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The last quarter has seen further stabilisation within the property and liability insurance markets, as rate increases continue to moderate with insurers clawing back profit following a difficult natural catastrophe season (CAT) season in 2020-2021. Whilst the cost of transferring risk still favours the seller, the pricing pendulum has started to swing towards buyers. Longtail liability lines however are still seeing rate increases of 15-20%. Certain segments are seeing much higher increases. For example, purchasing molestation cover remains highly challenging, with markets withdrawing capacity and decreasing appetite for these types of exposures. Honan is continuing to guide clients through more sophisticated risk transfer and retention program structure options as a strategy to manage these risks, either by electing aggregate deductible structures to offset premium increases, or through non-traditional forms of insurance such as discretionary mutuals or captives.
In addition, the second COVID-19 Business Interruption (BI) test case was heard in the Federal Court recently, with the outcome handed down on October 8, 2021. An overview of the second test case, along with the key findings is available here. An appeal date has been scheduled for November 2021 - we’ll provide an update when that judgment is delivered.
As NSW and VIC commence their paths out of lockdown, clients in the hospitality, tourism and retail industries are expecting improved business results for the quarter ahead. Honan is working closely with clients as they navigate the complexity of returning to the office and liability exposures around the relevant State/Territory orders concerning vaccinated vs unvaccinated customers.
Australia's east coast experienced severe weather over the first weekend in October, a possible harbinger of events to come in the natural catastrophe (CAT) season. Meteorologists are again predicting equal chances of La Niña events, bringing with it a risk of associated storms and flooding. Marking the official onset of Australia's CAT season, October is the time for clients to work with their broker to ensure they’re adequately prepared. A CAT plan and undertaking preventative maintenance on your assets in advance are advisable at the beginning of Q2.
Insurers will continue to take a conservative approach to underwriting through pricing and capital deployment. For clients, this will mean insurance supply will continue to remain ample, leading to increased competition and further stabilisation of pricing. Following the Haynes Royal Commission, a raft of new financial services industry regulations come into effect in FY22 including the Claims Handling AFSL license requirements, revised Dispute and Complaints Processes, and the implementation of Target Market Determinations. The industry is preparing to implement new policies and processes designed to give greater protection to consumers, particularly retail clients.
In September, the Australian Cyber Security Centre (ACSC) published its annual cyber threat report for the 2020-2021 FY, revealing total self-reported losses from cybercrime in Australia in excess of $33 billion. The escalating prevalence and severity of cyber attacks, along with changes in governance expectations, director liabilities, and regulatory reform is seeing business leaders place significantly more emphasis on their organisations’ cybersecurity and risk management strategies. Head here for our in-depth analysis of the cyber insurance market and updates across a range of different industries, including financial institutions, professional services, and technology.
Following consecutive years of rate increases, there is clear evidence pricing is beginning to plateau for the public company D&O insurance market. Whilst insurers still applied rate increases during the Q1 renewal period, these were much lower than the prior quarter. This suggests the corrective portfolio measures required in the D&O space have largely been achieved and pricing is reaching a sustainable level for insurers. Challenges remain for companies with poor financials and industries heavily impacted by COVID-19. The ability of brokers to differentiate these clients by communicating in-depth knowledge of their risk exposures and being able to provide quality information about their risk management and risk mitigation activities is crucial to securing positive renewal outcomes for clients.
The professional indemnity (PI) market remains challenging for certain professions, particularly design and construct professionals, digital banks, mortgage brokers, financial planners, and non-bank lenders. These professions still face supply and demand issues due to several insurers withdrawing from the market. Premium rates increased on average 15-20% in the last quarter, with insurers being highly selective in risks they choose to insure.
For management liability (ML) and insurable exposures for private enterprises, the full effects of COVID-19 remain unknown. As a result, underwriters are cautiously monitoring their portfolios and the solvency of Insureds. Crime and employment practices liability coverages continue to be the main triggers for ML claims, accounting for over 70% of combined losses for ML insurers.
In this hardening insurance market where demand outstrips supply, Honan is working to ensure all clients understand the outlook for their renewal programs to ensure the right level of cover for their organisation. Our insurer partners expect strong underwriting submissions, based on the best available information, in order to optimise the price, terms, and conditions for your risks.
At the forefront of renewal negotiations are cyber placements. These remain challenging for certain risks and risk management around ransomware attacks in particular. Insurance carriers and cyber underwriting practices continue to evolve from a traditionally narrow focus on factors such as revenue, number of employees, record count and industry class, to a wider underwriting lens encompassing loss modelling tools and continual system scanning, both in-house and via outsourced IT security. Insurers are delicately balancing the growth of their portfolios, whilst remaining disciplined in the face of surging claims and declining profitability. As always, engagement with your broker well in advance of renewal dates is essential.
SOCIAL ENGINEERING ATTACKS
The Real Estate sector has been hit hard by an increase in frequency and severity of cybercrime incidents. Having moved much of their interactions and processing online over the last 18 months, real estate agents and property managers are especially vulnerable to social engineering attacks. Social engineering is a general term referring to an attack where the fraudster successfully impersonates a trusted employee, vendor, supplier, customer, or even a CEO or CFO; manipulating the victim into disclosing security details and sensitive information. These attacks often come in the form of phishing emails. Sadly, Honan clients are by no means immune to such threats. In the last quarter alone, we have seen multiple successful cyber attacks on our clients. Fortunately, in each instance, an appropriate level of cover was in place via a bespoke cyber policy.
