Commercial and industrial property-owners in Far North Queensland are taking a battering from insurers who are increasing rates, excesses and deductibles.

Underwriting agencies and brokers have told insuranceNEWS.com.au of rate increases of around 40% for commercial property risks above the 25th parallel – which is at the level of Rockhampton – as well as cyclone and storm deductibles of up to $50,000.

Paul Lynam, CEO of Australia’s largest Lloyd’s coverholder, SRS, says there are some “horrendous rate increases” for commercial property being pushed through in Far North Queensland as well as “fairly hefty increases right along the east coast”.

He says wind and cyclone excesses are being attached to all risks in Far North Queensland but there is some potential to buy down the excesses.

“Some Lloyd’s coverholders are putting on some pretty heavy cyclone excesses – around $50,000 – above the 25th parallel.”

Mr Lynam says as far as the Lloyd’s syndicates which participate in the Australian market are concerned, the price correction was needed.

“The Australian market has been underpriced for a considerable time and it was becoming unsustainable,” he said. “Had price corrections not occurred some [syndicates] would have withdrawn from the market.”

However, while pushing up rates may appease Lloyd’s, Mr Lynam believes that some local underwriters will pull out of the Far North Queensland market altogether in order to secure reinsurance at lower rates.

“There’s only a handful of underwriters that are going to be underwriting up there,” he told insuranceNEWS.com.au. “It will get very interesting in the next few months.”

Mr Lynam says SRS is “looking at strategies” to enable it to continue writing business in the region and expects to release details of its plans in the next month.

“We’re not about to throw the book out,” he adds.

He believes the impact will flow onto property rates across the country and eventually onto other classes of cover.

Lloyd’s General Representative in Australia, Adrian Humphreys, says he has heard anecdotally that underwriters are increasing commercial property rates in Queensland by 20-40%. But he says the increases are not specific to Far North Queensland.

“I certainly haven’t heard of any Lloyd’s business to date declining risk support to agencies they have in Australia or a conscious decision to write less,” he said.

Mr Humphreys says any increases being driven through by Lloyd’s syndicates are individual business decisions based on portfolio mix and claims experience and are not a directive from the Lloyd’s Franchise Board, which is responsible for monitoring underwriting standards in the market.

“There is no directive from Lloyd’s.”

The MD of sports and entertainment underwriter SLE Worldwide Australia, Brad French, who was recently in London, confirms that insurers there are taking a much tougher line on Australia and are reducing their exposure here.

“People still want to write but don’t want to expose themselves as much as previously,” he said, noting that the extent of the recent spate of weather events has surprised foreign insurers.

“It is not just floods and one storm,” he told insuranceNEWS.com.au. “In recent times we’ve had significant hail in WA and Victoria, fire in WA and extreme heat in Victoria. These are all unmodelled perils.”

He agrees that the experience of the commercial property market will reverberate to the contingency market with the recent weather-related losses affecting pricing and risk appetite for insuring future events.

“They will still get placed but clients should expect to pay more and have bigger deductibles,” Mr French said.

And it is not just Lloyd’s that has been spooked by recent adverse events.

CEO of Australis Group Underwriting, Gary Marshall, says its capacity provider, Swiss Re, had to be convinced to begin writing business again in Far North Queensland after initially putting a freeze on the region.

He says the global reinsurer took “quite a bit of convincing” and that business is now being written “at very much higher rates” and with larger excesses and deductibles.

He says premium increases in the order of 40% are commonplace, and risks are being chosen very selectively. “We have to be careful what we write.”

However, a spokesman for Swiss Re denied it has reduced capacity in the region. 

“Recent events in Australia have not changed Swiss Re’s risk appetite. Our underwriting policy is to assess each risk in the context of its exposure profile, and apply terms and conditions that in our estimation will generate the returns appropriate for that exposure in the context of our overall portfolio,” the spokesman said.

Mr Marshall says brokers and their clients have generally been understanding about the higher rates, which he expects will be maintained for at least the next two years.

“There has been good acceptance. They are pleased we are in the market and will write business.”

However, Peter Peirano, the principal of Rockhampton-based Piranha Insurance Brokers, is less than pleased with the way his clients are being treated.

He says insurers have declined to renew long-standing clients who have never had a claim, with underwriters telling him risks above Rockhampton are now under scrutiny.

“They leave our clients like a shag on a rock,” he said. ”They take the umbrella off them when it is raining – and it is morally and ethically wrong.”

Mr Peirano says some insurers are imposing commercial property embargoes on so many postcode areas that they are “effectively freezing north Queensland business whenever there is a chance of rain”.  

Areas that are not affected by flood or cyclone are being drawn into the insurers’ no-go zones.

“Every week we receive a Vero update listing new and old embargoes. I didn’t mind when there were cyclones around, but the only underwriter we are getting them from lately is Vero – no one else,” he says.

Sources say Vero is also increasing casualty rates in the region by up to 10%.

Vero’s EGM Intermediated Distribution Andrew Mair told insuranceNEWS.com.au that as of last Friday, there were no embargoes active for Vero’s commercial insurance products.

He says it’s too early to tell on rates. “But we anticipate there’ll probably be some premium increases as a result of the recent weather events.”

Lumley Insurance is also looking to rebalance its Far North Queensland exposures, with sources saying it is “pulling back aggregate” in the region.

Lumley COO John Nagle says the company is only accepting new business at the expense of existing business in the region.

“As an interim measure, Lumley is currently holding our exposure limit in this region, meaning we still have appetite for new business but that this will only be accepted at the expense of existing business,” he told insuranceNEWS.com.au.

“With the region continuing to display ongoing risk volatility we are also repricing some risks in the region to ensure premiums accurately reflect the inherent risk exposure.”