05 Jun Finity Market Report

Finity Market Report

Approaching the halfway point of the year, we are seeing the insurance market shift from a ‘soft’ to a ‘hard’ market.

Factors like significant losses, particularly due to a due to a string of natural disasters, and economic conditions can lead the market to harden. In these times, premiums tend to be higher and underwriters taking a more conservative approach to risks.

CRM Brokers has access to local and international markets – and because not all markets are at the same point in the cycle, that assists us in sourcing the appropriate terms for our clients.

Our experience in risk management allows us to tailor the right processes in place and being more strategic about your business risk in order to find the right cover in a hardening insurance market.The Finity Market Report (below) sheds light on various insurance classes and how changes in the market are leading to a “hard” insurance market.

Insurance Class Commentary

Property
After a number of years of a soft market and poor profitability from small and large weather events, the property market is hardening. Insurers are improving the sophistication of the premium models, taking a more granular assessment of natural peril risk.
Natural peril exposed risks as well as loss affected accounts have seen rate increases above 10% and this is likely to continue until insurers return to more profitable levels or capacity is increased.

Liability
Premium rates have been reducing over recent years and the market is currently only seeing small rate increases in most segments.
A benign claims environment has assisted with profitability in this class, but the rate reductions have now started to put insurers profitability outlook under pressure.
The construction sector has been loss making for insurers for a number of years now. Insurers have responded with sub-limits and higher excesses for hired labour, although significant rate increases (above 20%) would not be a surprise for this segment.

Financial Lines
The D&O and Financial Institutions (FI) markets are in crisis with radical remediation underway, particularly for listed D&O cover. Class actions (particularly securities class actions) and the Hayne Royal Commission have and will continue to result in substantial losses for this class. A lot of these losses have been covered by reinsurance protection. This along with a surprisingly low reported expense ratio makes the Net COR and ITR in the exhibits look much better than the underlying view.
Significant premium rate increases have been occurring (between 20% to 400%) and will be expected for the next year for D&O and FI.
Professional Indemnity cover for non-financial professionals has been performing adequately. Loss affected accounts are likely to see rate increases.
Issues around cladding and the Royal Commission into aged care will put pressure on renewals in the relevant segments.

Business Packages
New entrants into the market in both the direct and intermediated space have increased competition and made organic growth a challenge. Over 10% of premium is now estimated to be written directly.
Insurers are reviewing and increasing the sophistication of their pricing which is likely to lead to more variation by risk. Profitability has been under pressure, but recent rate increases should have rectified this.

Domestic Motor
After a number of years of strong claims inflation, insurers appear to be having some success in containing these increases. Together with moderate rate increases, this returned the class to slight profitability over the past year. However, the future rate and volume growth environment appears challenging.
The evolving smash repairer market and improving vehicle technology requires insurers to adapt to the changing landscape.

Home
Favourable weather conditions largely contributed to a strong year for this class. Future premium growth remains challenging, along with competitive forces.
High cost inflation due to building costs over the recent years continues to place pressure on loss ratios.
Affordability of Buildings insurance remains a key issue, with a wide range of recommendations coming out of the ACCC Northern Australia Insurance Inquiry.

Environment Commentary

Market Players – Commercial Lines
Most APRA authorised insurers have carefully reviewed their loss making portfolios and a number are under remediation. Lloyd’s Corporation has taken a tougher stance on loss-making syndicates and classes of business, resulting in reductions in approved volumes for some portfolios and some Syndicates going into run-off in extreme cases. Property and Financial Lines are the key portfolios hit by the remediation across both APRA authorised and Lloyd’s players.
Brokers are likely to have less placement options than in previous years for corporate and complex risks in these classes. Underwriting agencies and branches of international insurers may provide some options for placement, although price should be expected.

Domestic players have been focusing on de-risking, improved pricing and expense reduction. All had additional compliance costs as a result of the Hayne Royal Commissions. Investor reports highlight the following:

• IAG – In 2018, average premium increases of 6% and remediation in complex Property and Fleet. In 2019, more of the same, and further enhancement of digital distribution for SME.
• Suncorp – In 2018, focused on streamlining activities and remediation in commercial lines. In 2019 will continue to pursue premium rate increases and growth in preferred segments.
• QBE – In 2018, achieved 5% rate increases group wide and de-risked from loss making portfolios and cat and high hazard property. Expect more of the same in 2019.

Lloyd’s has grown substantially over the last 10 years in Australia, now making up at least 15% of the Commercial Lines market. We expect this growth to flatten given the recent remediation.
Underwriting agencies have increased as an avenue for distribution over the last 10 years, as insurers have streamlined their offerings. Over $2.5bn of premium is channelled through about 180 underwriting agencies.

About Finity

Finity Consulting is a leading independent actuarial and analytics firm. Market leading analysis is a core part of everything we do, underpinning our track record navigating industry trends. Finity was awarded the Insurance Industry’s Professional Services Firm of the Year in 2018.

Download the full report here.

Disclaimer: This report is general commentary on market conditions by Finity only, and neither Steadfast nor Finity can be held responsible for the consequences of any action taken or not taken based on the interpretation of Finity’s report.

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