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Global disasters prompt property outlook caution

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Australian and global natural catastrophes this year could have implications for property premiums even as pricing pressures begin to ease, Willis Towers Watson (WTW) warns in a market update.

Multiple renewal period premium increases have brought “perceived rate adequacy” to many accounts, but capacity constraints continue in the local market and pricing rises vary greatly by industry and risk classification.

“We expect rate increases to ease for the remainder of 2021, but we are very mindful of what impact recent catastrophe events can have on the market in 2022,” WTW says.

Loss affected or challenging risks are seeing rate rises of 25%, catastrophe exposed risks are seeing gains of 10-20% while rises elsewhere are around 5-10%, according to the October update.

Australia had a more benign period last summer compared to the previous disaster season, but extreme weather events and flooding on the east coast and Cyclone Seroja in WA have still caused losses of more than $1 billion this year.

Globally the impact of Hurricane Ida in the US will continue to play out, while July flooding across Europe will also affect the insurance market.

“The elevated frequency of catastrophe events has changed the marketplace, altering the way insurers plan for future insured losses and for modelled and non-modelled risks,” WTW says.

For insureds, a narrative focusing on mitigation efforts, improved loss control measures and business continuity plans is seen as critical.

General liability markets continue to harden as deteriorating loss trends affect underwriting profitability, with implications for rates and risk appetites.

Significant losses affecting the market are occurring in areas such as personal/worker injury, sexual abuse and catastrophes, while communicable disease exclusions have been added to most renewal programs.

A “two-speed market” is evident in professional indemnity (PI), with the construction and property sector bearing the brunt of coverage reductions and increases in premiums.

Design professionals and contractors have continued to see dramatic corrections in their PI terms over the last 24 months, driven by claims experience, while the market for larger construction clients and projects has further retracted.

All insurers are now seeking their own versions of a cladding exclusion, some of which extend to all non-conforming building products, WTW says.

“Recent experience has shown that clients with cladding exposures and live claims are experiencing increases over 100% in rating and insurers increasingly coming off risk,” it says.

Law firm top-up insurance has seen premium increases of more than 50% and the number of insurers willing to write top tier law firms, above compulsory insurance purchases, has significantly reduced.

Larger accountancy firms have experienced similar treatment to law firms, with those involved in higher-risk business such as merger and acquisition work and audits of listed companies, facing an in-depth underwriting process to obtain cover.

The market for small-to-medium miscellaneous PI continues to be competitive as the area performs significantly better for insurers than more challenged sectors.

“Most insurers writing PI insurance are looking for more of this business to balance their portfolios,” WTW says. “While insurers are looking to increase rates where they can in this sector, healthy competition limits the level of increase.”