Commercial rates will keep rising, says Swiss Re
Australian commercial insurance premiums are forecast to rise 6% next year after increasing 7.4% in the current 12 months as a rate-hardening trend continues and the economy expands, Swiss Re Institute says.
“Solid economic growth this year and next will further underpin demand for insurance,” Swiss Re Group Chief Economist Jerome Jean Haegeli says in a report on the Australian commercial insurance market issued this afternoon.
Commercial motor is forecast to rise 10.3% this year and 5.5% next year, while property is expected to increase 4.1% this year and then 6%.
In liability, financial lines, especially directors’ and officers’ covers, are facing sharp increases due to class action activity, while capacity constraints are also contributing.
The expected rises follow gains of 4.3% last year as the impact of natural catastrophes, including Cyclone Debbie, helped drive the market.
Swiss Re Corporate Solutions Head of Sales ANZ Stephen Higginson says gains are not across the board, with wide variations within various lines.
He says the market is still making up ground after more than a decade of difficult conditions.
The insurance community allowed the pricing levels to drop too low, he told insuranceNEWS.com.au. But underwriting approaches and strategies have changed.
“We are still in a position where the insurance community needs to see at least another year of sensible rating and a sensible approach to risk to say we have got over the worst of it,” he said.
“But it is a lot better than having a market that continues in free-fall.”
Marine insurance remains a soft area, with no increase expected for this year and just a 1% rise forecast for next year, while the outlook is also clouded by the potential impact from escalating US-China trade concerns.
Australia’s commercial insurance market was estimated last year at $US10 billion ($13.8 billion) by direct premiums written, making it the 10th largest in the world, the report says.
Longer term, business interruption risk will be a growth driver as many companies in Australia, particularly SMEs, don’t have cover in place.
ICA defends travel insurers’ pregnancy exclusions
The Insurance Council of Australia (ICA) has challenged a comparison website’s travel insurance survey that finds one in four policies do not cover pregnancy.
ICA spokesman Campbell Fuller told insuranceNEWS.com.au almost all travel insurers cover pregnancy to some level, with exclusions varying according to policies and situations.
“ICA encourages pregnant travellers to research travel insurance policies and read the individual product disclosure statements to find a policy that best covers their individual circumstance and personal need,” he says.
Comparator Mozo says an analysis of 271 policies from 60 insurers found one in four exclude pregnancy, and those that do provide cover have a number of conditions.
ICA says the period covered by policies varies from 20-32 weeks for single-birth pregnancies and most use 19 weeks for twins or more births.
Cover is available if the traveller has not experienced complications, but some still offer insurance in the case of complications if extra information is provided.
Most IVF pregnancies are not covered. Generally, insurers will not cover medical or other expenses associated with premature birth while travelling, but a few policies will cover childbirth and care of the newborn up to the 30th week.
Mozo says its analysis shows blood-thinning medication is the most excluded condition, with 87% of policies not allowing claims, while 82% exclude cancer and 81% cardiovascular disease.
On adventure activities, surfing and trekking are usually covered, but 83% exclude mountaineering, 70% rock climbing and 63% skydiving.
Underwriting agencies remain highly optimistic
About 89% of Australia’s growing army of underwriting agencies see growth potential in their markets, up one point from last year, according to an annual survey.
The proportion who think new entrants will provide a fierce challenge fell 27 points to 33% and fewer than half believe strong competition makes life difficult, down six points.
“Underwriters remain highly optimistic and see potential in harvesting demand in their current markets,” the Underwriting Agencies Council CEO survey report says.
“The perceived threat from new entrants is receding and rated as the least concern.”
The survey was conducted by the Underwriting Agencies Council and insurance technology group Gratex International, and includes participants from New Zealand.
Some findings suggest that despite their confidence about the market’s growth potential, some underwriting agencies are rethinking their strategies and easing up on diversification.
Only 22% rank entering new market segments as critical or very important, down from 45%, and the proportion planning to introduce new products to customers fell 11 points to 47%.
“We are delighted to see a thriving industry taking more and more advantage of automation and digital transformation,” Gratex MD Marian Korcek said.
“However, looking at the trends, I would caution about the slowing of innovation and new market entry appetite. The tide will turn in a couple of years.
“Together with the lightning-fast advancement of technology, especially Big Data, business and artificial intelligence, the industry must be ready for unprecedented change already on the horizon.”
D&O premiums a sign of the times: Gallagher
Directors’ and officers’ premiums continue to escalate, mainly driven by a spike in class actions, according to Gallagher’s latest quarterly market report.
“Throughout this year of change, one thing has remained constant: the intense scrutiny company directors are under at a time when employees, consumers and shareholders are demanding more accountability for their actions,” CEO Sarah Lyons says.
The hardening market has led to insurers taking a much closer look at initial public offerings, engaging in more rigorous underwriting, raising prices and restricting cover.
“Insurers are more selective of the risks they insure, with an increasingly limited number prepared to consider putting up terms only after they have considered responses to an extensive list of questions,” Gallagher says. “This is challenging for large raisings where clients seek significant capacity from multiple insurers.”
