The Fire and Industrial Special Risk (ISR) and General Liability sectors in Australia are under pressure with large losses and increasing litigation sending rates soaring, according to a second-quarter update from Aon.

The market update says the net underwriting combined ratio for ISR has deteriorated to 121%, driven by major hail and bushfire losses.

Aon says ISR premiums on its large complex property book rose by an average of 26% last year and “rate momentum continues to gather pace” this year.

“The market conditions have continued to deteriorate into 2020,” it says. “Insurers are proactively managing their line sizes to minimise portfolio volatility, while continuing to apply notable rate pressure and more restrictive terms and conditions.

“With more restricted capacity deployment by insurers, the last 15-20% of property placements are frequently becoming the hardest to place.”

The broker says coverage for business interruption extensions such as infectious disease “is being heavily restricted or excluded entirely”.

The update says the General Liability market is suffering a similar fate to ISR, with a net underwriting combined ratio of 125%.

“This has been exacerbated by the rising costs of insurance claims resulting from factors such as increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions and larger compensatory jury awards,” Aon says.

Historical pricing “that has been deemed inadequate” has led to complete rate corrections within both primary and excess layers, the update says.

“In 2019 we saw rating increases across the board for clients in a number of industries and we expect this trend to continue in 2020,” it says.

“In the first two quarters of 2020 we have witnessed some insurers have adopted a ‘take it or leave it’ approach, a sign that the market is continuing to gather pace and catch up with corrections which have recently taken place in other major classes.”

Click here to access the market update.