Casualty insurers are expected to continue increasing liability rates, limiting capacity and reviewing coverage well into this year following a deterioration in profitability and as higher reinsurance costs have an impact, Marsh says.

Insureds with North America or catastrophe exposures, such as for bushfires, are already facing tougher conditions, while January 1 treaty renewals saw a greater-than-anticipated increase in reinsurance costs for direct insurers, the broker says in a local market report.

“These costs will be passed on to insureds in renewal pricing, which we expect to see in the first quarter,” Marsh says.

Australian Prudential Regulation Authority (APRA) data shows the liability combined operating ratio for the year to June 30 deteriorated to 106% from 94% 12 months previously. The ratio had been below 100% since 2015.

Marsh says capacity limits are now more commonly capped at $10-20 million, whereas insurers in the recent past would comfortably deploy up to $50 million.

Businesses with bushfire liability have seen significant rate increases, combined with reductions in capacity, while energy transmission and distribution and mining tailings dams are also tough areas.

Marsh says when it comes to excess layer pricing, some specific cases have seen pricing increases from $300 per million of cover to $1,500-$2000.

Premiums in the US are moving upward significantly, resulting in Australian organisations with North America exposure seeing local price corrections consistent with the global moves.

London markets have been more restrictive on coverage via COVID-19 related exclusions, while Australian markets have continued to provide cover without major changes.

“In the event of ongoing COVID-19 related litigation, insurers are likely to impose COVID-19 exclusions,” Marsh says.

In professional indemnity (PI), where cover is included under public and products liability policies (PPL), insurers are reducing or removing PI in an effort to actively manage and prevent PPL policies from being eroded by PI claims.

The report says intense public and regulatory scrutiny related to sexual harassment and abuse, such as through the Me Too movement and the Australian Royal Commission into Institutional Responses to Child Sexual Abuse, has had an effect on the liability insurance market.

Most insurers no longer offer sexual molestation cover under traditional liability policies and standalone policies are rare, both locally and globally.

The Marsh Global Insurance Market Index for the December quarter shows Pacific casualty pricing overall rose 15%, the highest rise since the inception of the index in 2012.