Insurance Market Update - Q2 2023

Published on November 15, 2023
Insurance Market Update - Q2 2023

Conditions in the insurance market continued to trend in a more positive direction in the second quarter of 2023 for some but not all market segments. Premium rate increases continued to moderate across most classes, while others, such as Directors & Officers (D&O) Liability, saw premium reductions.

That’s according to new figures released by global insurance broker Marsh, which showed that insurance pricing in the Pacific region (which is dominated by Australia and New Zealand) increased by 2% in Q2, compared to 7% in the prior quarter.

The most positive results came out of the financial and professional lines market, with increased competition leading to a softer, more competitive environment.


Financial Lines Market

Conditions in the Directors & Officers (D&O) Liability space were especially promising, driven in large by new market entrants – particularly in the UK – creating competitive tension against existing providers. According to Marsh, D&O pricing generally decreased by 10% or more for quality risks.

However, while conditions are improving and cover is becoming more affordable, several new, emerging exposures for company directors and officers will be a crucial focus for insurers going forward. ESG (Environmental, Social, and Governance) policies, cash flow management, cyber risk management, and inflation and recessionary pressures are just some of the issues that insurers continue to monitor closely.

The Cyber Liability market continues to show signs of improvement after a turbulent 24 months involving a series of large ransomware and cyber extortion attacks that caused havoc to all industries across all jurisdictions. Marsh reported that the average pricing for Cyber insurance in the Pacific region dropped from 25% in Q1 of 2023 to just 8% in Q2. Results were far more favourable globally, with the average premium increase reducing to just 1% from 11% in Q2.

Much like the D&O market, insurers continue to adopt strict underwriting protocols when evaluating Cyber risks. Robust cyber security measures are now a non-negotiable for many insurers, with multi-factor authentication, business-grade firewalls, and anti-virus software a must.


Property & Casualty Market

Competition among insurers remained strong in the Property market for quality risks with positive loss records. Conversely, organisations with sizeable geographical (NATCAT) exposures, unfavourable claims records, or those operating in high hazard risk sectors experienced a more challenging environment, particularly for those with U.S. or New Zealand locations.

Several brokers have reported average pricing increases for their Australian clients of 0% - 5% for clean risk accounts with minimal NATCAT exposures, while other, less attractive accounts (i.e. those with high-risk exposures or substantial losses) experienced increases starting at 10%.

Insurers also continued to impose restrictive policy conditions across several key areas, particularly for NATCAT perils and contingent business interruption coverages.

In New Zealand, insurers continued to deal with the fallout of the Auckland Anniversary Weekend flooding and Cyclone Gabrielle. These two events, which hit within three weeks of each other between the end of January and mid-February, resulted in significant commercial, rural, infrastructure and domestic losses and set new annual loss records for extreme weather events across the country.

Latest figures released by the ICNZ (Insurance Council of New Zealand) estimate that the final cost of insured losses emanating from these two events alone will reach a staggering $3.5bn.

These tragic events made what was already a challenging environment even worse. One major insurer announced in mid-March 2023 that April renewals onwards and immediately for new business they would require a 20% increase in overall premiums, to be made up from a mixture of rate, sum insured increase or excess variations.

Insurers also continue to scrutinise the adequacy of their client's declared property and business interruption values. They often require up-to-date valuations to ensure the disclosed figures are accurate and consider ongoing inflationary pressures and rising construction costs. Without these, many organisations are being pressed to accept unfavourable co-insurance/average provisions that can be extremely detrimental in the event of a loss causing major property damage.

Generally speaking, conditions across the Casualty/Liability market remained relatively stable for most businesses/industry sectors. According to several brokers, insurers are generally handing down nominal inflationary increases in premiums of approximately 5% - 10% for low risk / non-loss affected accounts.

For particularly challenging industries (e.g. Rail, Power & Utilities, Sporting Associations) and other high-risk classifications, such as organisations with US exposures or ecclesiastical/faith-based institutions, conditions were far less favourable. In these cases, availability of capacity remained challenged.


Looking Forward

Overall, the first half of 2023 saw a continuation of the positive results that begun in 2022. Improved insurer results and a generally healthier market produced a more competitive environment across most classes of business; however, certain pockets of the market remained particularly challenging.

Many experts predict a two-tiered market will likely unfold throughout the remainder of 2023, barring any unforeseen major events. Insurers will continue to target attractive, in-appetite risks, whilst the more challenging, less appealing risks (including organisations with severe loss records), will continue to be heavily scrutinised by insurers and will likely experience higher rate increases and capacity issues.

Outside of an organisations individual circumstances, other factors such as global economic volatility, ongoing geopolitical instability, supply chain challenges, and inflationary pressures are just some of the key issues that will likely influence insurers’ behaviour moving forward.

Climate change also continues to impact the frequency and severity of costly weather events. Increased bushfire risk remains a concern for the year ahead in Australia, with the Bureau of Meteorology (BOM) stating that the El Nino climate driver has come into effect amid soaring temperatures and extreme fire danger across parts of south-east Australia.

Insurance buyers need to be proactive to ensure they are best positioned to achieve the most favourable results in the current climate. Only the most appealing, well-managed risks will be able to take advantage of the positive developments in the market and attract the most competitive capacity from insurers, who are increasingly selective regarding which risks they want or are willing to insure.

For this reason, the performance of your insurance broker is crucial. As your spokesperson and exclusive representative in the market, their ability to work with you in effectively selling your risk to the market is vital to ensure you enjoy the best the market has to offer in terms of cover and pricing.

Talk to Procurement Australia for all your Insurance needs today.


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Blog Submissions: Peter Sellwood

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