Commercial rates in the Pacific region surged by a record 31% in the second quarter, fuelled in part by further deterioration in Australia’s directors’ and officers’ (D&O) market.

Globally prices rose 19% in the June quarter from a year earlier, the largest increase since Marsh launched the Global Insurance Market Index in 2012 to track renewal rates.

In the Pacific region, where rates have been on an upward trend since 2015, worsening conditions in Australia continue to weaken insurers’ appetite across most classes of business.

Australia is the biggest market for renewals in the Pacific.

“The Pacific insurance market continued to deteriorate in the second quarter across most classes of insurance,” Scott Eccleston, Marsh Placement Leader for Corporate & Commercial Australia, told insuranceNEWS.com.au today.

“Policy wordings are being heavily scrutinised and negotiated. Insureds’ retentions are being traded to offset premium increases, and often insurer line sizes and general capacity deployed is being wound back.

“We expect similar market conditions globally for the remainder of the year, and will be keeping a close eye on the potential development of COVID claims.” 

Mr Eccleston says recent natural catastrophes such as last summer’s bushfires and growing class action claims have been key drivers behind the 31% jump in commercial rates.

Among the three business lines, financial and professional liability led the way with a record 48% rise in prices, as insurers continued to withdraw from the D&O market over heightened fears of more class action claims in the future.

Many listed companies experienced increases of over 100%, despite accepting increased retentions and reduced limits in their D&O programs.

“There were numerous edits to policy wordings to mitigate pricing impacts, with material changes to deal structure,” Marsh said. “It was difficult to fill the capacity desired on select programs.”

In the other two business lines, property pricing rose 28% and casualty pricing 9% during the June quarter.

The double-digit surge in property rates reflected the impact of last summer’s bushfires and other natural catastrophes that struck in recent months.

Globally financial and professional liability prices increased 37%, property 19% and casualty 7%.

By regions, overall rates in the UK and the Pacific recorded the highest increase of 31% during the period. In the US, prices gained 18% and in Asia it increased 9%.

“While pricing movements this quarter were impacted by losses related to COVID-19, other large losses contributed to overall pricing pressures,” Marsh President Global Placement and Advisory Dean Klisura said.

“As insurers continue to work through claims in property and D&O, and with the full cost of COVID-19 still developing, upward pressure on pricing is anticipated for the balance of 2020.”