While many organisations believe they can rely on extensions to Professional Indemnity and Management Liability policies to provide adequate cover in the event of a cyber incident claim, this is not the case. To ensure their level of insurance is truly fit for purpose, real estate agents and property managers are strongly encouraged to review their internal cyber security strategies with their broker.
EARTHQUAKE
On September 22, 2021, a 5.9 magnitude earthquake struck Victoria, with tremors felt across the state and as far away as Newcastle in NSW. While there were no immediate reports of serious injury or death, damage included collapsed walls, shattered windows, and cracked roads. Early estimates place the total cost of damage at $150 million, with almost 10,000 claims. At the time of publication (October 14, 2021), the earthquake has not been declared a catastrophe by the Insurance Council of Australia (ICA). Head here to find out more about how a catastrophe is defined and what this means. If you believe you have a claim, please contact your broker directly.
With heavy rainfall, hail, and tornadoes marking a busy start to the Australian storm season, the Bureau of Meteorology has predicted a 50% chance that La Niña conditions will return this spring (double the normal likelihood). As a result, there is a higher probability of damaging events taking place such as flooding. Clients are encouraged to prepare early (now) by ensuring their level of cover is sufficient for the season ahead. If in doubt, please reach out to your broker to discuss.
Global supply chain interruptions due (in part) to COVID-19, along with Australia’s Black Summer bushfires in early 2020 have contributed to building material shortages; a trend which is expected to continue over the next 12 months. Materials most affected include steel, timber, roofing products, PVC, and electrical products. In addition, the prices of both containers and dry bulk shipping are increasing, with serious shortages in haulage between Australia and other countries.
These shortages, together with pricing increases, have driven the cost of insurance repairs and replacements upwards. Unknowingly, many property owners may no longer have adequate insurance in place to reflect such increases in costs to repairs/rebuilds. Two simple insurance solutions can assist clients with this: 1) updated property valuations, and 2) those in strata buildings can review the Catastrophe Insurance percentage of the building sum insured.
Building surveyors have continued to experience increases in Professional Indemnity (PI) premiums, excesses, and reductions in limits over the last quarter. However, we are now seeing the emergence of more stable PI premiums. Volatility in engineers’ PI has increased, with multiple insurers leaving the market during Q1, and new entrants simultaneously entering.
Builders operating in the SME construction market have faced several challenges, including shortages in the availability of contractors and sub-contractors, ongoing supply chain problems, and (for some states) restrictions to the number of workers on sites - all leading to increased project costs and delays. This requires constant monitoring to ensure insurance coverage reflects the sums insured, maximum construction periods, and vacant sites.
For clients in the construction professions with upcoming renewals, insurers are paying particular attention to measures taken to limit risk exposures. We encourage clients to carefully consider the following in their applications to help improve the attractiveness of their risks to insurers:
For builders facing the renewal of their policies, further increases to construction insurance premiums are expected, particularly for material damage and liability (the latter attracting increases of up to 50 percent). Significant losses on long-tail liability claims are also contributing to higher excesses, especially for worker-to-worker claims.
The Limitation of Liability through the Building Surveyors’ Professional Standard Scheme (PSS) will have a positive impact on the risk profile of Building Surveyors. However, this will take several years to be fully realised, and we do not expect any immediate reduction in premiums. More information about the PSS is available here. Together with the Australian Institute of Building Surveyors (AIBS), BRIC has successfully negotiated a premium discount with one insurer as an incentive to enhance your professional qualifications. Please reach out to discuss this with us.
Builders’ construction insurance premiums are not expected to stabilise in the short term, as insurers remain concerned about the profitability of these risks.
Engineers in NSW are now subject to the Design & Building Practitioners Act 2020 (NSW), and insurers are beginning to express concern on claims movement on the Statutory Duty of Care. As new insurance markets are becoming available for consideration, an active and early engagement with your broker ahead of renewal is critical.
Employers are reminded of the Victorian changes around primary psychological injuries that came into force on July 1, 2021. These changes help eligible workers and volunteers receive treatment for work-related mental injuries. Employers are required to report these injuries within three business days. More information about the provisional payments is available via WorkSafe Victoria.
Employer actual wage remunerations are now due and should already be closed for the FY21 policy period. Penalties can apply where wages are not declared.
WorkCover WA has announced significant changes to the Workers Compensation and Injury Management Act 1981. The Bill proposes recommendations by Workcover WA in its 2014 Review of the Workers’ Compensation and Injury Management Act 1981: Final Report. The proposed changes have the potential to alter the way workers’ compensation claims are managed and resolved, in addition to increased costs and burdens on employers in WA.
A copy of the draft Bill, along with an explanation of key materials and details about making a submission, is available via WorkCover WA. Honan’s Workplace Risk team is committed to keeping you updated on the impacts to businesses and employees as this situation evolves – please reach out at any time with further queries.
The National Return to Work Strategy 2020 – 2030 (the Strategy) drives national action to improve return to work outcomes for Australian employees with a work-related injury or illness. Under the Strategy, Safe Work Australia and Griffith University have produced two reports examining the psychological response to injury among support workers, and the stigma injured or ill employees experience in the workplace. Crucially, both reports provide recommendations around supporting employees and facilitating a successful return to work.
While the onus of responsibility remains on employers to manage their risk exposures, organisations’ Leadership Teams and WHS Systems alongside wider cultural forces are enhancing awareness about safe work environments and reducing stigma associated with workplace injuries.
Honing In on Our Partners: Keep it Cleaner
