works. Changes include:
• Reduced inclination to offer London Engineering Group “LEG3” defect cover as freely, or otherwise subject to higher deductible;
• Extended maintenance only (no guarantee maintenance);
• Application of serial loss clause/endorsements
For further information, please contact Richard Shillington under: