Publication – March 19, 2021 – Insurance Market Outlook 2021

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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.

Mar 19 2021

Insurance Market Outlook 2021

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.


Quarterly General Insurance Performance Statistics – December 2020¹

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.

Classes of insurance² 

The impacts relating to the convergence of market pressures include:

  • Global commercial insurance prices increased by 22% in the December 2020 quarter. This increase represents the 14th consecutive quarter of overall price rises
  • Price growth was led by the UK with a recorded increase of 44% in the December 2020 quarter.
  • Australian market pricing increased by 17%, being the 17th consecutive quarter of continued increases. This contributed to the 22% increase in the pacific region for the December 2020 quarter
  • Domestic financial and professional services insurance (financial lines) recorded a 51% increase in the December 2020 quarter, and
  • Domestic casualty markets (Public Liability insurance) increased by 15% being the largest year on year increase in Australia since 2012.

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:

  • Property: the domestic property pricing has increased by 31% in the December 2020 quarter. Insurers in this space have focused on coverage and wording restrictions in their efforts to minimise risk retention. This focus has manifested in, amongst other things, restrictions to pandemic clauses and closure by authority clauses, cyber clauses, reduction in catastrophe limits and reductions contingent business interruption limits. Whereas clients have sought to adopt lower limits in order to maintain affordable cover.
  • Casualty: the domestic casualty pricing increased by 15% in the December 2020 quarter. This is largely a result of systemic issues in the space such as increased litigation rates, increased social inflation such as with medical costs, plaintiff friendly jury pools and third party litigation funding. Inherently this impacts the frequency and severity of claims in the casualty space placing increased pressure on insurers.
    • In addition and in order to minimise exposure, primary insurers have been reducing their line size and in doing so have placed pressure on excess lines resulting in pricing increases on the excess lines.
  • Financial Lines: the financial lines anecdotally have been the worst class effected by the current hard market with price increases in the December 2020 quarter reported at 51%. Major claims continue to affect the market particularly around listed company litigation on directors and officers lines and engineering claims on professional indemnity lines. Financial lines insurers have been rapidly retreating from new business and imposing minimum increases in existing business in the order of 35% for nil changes in risk. In some instances such as in directors and officers insurance for listed companies these increases have been upwards of 100%.

2021 and beyond

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.

Our approach

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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