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Major flooding events across Australia’s East Coast are having a significant impact on renewals, causing uncertainty around rates as initial claims materialise. With more than 168,000 claims already lodged, the Insurance Council of Australia (ICA) estimates the (Catastrophe 221: SE Queensland and NSW Floods) events will hit a record $4 billion in costs. As a result, insurers are likely to continue reducing their exposure in flood-prone areas through increased deductibles, annual aggregated limits, or excluding cover altogether. The long-term impact is of course yet to be seen.
The casualty market continues to underwrite on a case-by-case basis. Underwriters are still seeking small rate increases of 5% for low hazard renewal business, however, for more exposed segments, pricing continues to increase in excess of 30% as capacity declines.
With the frequency and severity of catastrophic events increasing in Australia, it’s pleasing to see significant initiatives featured in the Federal Budget. These include the establishment of a flood and cyclone reinsurance scheme backed by a $10 billion Government guarantee, a provision of $3 billion to accommodate additional expenditure in response to the New South Wales and Queensland flood event(s), allocation of funds to review Commonwealth bushfire funding for States and Territories, and an additional $84.5 million over four years for the Future Drought Fund. While these are all welcome inclusions, we did not see the increased relief for hard-to-place insurance areas we had hoped for, nor measures targeting building warranty schemes to cover larger buildings.
Q4 also marks the beginning of treaty reinsurance negotiations for larger Australian insurers, and these discussions will be dominated by the impact of recent flooding events. While we’re yet to know the outcomes of these negotiations, we expect that any changes to insurers’ treaties (pricing, coverage restrictions, or cost of additional retentions) will be passed on to clients most exposed to risk.
Two class actions have been filed in the Federal Court in relation to the COVID-19 pandemic Business Interruption test cases, but these are expected to be deferred whilst the leave to appeal the recent decision is resolved. As always, we’ll keep you posted with any unfolding developments.
Increases to Directors’ and Officers’ liability and retention rates have moderated significantly since the peak of the hard market. Insurers continue to focus their underwriting on business’ financial health, COVID-19 resilience, and Environmental Social Governance (ESG) concerns (including Cyber risk management). As a result of increased rates of cyber attacks, company directors and officers are now facing greater regulatory oversight to disclose cyber security issues.
The recent decision by a major global carrier to withdraw from certain occupations in the professional indemnity insurance market will further tighten already underserved industry sectors, including Australian Financial Services Licence holders, financial planners, construction professionals, and lawyers.
Cyber attacks targeting supply chains are the major concern for technology Professional Indemnity (PI) and cyber insurers, as threat actors continue to leverage third-party vendors and technology service providers to gain access to their targets. The switch to remote working during the COVID-19 pandemic has amplified this threat, with the incidence of supply chain attacks growing by 430% in recent times. Log4j, SolarWinds, Colonial Pipeline, Microsoft Exchange, Kaseya, and JBS are just a few of the supply chain compromises that dominated the cyber landscape in 2021; equating to $85 million in ransomware demands.
Ransomware and cyber extortion continue to be the main threats. In 2021, 35% of all companies experienced at least one cyber ransom incident, and ransomware attacks cost businesses more than $20 billion globally, up from $325 million in 2015. Ransomware is now the fastest growing, and one of the most damaging types of cybercrime.
We welcome the increased spending on cybersecurity announced in the Federal Budget. The cybersecurity and intelligence package will deliver $9.9 billion in funding to enhance Australia’s intelligence and cyber capabilities and allow us to keep pace with the rapid growth of potential adversaries, as well as being able to counter-attack and protect our most critical systems. We have seen a dramatic rise in the cost of cyber insurance in recent periods and this added capability will help to ensure measures are in place to counter the increased threats.
The second shareholder class action to reach judgment, Crowley v Worley Limited [2020] FCA 1522, was widely regarded as a significant win for companies and insurers alike. However the decision was recently overturned, and the proceedings must now be remitted back to a single judge for a rehearing on selected issues.
