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Market update – Insurance casualty and specialty casualty market

Throughout 2020, there was a continued reduction in capacity, more restrictive terms being imposed by insurers, imposition of higher excess structures and increased premiums. However, towards the end of the year we noted some levelling off as insurers seemed more comfortable with previous years’ adjustments.

Despite this, we continued to see Lloyd’s of London syndicates continue to exit the Australian market. They are either withdrawing their support or significantly limiting appetite and authority of Australian Underwriting agencies. Many underwriting agencies cannot find alternative security and have been forced in some circumstances to work in a “wholesale” capacity.

Lloyd’s of London has released an additional 10% capacity in 2021 ($5 billion), which has started to assist stability of premiums.

We expect that rates will continue to stabilise, and in most cases, increases should be limited to around 10%-15%. However, clients with claims will continue to see premiums increase as insurers look to improve loss ratios on an individual account and portfolio basis.

It is likely that insurers will continue to monitor coverage terms and adjust excess structures and contract terms to address specific claims exposures.

Our portfolio has generally seen increases in claims over the past 12 months. The major area where claims are occurring is for “worker to worker liability”. The average worker to worker claim costs is in the vicinity of $400,000 – a significant increase from the $250,000 average insurers reported in 2017. Defence of such claims is costly and as such many insurers are either applying large deductibles or avoiding liability risks with such exposures.

Some notable exceptions to these predicted mild rate increases will be retail, hospitality, tourism and leisure sectors. These segments have already experienced rate increases of up to 100% in 2020. In some circumstances, increases have been higher, particularly if there has been no correction in past renewals, or if there has been a withdrawal of capacity or such withdrawal is imminent next renewal. Rate increases are being imposed on an exponential scale for businesses with reported claims and notifiable circumstances.

In the ordinary course, turnover is used to measure the reasonableness of premium at renewal. Current market conditions mean policyholders in the retail, hospitality, tourism and leisure sectors are experiencing rate increases regardless of their well-publicised decreasing turnover that is resultant of COVID-19.