Broker Honan says property rates in at-risk areas are set for another round of hardening after the latest NSW floods as insurers look to mitigate their exposure.

After the February/March floods in NSW/Queensland – the costliest flood event with insured losses of at least $4.8 billion – rates have been tipped to increase.

The latest floods, with insured losses of $122 million to date, will likely add to the rate pressure facing insurers as the industry wrestles with claims inflation amid shortages of building materials, Honan says in a quarterly market update.

“Off the back of the deluge in NSW… we expect rates for properties in flood exposed areas to continue increasing,” Head of Corporate Insurance & Risk Solutions Poppy Foxton told insuranceNEWS.com.au.

“It is hard to predict the exact extent of the rate increases at this stage, but the frequency and severity of these weather events will continue to see insurers take a highly selective approach to underwriting.”

Insurers are also considering other measures, such as introducing higher deductibles, to insulate against future events.

“Some insurers will look to reduce their capacity by imposing lower flood limits, increase deductibles, or not offer flood coverage at all.”

Ms Foxton says alternative structures such as an aggregate deductible method or a non-standard parametric solution are other means that should be considered.

She says some insurers may also be considering redefining policy flood definitions to include stormwater run-off, referred to as surface water, as a type of “flooding”.

“The intent is to limit their exposure for properties in low lying areas where there is no nearby watercourse,” Ms Foxton said.

According to the Honan update, the last financial year FY2021/22 will go down as the “ignition year” for high inflationary costs in the insurance market, particularly in the claims repair and supply chain space.

“Contractors, construction, and maintenance shortages have fuelled claims costs inflation estimates into FY23 by as much as 30%,” National Head of Strata Kieran Drum said.

“This is mainly due to supply chain disruption for raw building materials and the influx of work caused by catastrophe events such as Victoria’s summer storms and the Queensland and NSW floods which have also impacted insurers’ profitability.

“Furthermore, supply shortages have severely delayed the average time to finalise a claim, increasing the demand for extended temporary accommodation and loss of rent, which is also contributing to the rising cost of claims.”

Cyber is also likely to remain difficult, Honan says.

“Global cyber underwriting strategies have continued to face fierce challenges, trying to stay ahead of the curve grappling with the wider spread pain points that organisations face, and the control frameworks that reduce, minimise or eliminate these threats,” Placement Manager Professional and Executive Risks Ben Robinson told insuranceNEWS.com.au.

“With the ever-evolving nature of ransomware attacks, clients can continue to expect greater scrutiny … meaning the cyber line is forming similarities to that of [directors’ and officers’] pricing.

“However it’s tough to predict where cyber liability underwriting strategies will proceed in the near future, and we could be in for a tough 2023.”

Click here for the market update.