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In this update, we share practical insurance insights from the quarter that’s been, and forecasts for the quarter ahead.
In Q3 we started to see more consistency and certainty around insurer appetite for Professional and Executive Risks. Whilst insurers continue to press for increased premiums and deductibles, the severity of increases are not as high as previous renewals as insurers start to reach a viable tipping point, particularly for ASX Directors & Officers (D&O) placements.
Cyber risks surged locally and globally over Q3, which has led insurers to reposition pricing and coverage. Two significant cyber-attacks hit the press - the Nine Network attack which disrupted live broadcasts and the cyber-attack on Microsoft Exchange, which breached over 100,000 Exchange Servers. Microsoft released emergency security updates in March to address server vulnerabilities. Insurers expect Insureds to have implemented effective patch management programs as part of the firms’ broader cyber security strategies to provide coverage.
For financial institutions, global economic volatility presents a concern for insurers. With the resurgence in Australian capital markets now floating on an unprecedented level of monetary and fiscal support, investors are sitting on large cash reserves and rapid accelerations in equity gains. As a result, underwriters are concerned about sudden devaluations to the market and consequent investor legal suits. The lingering effects of the Hayne Royal Commission also remain an integral rating factor, as well as any potential long tail claims arising from COVID-19. You can find out more in our early April Financial Institutions market update.
Forthcoming insolvency warnings are among the top concerns for the Management Liability insurance sector with insolvency administrators typically looking to recoup losses from directors. Following the end of COVID-19 Government support packages, SME and private enterprises are being examined for solvency risk and can expect greater scrutiny at renewal time to cover this exposure.
After a tough year in 2020 for Australian mergers and acquisitions, there is cautious optimism about the year ahead. Mid-market deals that were put on hold due to COVID-19 will now progress and the acceleration in capital markets will likely prompt owners to test the waters. Warranty and indemnity insurance continues to have an accelerated take-up in the Australian mergers and acquisitions landscape.
For Q4, cyber insurance rate increases are anticipated across all industry classes after a notable acceleration in claims. With the global pandemic serving as a catalyst, cyber criminals have taken advantage of new and exposed vulnerabilities to target companies’ most valuable resources – their intangible assets (such as data, brands, customer and supplier information, content, code, trade secrets and industrial know-how).
Ransomware claims have increased significantly in both frequency and severity. According to Chubb, ransomware claims accounted for up to 78% of their value of losses incurred during 2020.
A number of cyber markets have flagged that coverage will be restricted for companies with inadequate security measures, while others may decline to offer terms altogether under new underwriting guidelines.
The impact of the SolarWinds cyber attack that spread to clients and went undetected for months will also have critical implications for cyber risks going forward. The Trojan Hack that gained entry via a software update could not only cost cyber insurers AUD$116 million, but could also improve hacking tools for cyber hackers.
In general, insurers expect comprehensive underwriting submissions across all financial lines products to ultimately provide clients with the best price, terms and conditions for their risks. Early engagement with your Broker well in advance of renewal dates is required to achieve optimal outcomes.
The COVID-19 Continuous Disclosure relief for ASX Listed entities has now lapsed. Whilst the Bill has passed through the House of Representatives, this has now been referred to the Senate Economics References Committee (SERC) and ASX entities must continue to act with caution regarding their continuous disclosure obligations.
The proposed Bill outlines various changes to ease the continuous disclosure rules which would raise the threshold to lodge claims, and potentially aid the Directors & Officers (D&O) market. The SERC must report by June 30, and the Senate is expected to debate the Bill in the first Parliament sitting for August 2021.
Clients in the construction industry may have new obligations under the Design and Building Practioners Act (DBA) 2020. Although the Act came into effect on June 11 2020, new details have now been released by The Design and Building Practitioners Regulations which commence on July 1, 2021. The DBA Act which applies to Class 2 buildings and buildings that include class 2 components such as “two or more sole occupancy units, each being a separate dwelling” will now be subject to an industry-wide statutory duty of care along with a number of proposed compliance reporting and registration requirements. The statutory duty of care operating on a retrospective basis is one of the most notable changes to watch over the coming quarter. Given the retrospective element, clients could face litigation relating to work performed years ago. Building and Construction clients should ensure they are well-informed about the changes.We’re With You All The WayFeel free to reach out to discuss your risk exposures.
Head of Professional & Executive Risks
Read the Corporate Snapshot: FY21 Q3.
