This year may be a good one for insurance buyers as increasing competition and capital keep a lid on commercial premiums, according to an Aon Australia report.

Many commercial lines buyers have kept premium renewal costs in check, even as insurers look to improve underwriting returns to offset low investment income.

Aon’s Commercial Insurance Market Update says premium growth was essentially flat in the first half as increased capacity in major policy classes pressured rates.

“We expect the increased competition fuelled by growing capital will ensure 2013 will be a favourable environment for insureds,” MD of Broking and Chief Broking Officer Pacific James Baum says.

That scenario is playing out in the property market, despite a string of natural catastrophes in recent years hitting some areas hard, according to the report.

Aon National Manager Property Broking Ben Rolfe says unprecedented claims activity in recent years “has done little to dampen insurer ability or appetite as industry capital continues to rise and improved risk modelling provides a far more robust platform for insurers”.

Aon’s database indicates an average gain in Australian property premiums of 3.7% from January to June, compared with 9.64% in the corresponding period last year. For April to September the figure is forecast at 3.67%.

This slower premium growth comes against a global backdrop of rising capacity and a weak economic environment.

“This has driven increased competition for business among insurers at a time when insurable values are stagnating, reducing any opportunity for organic premium growth and further driving insurer behaviour,” Mr Rolfe says.

Australian insurers seeking to maintain premium levels have looked favourably on corporate customer interest in reduced deductibles and self-insured retentions, he notes.

Policyholders in general liability mostly renewed at existing or lower premiums in the first half but rates hardened for some business sectors, particularly customers with exposure to bushfire liability and offshore energy risks.

Aon’s data indicates an average general liability premium renewal gain of 0.61% in January to June this year, down from 2.98%. A gain of 0.63% is forecast for April to September.

“Policyholders are advised to consider how they will handle harder market conditions in the future [because] liability rates are widely considered to be at their lowest point,” Placement Director Casualty Bill Pavey says.

Professional indemnity premiums gained 0.8% in the first half, compared with a drop of 2.21% a year earlier. Premiums for April to September are expected to gain 0.27%.

Insurers re-entering the class increased competition, but clients with poor claims records are having a tough time. Financial planners that have had losses struggle to get suitable, well-priced insurance, Aon says.

Economic conditions and a lack of government spending during the federal election reduced construction activity but Aon says this could change in the fourth quarter and early next year.

In the directors’ and officers’ (D&O) market overseas insurer interest has increased, with some developing local agency arrangements and others moving to obtain local licences.

“This leads us to the conclusion that D&O capital is unlikely to diminish any time soon,” Aon Placement Director – Financial Services Paul Smyth says.

The New Zealand commercial property sector continues to recover from the Canterbury earthquakes, with a relaxing of pricing in the first quarter.

“This is being viewed as a small correction rather than in indication that the property insurance market is entering a soft phase,” the Aon report says. “We expect this corrective action to continue for the balance of [the year].”