Risk managers will need to ensure their businesses step up mitigation action to ease the impact of a hard insurance market, which still has some way to run due to a number of drivers, FM Global says.

“To be able to reduce their costs they have to take a more proactive approach as far as getting risk improvements budgeted and getting in front of their board to explain why they need to do this,” Operations Manager Lynette Schultheis said today.

Ms Schultheis says business interruption uncertainty following the COVID-19 outbreak and natural catastrophe impacts last summer had added to the hardening environment, and industry performance figures indicate corrective action is still required to reverse losses.

The Australian Prudential Regulation Authority statistics for the year ended September 30 show a combined operating ratio of 115% for fire and industrial special risks, a deterioration from 110% a year earlier.

At the same time, interest rates remain at low levels, adding to pressure on underwriters to look for more premium increases.

Reinsurance market increases are anticipated, which is particularly likely to flow through for businesses exposed to natural catastrophe risks, and insurers generally are taking a disciplined approach in applying terms and conditions, Ms Schultheis says

For insureds it’s important to respond to any recommendations on how they can address risks, aim to compare favourably with others in their sector and to make sure they present their businesses in the best possible light, as insurers consider premiums, deductibles and limits.

“It is not that there isn’t capacity out there, insurers are just using it more wisely,” she says.

Repercussions from the coronavirus outbreak have included an increase in cyber incidents, which is likely to be reflected in cover offered by insurers and reinsurers, and which could impact limits or lead to waiting periods.

“The reality is, the cyber insurance that you will be able to find and obtain and price out, will be a fraction of what your actual exposure is,” she says.

“Insureds really need to be thinking ‘how do I beef up my resilience, how do I take more accountability for my exposure rather than hoping insurance is going to pay for it’.”

Ms Schultheis says FM Global business interruption cover does not exclude COVID-19 but its specific wording requires the presence of a disease at a premises. Typically the firm writes 100% of a risk, rather than participating in layered programs.

More widely, the industry responses to uncertainty over exclusions and cover are likely to see firms cautious about relying on any wording form except their own, potentially complicating programs that are shared and layered.

“Insurance companies will no longer be looking to adopt the broker form, they are going to go back to wanting to use their own form,” she says.