The six months to June featured soft markets, stiff competition and falling premiums in the Australian insurance sector, according to Marsh’s mid-year market report.

Marsh details a “challenging” market unnerved by heightened cyber risks, economic uncertainty, low interest rates and slow economic growth, while experiencing “significant new capital inflows and surplus capacity”.

Market consolidation has continued and shows no sign of abating.

Marsh Head of Placement Asia-Pacific John Donnelly says the quest for growth in a slow market is driving mergers and acquisitions.

“There’s no organic growth to be had and, in the absence of organic growth, the way you grow is through acquisition,” he told insuranceNEWS.com.au.

“This increased consolidation activity is symptomatic of a soft market, in which insurers are challenged to maintain returns and deploy surplus capital.”

The report sees no end to a soft market “driven by the combination of new capital, surplus capacity and the lack of catastrophes”.

In the domestic liability market there have been average premium reductions of 10-20% for non-complex liability risks.

Premiums in the power and utilities sector have remained “relatively flat”.

“The first half… saw a notable trend in buyers making more considered purchasing decisions, with key determining factors being relationships, claims management and payment performance,” the report says.

“While pricing is still a major consideration in renewal strategies, it is no longer the ultimate decision driver. The majority of June renewals remained with the incumbent primary insurer, despite marketing exercises that have yielded competitive alternatives.”

High loss frequency and potentially litigious sectors such as retail are under close scrutiny, with some poor-performing accounts experiencing premium increases.

The financial and professional lines insurance market remains “soft but stable”, with an average premium reduction of more than 8%.

In the financial institutions segment, limits and risk profiles remain stable, with modest premium changes of 5% up or down in the first half.

“Financial institutions are enjoying favourable treatment from insurers with the notable exception of those heavily involved in wealth management and financial planning, due to the continued severity and frequency of the claims activity,” the broker says.

Marsh says an oversupply of capacity remains in the directors’ and officers’ market, both domestically and internationally.

In the professional indemnity market “fierce competition” has continued to dictate activity, resulting in most accounts achieving rollover to 10% reductions.

Companies are increasingly aware of the cost of cyber-security breaches, and Marsh expects the global premium spend on network security and privacy will grow from $US2 billion ($1.82 billion) to $US5 billion ($4.56 billion) over the next five years.

Construction insurance underwriters have focused on maintaining client relationships through pricing flexibility, broadened coverage and expanded limits, plus additional service commitments.

Average rate reductions of 10% have been generated, with reductions of up to 30% realised on some of the larger, well-managed accounts.