Insurers face a “critical time” in coming months as conditions that have squeezed margins show no signs of easing, Aon says in its second-half Insurance Market Update.

Attempts to raise rates may be counterproductive given reinsurance capacity is at a new high.

“The balance between a very cautious insurance market desperate to return to profitability and the ever-growing capital growth in the reinsurance capacity that underpins it makes the coming months a very critical time for insurers in Australia,” Aon says.

“Carriers are desperately trying to get price increases across many lines, but will they be able to achieve it?

“At the very least, this mounting pressure will limit the reductions that have been available for so long.”

Attempts to grow market share have hit insurers’ plans to alter pricing strategies, and this is apparent in property lines. Buyers are more keen than ever to get the right property cover at the right price, pitting them against insurers that are under investor pressure to improve margins.

“As a consequence, we are starting to see the market push closer to the bottom in terms of pricing,” Aon says.

“Market softening
is abating and rate reductions have slowed over the past three quarters and are beginning to flatten out in
most areas, though insurers remain reluctant to walk away from business. New entrants continue to come into the market or expand their presence in new areas, which, for the moment at least, is limiting the ability for prices to increase as many insurers would like to see.”

In general liability buyers still have the upper hand, but some insurers have “guardrails” around multi-year or open-ended insurance agreements.

“History shows that at the bottom of a pricing cycle insurers are more reluctant to enter into long-term arrangements
as they try to time a pricing upturn,” Aon says. “We are beginning to witness such behaviour, with some insurers now requiring head office sign-off before entering into long-term agreements.”