How to Navigate a Changing Insurance Market
With the Australian insurance market dictating some of the largest pricing increases and tighter coverage restrictions, it has never been more important for local organisations to access the global insurance marketplace. Cynthia Beveridge, President, Aon Global Broking and Nick Gillett, Chief Broking Officer, Global Broking Centre, Aon explored some of current challenges facing organisations at the 2019 Aon Insights Series event in Melbourne. We outline some of the key points that they raised at the event.
According to Aon, premiums in Australia have been rising since 2017; however, it is only since the end of March this year that Aon has really seen an increase in deductibles, and a tightening of coverage as insurers are chasing lost costs. This has resulted in a much greater focus in risk selection by the insurers. Some of our clients have opted to take increased deductibles and reduced coverage to help manage their insurance costs.
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Insurers look to reduce volatility
Consolidation of insurers and withdrawal by some insurers in certain lines of business, such as Axis Capitali and Swiss Reii has exacerbated the need for brokers to approach insurance markets on a global basis. Insurers are becoming increasingly selective in their deployment of capital, focusing on their profitable accounts, with a view to removing volatility from their portfolios. As a result, we are seeing reduction in line size, increased deductibles and prescriptive attachment points driven by global insurer strategies.
The D&O storm continues
For Aon’s portfolio of ASX200 publicly listed D&O clients, Aon has seen a 54% increase in average rate per million in the first half of this year. However, it should be noted that this is on top of almost 100% in the same period for the previous year.
Professional indemnity premiums are on the rise
With limited investment return, insurers are experiencing increased scrutiny from overseas parent entities to return their books to profitability. As a result, several Lloyd’s syndicates have stopped writing Australian professional indemnity (PI) business and Australian insurers are reassessing their appetite for certain professions. Reduced competition has allowed other insurers to return to profitability by significantly increasing their premiums.
Consultants exposed to cladding risk such as fire engineers, building certifiers, façade manufacturers and valuers have been impacted significantly. They’re experiencing three figure premium increases, if they can even obtain insurance at alliii.
We reviewed several of our clients’ PI renewals from 2018 to 2019 and found an average of a 30 per cent increase in rates.
Be sure to check out our Professional Indemnity Insurance Market Insights for Q3 2019 for more information on the PI market.
Beveridge said, “Central empowerment is at the heart of our strategy. Aon is united in its thought process around risk, retirement and health in an effort to understand all of the client’s risks and exposures. One of our five focus areas is market leadership. This element is about ensuring Aon is the voice of the client in the marketplace and providing a customer centric approach.”
Insurers must continue to provide thought leadership and capacity. As customer-needs expand and insurer appetite constricts, organisations are continually exploring alternative capital structures like pension funds, private equity and investment vehicles in order to challenge the thinking around risk transfer. Beveridge reminded the audiences that “only 6 of the top 10 risks faced by our clients have a viable risk transfer mechanism.”
Captives gain popularity
We are seeing captive insurance as a solution for clients navigating a tumultuous market. A captive is a bona fide insurance or reinsurance company owned and controlled by its insureds. Its primary purpose is to insure the risks of its owners. Whilst there are a huge number of reasons why an organisation might set up a captive, the vast majority of organisations are utilising a captive for retention or market access solutions. In summary, a key to being successful in this market resides in clear strategy supported by data and analytics, understanding of the market and organisational risk tolerance, optimal program and placement design, and the ability to access the global marketplace to deliver successful risk transfer. In the current environment, navigating this requires businesses to pull as many levers as possible.
For more information on how Aon can help you manage a volatile insurance market, speak with your regular Aon contact.
i https://www.insuranceinsider.com/articles/128753/axis-retreats-from-four-business-lines-in-london
iii https://www.insurancenews.com.au/local/pi-crisis-as-insurers-retreat-from-cladding-risk