Property market conditions will continue to be challenging given ongoing COVID-19 related losses, potential natural catastrophe impacts and expected rising reinsurance rates in the January renewals, Marsh warns.

The property market has hardened in each quarter of 2020, with Pacific region pricing increasing 23% in the first three months, 28% in the second quarter and 31% in the third, the Marsh Global Insurance Market Index shows.

“Eventually, new entrants will likely begin to compete for business, but it will take some time for the market to stabilise and return to a balance of supply and demand whereby ‘market correction’ is no longer required,” the broker says in a property report released as part of its 2020 Australian insurance market recap series.

“Given that many insurers are still yet to achieve underwriting profitability, despite four years of continual premium increases, a more favourable competitive pricing environment is unlikely in the near future.”

Marsh says the added impact of COVID-19 claims is thought to be influencing market increases by some 3-5%. The recent business interruption test case outcome has “added to the stress of the market” and developments are being closely watched.

The Insurance Council of Australia (ICA) is seeking leave to appeal to the High Court after the NSW Court of Appeal ruled against insurers on exclusions citing the Quarantine Act. ICA has also flagged a second test case on other business interruption issues.

Marsh says potential natural catastrophe losses appear to be following an increasing trend as the effects of global climate change take their toll, while January 1 is a crucial date for many reinsurance treaty renewals and the forecast is for rate increases.

The property market overall is also being influenced by an emphasis on technical and referral underwriting, leading to reduced market competition and capacity, according to the report.

“Underwriters who were previously empowered to make their own decisions now must refer to their respective head office committees,” it says.

“This process places less emphasis on insurers’ prior history and relationships with buyers, in favour of an approach that is rooted in technical adequacy and profitability for underwriters.”

Notable trends observed by Marsh include particular attention by insurers on removal and limitation of cover for infectious diseases, civil authority intervention coverages and cyber.

Business interruption extensions, including non-damage triggers for customers and suppliers and public utilities exposures, are being more rigorously tested for validity and geographical scope.

Natural catastrophe limits are being reviewed, or reduced and imposed, for bushfire, wind, flood and hail, along with aggregated limits.

Declared material damage values are a focus, with some insurers applying underinsurance clauses, where a percentage of under-declaration is deducted from the loss if valuations are more than three years old.

“The overall presentation of risk is imperative, particularly when it comes to reviewing engineering reports,” Marsh says.