2020 will be a testing year for businesses seeking insurance cover - Honan

The coming year will again test businesses seeking insurance cover, according to Honan Insurance Group’s (Honan) December 2019 Quarterly Market Update.

Travis Wendt, Honan’s head of broking & carrier management, said top line premium growth will continue to take a back seat as the market maintains a focus on improved bottom line underwriting profitability.

“Underwriters continue to be very risk selective on both renewal and new business and are still prepared to walk away if things don’t stack up,” he said.
“We have witnessed a number of instances where the incumbent insurer has elected not to renew cover due to changes to underwriting guidelines – even in long standing client/insurer relationships.”

As a result of this stance, there has been a greater reliance on obtaining terms through overseas markets such as London and Singapore. Honan said these traditional markets are in the midst of their own remedial action, with the aim of restoring profitability after several years of significant losses, especially at Lloyds.

While allowing brokers to obtain capacity to place risks, there have been significant hikes in premium spends.

“We expect this to continue into 2020 and beyond,” said Wendt. “For local insurers, 2019 saw the third full 12-month cycle of underwriting remediation, with no real signs of this altering in 2020.

“Hard market cycles tend to exist for up to five cycles before material and consistent shifts are witnessed and with history as an indicator, we anticipate the peak to occur towards the end of 2021.”

Faced with further flatlining investment returns, underwriting profitability remains a key metric of overall business performance.

Honan said that in 2020, insurers will continue to apply stringent underwriting principles set by management guidelines and will include pricing adequacy, restrictions on certain aspects of coverage and increased excesses.

High hazard property, professional indemnity, natural catastrophe risks and residential strata risks with aluminium composite panel (ACP) construction will remain a challenge as the availability of insurer capacity continues to diminish, according to Honan.

Wendt said: “While risks will be viewed on a case-by-case basis, the need for businesses to differentiate their exposure from their peers will ensure they are seen in the very best light by the market, resulting in the most favourable terms available.

“Prior to the arrival of summer and the current devastating bushfire disaster across multiple states, insurers had placed embargoes on new business within regional areas of New South Wales. There’s no doubt that as a result of the bushfires there will be a further drag on premiums and cover.

“Coupled with the ongoing impact of cyclones and tropical storms in Northern Queensland this results in the market taking corrective action required to limit exposure from losses/claims.”

Honan’s Quarterly Market Update concluded with an insight into the trends and considerations in the global insurance market.

“What we are witnessing is increased premiums for directors & officers, liability of public companies, limited markets for unsprinklered EPS locations and the tough PI Lloyds market,” said Steve Pappas, Honan’s head of global & networks.

“In working with new clients with global business activities, we have discovered instances where we have found that clients with multinational risks may not be covered correctly in certain regions.”