The Property market began 2024 with a positive outlook after facing a challenging situation in 2023 due to natural catastrophe claims. The initial uncertainties in 2023 led to reduced appetite and changes in coverage and pricing, necessitating remediation in the year’s first half. However, the increased capital from reinsurance costs and less volatile insurance-linked securities allowed the market to end 2023 on a profitable note.
Global warming and natural catastrophes are expected to remain a significant concern in 2024, particularly with an increasing trend in bushfires, storms, and flooding. Although the insurance market has increased its capacity, the risk coverage pricing largely depends on how well the risks are monitored and managed. Insurers now require more risk engineering surveys and mitigation strategies to minimise losses.
As the world grapples with an unstable geopolitical environment, the impact on the economic front has been significant. One of the most affected sectors is insurance. Insurers have flagged a substantial rise in underinsurance as consumers try to reduce costs in the face of rising premiums.
The current state of geopolitics has also led to a sustained increase in inflation, forcing insurers to adjust their pricing models to remain competitive. This has resulted in more stringent underwriting criteria, making it even more critical for consumers to ensure they are adequately covered.
It is not enough to merely have insurance coverage. Claims are unpredictable, and failure to declare increased costs and current asset values could severely compromise claim payouts. To avoid underinsurance, we strongly recommend our clients engage the services of an insurance valuation expert. This ensures you have the most accurate values declared on your insurance policy, protecting your business and property assets in case of an unforeseen event.
While the property market is expected to remain stable in the first half of 2024, insurers are demanding more comprehensive underwriting information to determine the level of risk they are willing to take on. To generate underwriting interest, businesses must present preventative loss control strategies and robust business continuity plans. Insurers now require up-to-date valuations of owned property and a strong risk management plan to ensure that clients are proactive in mitigating potential risks.
At Avatar, we understand the demands of the current insurance industry, and we are committed to working with businesses to ensure that their coverage reflects their existing business profile. Our team will carefully evaluate the terms and conditions of the policy to ensure that they are appropriate and meet the required industry standards.
As we look into 2024, the global casualty insurance market is expected to continue the mostly single-digit percentage point increases witnessed in 2023, except for Latin America, which saw a 10-15% increase and India, which remained flat.
Several key drivers are expected to shape the market in the coming year. These include an active assessment of social inflation and rate adequacy, as insurers focus on evaluating their rates to manage risks in casualty lines. The impact of reduced reinsurance capacity in liability lines may also lead to a shift towards harder market conditions, posing challenges for insurers and reinsurers alike.
External factors such as global conflicts and concerns over a slowing Chinese economy will also contribute to broader economic uncertainties, which reinsurers will factor into their risk assessments and strategic planning. However, despite these challenges, the casualty industry is well-capitalised. It boasts a substantial policyholder surplus, enhancing resilience and protecting from a sharp change towards a hardened market.
The industry also benefits from increasing investment yields, which can contribute to improved financial performance and help offset challenges in other areas. Despite disruptions caused by the COVID-19 pandemic, the conflict in Ukraine, and resulting supply chain disturbances, the Casualty sector has demonstrated remarkable strength, with boosted premiums through consistent year-on-year risk-adjusted rate hardening.
However, insurers are now at an inflection point, facing a persistent cycle of economic uncertainties encompassing inflation, geopolitical headwinds, environmental challenges, and capital constraints. They are also grappling with structural shifts in the nature of risks, including the evolving nature of natural catastrophes, net-zero transition, and supply chain and cyber risks.
To navigate this evolving risk landscape, insurers must transform capabilities and talent, shifting from the art to the science of underwriting and claims. They must also take decisive actions and investments, establishing a clear source of distinctiveness to safeguard margins by competing beyond rates while closing protection gaps through innovative product offerings, refined pricing strategies, and robust risk prevention and mitigation solutions.
In short, we expect the casualty insurance market to witness 3-9% percentage point increases in 2024, with continued focus on preventative investment.
After experiencing a significant increase in pricing for D&O insurance from 2017, which peaked in 2021, the market has now seen a reversal from 2022 onwards. In the first half of 2023, premium rates for D&O insurance have decreased overall, especially for those with a stable financial position and a clear strategy to deal with the current inflationary environment. However, some insurers have indicated that profit thresholds might be reached, which could lead to volatility in premiums. Therefore, insureds and their brokers should plan for upcoming renewals.
Despite the underlying volatile landscape, the overall insurance market conditions remain soft.
The Australian D&O market has witnessed a surge in competition from new entrants, leading to a decline in premiums and deductibles. This development is a welcome one for insured individuals who have been grappling with all-time premium highs.
Although coverage terms remain relatively unchanged, some incumbent and new insurers are updating their primary policy wording to include coverage restrictions and clarity in the intent of the coverage being provided.
