The woes of weak international equity markets on commercial insurance and the effect of September 11 on reinsurance markets will be hitting our shores sooner and harder than we expect. An expert has warned that some liability classes in Australia may soon find it impossible to get cover. 

Ian Clark, UK head of general insurance consulting and partner in B&W Deloitte, told Sunrise Exchange News that although the troubles with equity markets have hit countries like the UK and US harder than they have Australia, our domestic insurance markets will still suffer because of troubles in the reinsurance markets.

“The Australian insurance market’s link with London’s reinsurance market and other international reinsurers means it cannot escape the problems these markets are currently facing,” he said. “The London market for reinsurance is deciding not to provide cover, so without the backing of reinsurers it is very difficult to write business in the domestic [Australian] market.”

He said that all classes of business in London are having a tough time. “They have all suffered very high rate increases as insurers are seeking to rebuild their capital from investment losses and reinsurance restrictions. This is very important for the Australian market.”

Australian companies beginning their reinsurance programs at this time will “find themselves in a position of buying less coverage but at a higher price”, Mr Clark said.

And with specific long-tail classes of insurance such as D&O, liability and professional indemnity, “they might not be able to get cover all”.

So when does he expect the troubles to end? “The reinsurance market will be in a hard market for the next two renewal seasons,” he said. “I don’t think we will see a softening till Autumn 2004. The market’s in for a hard ride.”