Australia’s commercial property insurance market is hardening after years of underpricing, according to the latest quarterly market report from Gallagher.

The broker says a prolonged period of major losses from extreme weather events is taking its toll, and the impact has been exacerbated by an increase in “normal” commercial property losses from fires and large thefts.

“After nearly a decade of soft market conditions, we’re starting to see a shift towards a more challenging environment at renewals time.”

Insurers are taking a stricter position on clients with higher hazard profiles, the report says, but the good news for brokers is capacity remains in the market.

“To achieve the best client outcomes, brokers need to be absolutely meticulous with submissions to the market.

“Tempering client expectations and educating them as to the realities of the market is also vital, because the property market is hardening across the board.”

Gallagher says smaller, specialist property underwriting agencies may accept risks that major insurers reject, so property owners should always be able to obtain cover. But the turbulent period is expected to continue for some time.

“With extreme weather events set to increasingly become the norm, from bushfires inland to cyclones and storms in coastal regions, it could be many years before the property insurance market is as settled as it has been over the past eight or nine years.”

Manager Corporate Martin Andrews told insuranceNEWS.com.au that brokers “need to be prepared for a tougher conversation” as insurers look to tighten up underwriting, and clients’ risk management will become increasingly important.

“It is not a hard market where the insurers are retreating,” he said.

“The insurers are there but they are picking and choosing the risks they want to write.”

Non-conforming cladding remains a “key concern” for property underwriters, and Gallagher notes a more cautious approach to offering terms, with increased scrutiny of client risk profiles. It says it is vital property owners disclose the presence and flammability of cladding so independent reports can be carried out.

“The cladding crisis remains an emotive subject, especially with the high-profile incidents in Melbourne and London still relatively fresh in the memory,” the report says.

“However, the well-prepared broker who is in continual contact with their clients and who starts insurer renewal negotiations early will still find cover in the market.”