In an increasingly competitive market, insurers must work harder to differentiate themselves, Aon says.

The global broker’s latest Australian Insurance Market Update finds surplus capital is affecting all classes, and the soft market is set to remain.

“For at least the rest of this year, the current level of pricing reduction will continue,” Aon Risk Services MD of Broking and Chief Broking Officer Pacific James Baum said.

“The underlying message is that insurers need to find another way to differentiate their offerings rather than just price.

“They are all offering the same product and there are things they should be thinking about, such as whether it is time to offer clients programs that are longer than 12 months.”

Mr Baum told insuranceNEWS.com.au new risks such as cyber present opportunities, but insurers must be more entrepreneurial in their responses.

“Insurers are struggling with the concept of cyber as a developing risk,” he said. “They need to develop products that are appropriate.”

The report says insurers are still making strong profits, with combined operating ratio percentages in the low 90s, but this is reliant on a benign claims environment.

Mr Baum says if natural catastrophe losses return to normal, ratios could easily push out to 120%, with insurers “losing money pretty quickly”.

However, even if this happens there is unlikely to be a dramatic reversal of market trends.

“We could see slight corrections, a flattening of the market, but no great swing in the opposite direction,” Mr Baum said.

The report, which covers the period from September to this month, shows property rates are down an average of 11% for large corporate clients and 8.5% for those with an asset base below $500 million.

General liability prices are also decreasing, with surplus capacity bringing down rates.

Professional indemnity pricing has remained stable, while directors’ and officers’ liability has seen average discounts of 5%.

There has been a general decline in cyber pricing, although as more breaches hit Australia premiums could rise in the short term, the report says.

At the end of last year’s third quarter the Australian cyber market was worth $8-$10 million, but it is expected to double by the end of this year.

By comparison, the US cyber market is estimated at $US2 billion ($2.58 billion).