We recommend that consideration is given to urgently reviewing your current insurance arrangements as it is essential that cover is updated in conjunction with changes in risk profile.
The Global Insurance Market is currently in the hardening portion of the insurance cycle, characterised by premium and deductibles increases, scrutiny on terms of cover, reductions in capacity and withdrawals of some insurers from the market. The specific effects of the hard market are demonstrable in our Insurance Market Outlook below which includes metrics on the performances of the domestic and global insurance markets across key lines. Allegiant IRS’ unique approach and knowledge of the insurance market, including our tailored strategy and advice based approach, ensures our clients’ insurance programs are as insulated as possible from the severe unpredictability of the current hardening insurance market cycle.
In March 2021 the Australian Prudential Regulation Authority released its Quarter 4 statistics in respect to Australia’s general insurance industry performance. The December 2020 statistics affirm that the industry net loss of $649m and return on investment of -19% represents a further derogation in the domestic general insurance industry by comparison to the September 2020 quarter. This is principally due to legacy losses resulting from the catastrophic December 2019 / January 2020 bush fires, large falls in investment due to COVID-19, lower underwriting results and provisions for business interruption claims. The December 2020 results from a Year on Year perspective reflect the quarterly results but pronounce the deterioration in the market. By illustration, insurers suffered an increase of 23.7% to gross claims expenses, a reduction in underwriting results of $2.2bn and a 49% reduction in investment income. This culminated in an almost 100% reduction in profitability across the Australian market.
Key performance statistics for the general insurance industry in the year ended December 2020:
Chart 1 and Chart 2, extracted from the APRA December 2020 results, demonstrate that while insurer profitability has been decreasing since approximately 2018, the catastrophic claim events and a global pandemic have substantially reduced insurers profitability and the effects are still being felt in 2021.
As a result insurers have been required to re-evaluate how they offer insurance at a portfolio level in order to remain sustainable. These adjustments include blanket increases in premium, increases in minimum deductible structures, withdrawal of capacity and a narrowing of coverage terms and conditions. This is demonstrable through major insurers QBE and AIG reporting net losses after tax of USD 1.52bn and USD 6bn respectively for the 2020 financial year.
The impacts relating to the convergence of market pressures include:
Figure 1: Global insurance composite pricing change
The above chart represents the global insurance pricing increases per quarter from December 2016 to December 2020. As is demonstrated the hardening market cycle commenced and continued to harden from December 2017 onwards.
Figure 2: Composite insurance pricing change – By coverage line – Pacific
Looking at the domestic markets from a class perspective the market pressures have converged principally in three major classes:
As we have seen with the COVID-19 pandemic, the downside of a truly globalised economy is that we all feel the effects when substantial events occur.
Over the next twelve months, what is certain is that we will see the global insurance markets continue to toughen their collective stance on underwriting discipline for consideration of new business opportunities, while bringing a level of scrutiny to their renewals at a level never seen before.
We anticipate that high-hazard, high-risk profiles will be generally shunned by the insurance market with all but the best risk managed businesses unable to secure viable insurance coverage at a commensurate premium, with mid-range risk profiles now becoming the new ‘high-hazard’ for insurance companies.
Prior to COVID-19, we expected the market trend to start stabilising in some pockets during 2020 with possible concessions considered by insurers in 2021; this is now unlikely to be the case as the broader economic volatility washes through financial markets and business more broadly.
Allegiant IRS will continue to underpin its advice based on the quality of the insurance cover and provider over cost – within reason. It is our experience in a hardening market that those insurers offering ‘cheaper premiums’ usually are not the better insurers and so it becomes an enormous problem when it comes time for the payment of claims.
Alternative risk transfer mechanisms and self-insured elements will be a feature for many clients moving forward as businesses will need to ‘back themselves’ in some areas to continue to be viable.
As the insurance market hardens it becomes even more critical that companies ensure they purchase the most appropriate insurance for the most cost effective price i.e. ensuring efficiency in premium and cover. Our unique service offering enables us to deliver this to our clients.
Strategy combined with a tailored, advice-based approach will ensure that our clients’ insurance programs will be as insulated as possible from the severe unpredictability anticipated in the current insurance market cycle.
¹Extract from the APRA Press Release and available at APRA Website
²Ross, David, ‘Under-the-pump insurers raise their prices’, The Australian 5 February 2021, 18; Marsh & McLennan, ‘Global Insurance Market Index Q4 2020’, February 2021
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