The third class action to reach judgment, Bonham as Trustee for the Aucham Super Fund v Iluka Resources Ltd [2022] FCA 71, delivered a recent win for companies and insurers alike. Applying well-established principles concerning forward-looking statements, the Court dismissed allegations that Iluka had engaged in misleading and deceptive conduct and breached its continuous disclosure obligations. Thus, great emphasis was placed on disclaimers and qualifications provided by the company.
We are continuing to see strong investment from organisations into the health and wellbeing of their employees, with private health insurance forming part of the core benefits offering. As life returns to ‘living with Covid’ normality in Australia, employees are maximising the value of their health insurance by catching up on treatments and procedures previously deferred due to the pandemic. Employees are now also accessing more preventative services such as dental, physiotherapy, and chiropractic care. At Honan, we have taken this opportunity to partner with our clients to not only provide a strong portfolio of EB ‘products’ to their employees, but education and awareness around the health insurance benefits on offer.
We are seeing relatively low rate increases for private health insurance in Australia as part of the 1 April 2022 rate review.
The average rate increase is currently between 2-3%, which is well below previous years, and several key providers such as Bupa, Medibank, and GU Health have stated their intention to either delay any increases to rates or extend only slight increases as part of this year’s reviews. A key reason for low rate increases this year is the widespread cancellation/delay of elective surgeries during Covid’s peak. In addition, lockdowns and Covid-related concerns meant members were not utilising their extras cover for treatments (e.g., dental, vision, and physiotherapy) at pre-pandemic levels. This resulted in increased profits for health providers who are now passing some of these savings back to consumers.
In an effort to offer more support and flexibility to working parents, many organisations are currently reviewing their parental leave policies. In parallel, the Australian Government has announced a revamped government-subsidised parental leave scheme as part of its March 2022 Federal Budget. Currently, Paid Parental Leave includes 18 weeks of leave, and 2 weeks for the Dad & Partner Pay Scheme, paid at the national minimum wage. To qualify, individuals must earn less than $151,350 per year.
Under the proposed new scheme, a combined total of 20 weeks of paid parental leave will be available to parents; offering more flexibility by enabling both parents to take up Government-subsidised parental leave. The income test is also being broadened from $151,350 per individual, to $350,000 combined household income – meaning more Australians will be eligible for the Government-paid parental leave.
In Western Australia, discussion around the adoption of the revised Workers' Compensation and Injury Management Bill continues. Debate, for instance, includes the definition of a ‘worker’ when it comes to the commencement of benefits for pending claims. Of greatest potential impact to insureds, is the removal of Principles Indemnity with Waiver of Subrogation. For businesses and their employees, this may result in complexities upon contractual engagements and increased exposure for the Principal as an insured party.
We will continue to monitor developments around this Bill, and keep you updated.
Industry rate changes have not yet been released for States and Territories, however, an announcement is expected over the coming month. Entering June 30 renewal season, it is now critical for clients to work closely with their broker to understand fluctuations in premiums and whether they are likely to be impacted by industry rate changes imposed by regulators. With premiums driven by claims performance, clients are encouraged to start working with their broker/claims agent more closely than ever. As always, we’re here and ready to assist!
In Queensland, a new Bill has been introduced seeking to amend the Workers’ Compensation & Rehabilitation Act 2003 to address claim-farming.
Claim-farming involves third parties such as call centres, email, or social media, as well as health providers, financially benefiting from pressuring people injured at work to engage lawyers to make a claim. This is the first time this scope of legislation has been considered and is certainly innovating the industry in this regard. While Workers’ Compensation is based on a no-fault scheme, opportunistic groups seek to leverage the scheme to their benefit. If passed, this QLD Bill could encourage other State Schemes to adopt a similar practice.
For further insights into emerging trends in workers’ compensation, be sure to review the critical summary from our recent Honan Workplace Risk Webinar here.
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