However, the push for refreshing policy wording is not the only change in the market. The excess D&O marketplace, which mainly comprises players from the London market, is experiencing an influx of capacity. As a result of the increased competition in the excess D&O marketplace, incumbent excess insurers have to compete with premium discounting or risk being replaced. This development is positive for insured individuals and could lead to a decline in overall market premiums.
USA Exposure
USA exposure has historically reduced the number of insurers willing to participate in a D&O tower, reducing price competition. However, preferred accounts saw this trend reverse in 2022 and 2023, leading to price and deductible reductions.
Insureds should be aware of the rise of Event-Driven Litigation, such as #MeToo, cyber breaches, COVID-19, board diversity, and ESG. USA exposure carries a higher premium rating, and premium savings may not always be available. Therefore, submissions to the market should provide thorough details of this exposure, particularly around shareholders and governance, when making announcements.
Life Science Sector
The Life Science industry experienced a softening market in 2023, which can be attributed to increased market capacity, decreased IPO activity, and incumbent insurers seeking to maintain their market share.
Recent developments indicate that the insurance market is witnessing an improvement in market conditions, with insurers willing to consider lower retentions and less restrictive coverage.
Despite the slowdown in IPO activity, the life science sector faces a challenging litigation environment. Life science companies are among the most sued of all industries, reflected in the premiums they pay for D&O insurance.
Given the number of disclosure claims brought against life science companies, disclosure control and procedures are crucial elements of D&O risk management for life sciences. Not surprisingly, companies that can credibly express the maturity of their disclosure controls and procedures will do better when pricing their D&O insurance than less mature companies.
With uncertain times ahead, insurers are focused on company controls and understanding their exposure around cyber liability, financials (cash runway, ability to raise funds), and Environmental, Social and Governance (ESG) initiatives. Companies unable to confidently show there will be funds for the next 12 months will need to identify intentions around capital/debt raises or cost-cutting exercises to maximise cash runway.
The current Australian Management and Employment Practices Liability (EPL) market conditions pose significant challenges for insurers and policyholders. Claims frequency in the EPL segment, particularly those related to sexual harassment and discrimination, is on the rise due to increased awareness and the impact of social movements like #MeToo. Additionally, COVID-19-related disputes, underpayment of wages, and evolving regulatory frameworks create emerging risks, necessitating proactive risk management practices from businesses.
Insurers closely scrutinise underwriting practices, focusing on risk management policies and claims history. Market capacity is tightening, with some insurers reducing limits or withdrawing from the market altogether. Premiums are expected to continue rising to reflect the worsening claims environment and tighter market conditions.
To mitigate potential negative renewal outcomes, businesses must implement robust risk management practices, review and update employment contracts and procedures, seek expert legal advice, and explore coverage and pricing from multiple insurers. Working closely with brokers to navigate the current market is also recommended. By understanding the key trends and taking proactive measures to mitigate risks, businesses can better protect themselves in this evolving landscape.
Insurers have been continuing to review their rates and underwriting guidelines due to worsening claims trends. Although insurers are keen to compete for new business opportunities, risks associated with US exposure remain undesirable to many insurers.
Lloyd’s of London, one of the global centres for Professional Indemnity, recently conducted a profitability review after underwriting results revealed that PI was the poorest-performing area of underwriting. Specific concern areas identified were Financial Services advice, Architects and Engineering, and general construction-related risks.
In Australia, premiums have experienced a 75% growth rate since 2015, with gross written premiums increasing across the board. Similarly to the London market, Financial Services, Engineers, Real Estate, and General Consultants have seen the most significant premium increases.
A large part of the premium increase is due to rising claims costs and volume, with insurers concerned about liabilities arising from past work as they are about current and future projects.
Below are current mindsets insurers have concerning professional indemnity and provide a good indication of how insurers view the market.
We strongly recommend initiating the renewal process early, as insurance providers have implemented a comprehensive risk assessment strategy.
We encourage you to allocate sufficient time to compile any additional information that insurers may request and respond to any further queries that underwriters may raise.
Furnishing your broker with comprehensive information will facilitate them in negotiating the most favourable terms on your behalf.
The global cyber insurance market is experiencing a significant surge in demand from businesses, increasingly recognising the critical need for protection against cyber threats. While insurers continue to assess long-term profitability, there has been a noticeable increase in insurers that can create competitive tension in this market.
In Australia, the cyber liability insurance market is also growing in response to the escalating threat of cyber incidents. Companies ranging from small enterprises to large corporations are becoming increasingly aware of the potential financial and reputational damages associated with cyber-attacks. Recent hacks on Medibank and Optus have created long-standing reputational damage, further highlighting the need for comprehensive cyber insurance coverage.