The report says the insurance sector has opportunities to grow further as it evolves to meet the changing business landscape and support clients’ needs. Growth in the transport sector and the increasing popularity of surety bonds hold great promise.
Calculated attack: industry responds to Choice claim
Insurers have defended online home and contents value calculators after a Choice study produced varying replacement cost estimates.
The consumer group’s test of calculators offered on six insurers’ websites found differences of up to $71,500 for an identical four-bedroom house in a single postcode.
But an Insurance Council of Australia spokesman told insuranceNEWS.com.au that home building and contents calculators “are an important resource to help prevent or reduce underinsurance in the community”.
“Consumers are being helped, rather than misled, by online calculators. They provide reliable guidance on the amount of insurance householders may choose to purchase. Consumers may also use them to check their level of cover.”
As for the $71,500 discrepancy highlighted by Choice, ICA says the different outcomes are caused by insurers having individual underwriting methodologies and other criteria for assessing risk.
Calculators have been customised and may not include factors such as demolition cost, professional fees and other expenses likely to be incurred during a rebuild, and these could have a huge impact on the estimates.
IAG says its calculator “is designed to highlight to a customer what they need to consider when calculating their sum insured”.
“Variations in quality, construction materials, site differences, additions and extensions are just some of the factors that will influence the rebuilding cost,” a spokesman told insuranceNEWS.com.au.
“Online calculators play an important role in addressing underinsurance and helping consumers make sure they are adequately insured.
“However, it’s important to recognise they provide general information only and are not a substitute for professional advice about a customer’s individual circumstances.”
Suncorp says its online calculator uses “extensive building industry data to estimate rebuilding costs, including demolition and professional fees”.
“It is an important tool for customers to ensure they have the right level of cover to rebuild their home,” a spokesman told insuranceNEWS.com.au.
Actuaries’ climate index reveals extreme change
The frequency of extreme weather conditions in autumn this year exceeded historical trends, with risks linked to higher temperatures and sea levels increasing.
That’s the finding of the first Australian Actuaries Climate Index, which measures how weather extremes and sea levels are being affected by climate change.
The Actuaries Institute expects the index will help insurers assess risks by determining if their frequency is changing. Its baseline period covers the years 1981-2010, and it will be updated quarterly as new data becomes available.
The index features a series of indices measuring changes in wind, rainfall, drought, temperature, sea level and consecutive dry days. It also shows wind levels remain broadly unchanged.
Although the index follows similar tools introduced in the US and Canada, the Actuaries Institute says it has implemented key changes to improve data quality.
Its baseline covers a more recent period and it uses a more extreme threshold for observations, providing a better link to risk. However, the index is based on only three component indices, rather than all six, because some data was not available or would have been overweighted.
The institute intends to develop more explicit indices measuring the risk of damage to property, health and excessive energy.
Finity Consulting Principal Tim Andrews says the index helps the industry understand that extreme weather and sea levels are changing. Finity helped collate the index using Bureau of Meteorology data.
Click here to see the index.
Cyclone damage: a major problem with a simple solution
Wind-driven rain entering homes around windows and doors is a major source of cyclone damage, even when building exteriors are mostly unharmed, new insurance research shows.
James Cook University’s Cyclone Testing Station found 70% of strata property claims include damage caused by wind-driven rain, while the percentage of claims costs for which this accounted varied from 2-60%.
The study was commissioned by IAG and Suncorp.
“Water can wreak havoc in a cyclone,” Suncorp CEO Insurance Gary Dransfield said. “Past events have found that buildings appearing visibly fine disguised significant interior damage caused by wind-driven rain throughout the home.”
The study analysed strata and house claims from cyclones Marcia and Debbie, to investigate potential mitigation measures for north Queensland homes.
Videos taken by residents during Debbie showed “considerable volumes” of water coming through windows and sliding glass doors, under swing doors and through light fittings.
“The rain caused damage to vulnerable elements such as plasterboard wall linings and ceilings, floor coverings and personal belongings,” James Cook’s report says.
“In multistorey buildings the rain percolated down through the building for a number of storeys below the original point of entry.”
A wind-driven rain simulator found homeowners can keep water at bay using a strip of plastic sheet taped inside windows or sliding doors. The report calls for increased awareness of the issue in the design and construction industry, and among residents.
The insurance and window and door industries should work together to promote weather-resistant openings for cyclonic regions, it says.
Geoscience updates tsunami hazard model
Insurers will have a better understanding of the frequency of tsunami-causing earthquakes thanks to Geoscience Australia’s updated tsunami hazard model.
The model includes more than 500,000 earthquake-tsunami scenarios around Australia, plus data from tsunamis that occurred in the past decade, since the previous model was produced.
The Federal Government group’s updated analysis also has data for more locations around Australia, making it easier for modellers to conduct local impact studies.
The area most susceptible to tsunamis runs from Geraldton, north of Perth, up to the northwest tip of WA. This area is close to the edge of the Indonesia tectonic plate, which is an active fault line.
Many of the 50 recorded tsunamis to hit Australia’s coastline resulted in dangerous rips and currents.
Geoscience Australia has yet to determine the probability of land inundation from tsunamis.
A spokesman says this would require using information from the model in conjunction with detailed topographical coastline data.