The Australian government has actively promoted cybersecurity awareness and resilience, encouraging businesses to adopt robust cybersecurity practices. Compliance with data protection regulations has become a focal point for many organisations, influencing their decision to invest in cyber liability insurance as part of their risk management strategy. Companies must understand their business and exposures and safeguard their business to maintain operational resilience.
Here are some recommended strategies for companies looking to protect themselves against cyber threats:
It is advisable to consult with a recognised third-party provider or the internal IT team when implementing these strategies.
While cyber insurers continue to elevate the requirements to apply for cover, businesses should not assume that an incumbent insurer will release renewal terms unless the company can provide insurers with comfort around internal controls. Insurers are looking for maturing awareness of internal controls, such as multifactor authentication, patching processes, and endpoint management.
Insurers remain reluctant to provide large limits for anyone insured, with limits provided by any one insurer capping at $5M. Insurers continue to assess widespread event risks, such as attacks that target widely spread platforms or technologies like Outlook, and in some cases, are reducing limits or increasing deductibles in the event of a loss.
Insureds can expect forensic questioning of internal controls, processes, and systems for renewals. Businesses should prioritise Cyber liability renewals to provide adequate time to review with incumbent insurers and alternative markets. It is essential to engage with your broker and insurer early and, in many cases, have a renewal meeting with insurers to discuss questions or responses to specific questions.
The product recall market is under constant pressure as incidents related to defective products become the primary contributor to liability losses. Over the last five years, insured losses have exceeded $2 billion, and with the increasing frequency of recall events across industries, the risk trajectory for manufacturers continues to amplify.
The robust implementation of safety regulations and the growing complexity of supply chains make it necessary for manufacturers to adeptly navigate solid regulatory frameworks and significantly invest in fortified quality control measures.
The industry’s evolving landscape necessitates a proactive stance by manufacturers to fortify their operational frameworks and ensure resilience in the face of potential disruptions. Insurers are intensifying scrutiny, and manufacturers must focus on critical elements such as manufacturing facilities, supply chain management, crisis management protocols, quality control measures, and safety plans. Manufacturers must allocate considerable time and resources to strengthen these key facets to secure insurance coverage and uphold a reputation for reliability and responsibility within the market.
The interconnected nature of various operational components requires a proactive approach to enhance capabilities and effectively navigate challenges. Adopting rigorous testing protocols, enhanced transparency in supply chains, and collaborative engagements with regulatory authorities are imperative for ensuring compliance and mitigating risks.
In addition, a proactive approach to crisis communication plans is deemed transparent, and timely communication can significantly impact the perceptions of insurers and consumers alike.
Establishing robust lines of communication, internally and externally, ensures stakeholders are well-informed and capable of responding promptly to emerging challenges, contributing to a smoother and more successful recall renewal process.
The global marine insurance market is expected to experience significant growth in the next five years. The market was valued at US$30.21 billion in 2023, and the International Mining and Resources Conference (IMARC) Group predicts it will increase to US$40.5 billion by 2028, showing a compound annual growth rate (CAGR) of 3.5% from 2023 to 2028.
Although marine and cargo insurance rates have started to stabilise, the market has not yet entered a “softening phase.” However, insurers have more flexibility and greater risk appetite within certain limits.
The transportation and logistics sector’s growth has slowed from 6.4% in 2022 to 5.2% in 2023 due to the slowing global economy and tightening international monetary policy. It is expected to further decrease to 3.8% in 2024. The ongoing conflict between Russia and Ukraine has hindered the potential for worldwide economic recovery following the COVID-19 pandemic, particularly in the short term. This conflict has led to economic sanctions imposed on several countries, a sharp rise in commodity prices, and interruptions in supply chains, contributing to inflation across various goods and services.
The transportation and logistics sector is responsible for over a third of global carbon dioxide (CO2) emissions, making it the most significant contributor to most developed countries’ emissions. The sector must reduce emissions by approximately 20% by 2030 to achieve the world’s net-zero targets. To achieve net-zero targets, enhanced regulatory scrutiny of ESG practices is expected to be implemented throughout 2024. The cost associated with adapting to newly introduced regulations is ultimately affecting the profitability of businesses in their efforts to maintain compliance.
New regulatory requirements have been introduced in the marine environment, including the Energy Efficiency Existing Ships Index (EEXI), Carbon Intensity Indicator (CII), Efficiency Design Index (EEDI), and Ship Energy Efficiency Management Plan (SEEMP), aimed at improving the energy efficiency of ships.
In the life science sector, advancements in technology within the pharmaceutical, medical, and biotechnology fields are continually increasing the significance of export control requirements for the trade compliance of Life Science and biotechnology companies. These companies tend to operate within sensitive countries worldwide with complex compliance requirements and stringent trade and financial sanctions, which must be considered and adhered to when conducting business internationally. There are significant legal consequences for non-compliant companies, including the loss of export privileges, penalties, and, in some cases, imprisonment.