Hard times

Hard times

As businesses battle a COVID-induced economic slowdown, they’re also facing a hard insurance market with some way yet to run

By John Deex

A new term was coined by a recent Australian Industry (Ai) Group poll – “insurance stress”.

Increasing numbers of businesses are facing extraordinary difficulties accessing affordable insurance, bringing some sectors to the brink of failure.

More than half of the Ai Group members polled – mostly medium-sized businesses – reported “unusual trouble” seeking insurance in the past 12 months. High premium growth was the most frequently reported problem.

Meanwhile, submissions to an Australian Small Business and Family Enterprise Ombudsman insurance inquiry backed up the concerns, with the tourism industry emerging as one that has been particularly hard hit.

The market was already hardening before COVID, and before the bushfires. Now it’s kicked up to another level, and there’s no end in sight.

The list of badly-affected sectors grows ever longer. We knew about Queensland strata, buildings with combustible facades, financial lines such as directors’ and officers’, trampoline parks and recycling centres.

We can now add regional pubs, caravan parks, snowfield resorts, marinas and adventure tourism. And the list keeps growing.

Peter Clay, GM of Insights and Government Relations at the Caravan Industry Association of Australia, told Insurance News that on top of the issues with bushfire and catastrophe exposure are concerns around public liability.

“As caravan parks have developed and become more of a premium product they have waterparks and jumping pillows and BMX tracks and all this really great stuff,” he said.

“A lot of these activities are starting to trigger concerns with insurance providers.

“It is no exaggeration to say that some operators have invested millions of dollars, yet they can’t get insurance for it so they have got all this big investment sitting there idle. It is stressful and it is concerning.

“For businesses to have insurance and all of a sudden have that insurance policy cancelled…it is really hard to run a business in that environment.”

The Ai Group poll didn’t focus on any particular sector, but found issues across its membership.

It highlighted companies forced to use “overseas insurance companies” – officially known as direct offshore foreign insurers – with others flagging a tripling of premiums.

“The hardening of the market is quite profound this time around and our member poll backed that up,” Policy Officer and report author Rachael Wilkinson told Insurance News.

“I would say it is a genuine threat to certain businesses. It’s our view that insurance is a key pillar of industry and doing business.”

So what can insurance brokers who stand between cautious insurers and desperate clients do? While rising premiums may be good news as far as commissions go, brokers’ primary focus is to have their clients adequately protected against loss.

National Insurance Brokers Association Chief Executive Dallas Booth says it’s the scale and breadth of the problems that makes this hard market different from others that have come before.

“In my experience there have been periods where a particular product area, or a particular line of insurance was difficult,” he tells Insurance News.

“We had a public liability crisis in the early 2000s, storm and flood issues in the early 2010s and so on.

“But at the present time there is quite considerable challenge in most areas. It’s an across the board thing. It’s challenging for policyholders and it’s challenging for brokers as well.”

The affordability concerns are real, and getting worse, he says.

“I’m getting a lot of concern coming to me at the moment about clients not really being able to afford a proper insurance program,” Mr Booth says.

“Many brokers are having very hard conversations with clients about what they can afford to insure and what they might need to let go, and it becomes very distressing for brokers when they can see that a client might be left quite exposed.

“At the end of the day brokers are absolutely aware of their obligation to get the best outcome for their client. But sometimes, the market being what it is, that comes at a cost that the client can’t afford.

“That puts it back on the broker to look at some sort of compromise to make sure there is at least some degree of protection.”

Mr Booth says brokers are absolutely demonstrating their value at the moment in “thinking outside the box” to access cover and helping clients with managing and mitigating risks “so there is a good story” to put to underwriters.

MGA Managing Director Paul George agrees. “I think most brokers take a fair amount of pride when walking out of a business knowing they have gone a fair way to protecting the financial exposures for that client,” he tells Insurance News.

“It is a very concerning thing where the market, which four or five years ago was competing well, today can respond so differently.”

Mr George believes setting expectations in clear terms and with plenty of notice is an important role for brokers in the current market.

“It’s almost a ‘brace yourself’ conversation because the $12,000 you might have paid last year could be $50,000, and there may be no market for that particular risk. That’s the reality of it.”

Mr George says uninsurable clients thankfully still appear rare but warns that things may get worse before they get better.

“I’ve asked a few people who have been in the industry a lot longer than I have, if they’ve seen a market like this,” he says.

“My father remembers similar circumstances 30-plus years ago, and he mentioned that in his experience, it can get worse beyond where you think it can go before things actually start to improve. It’s just a matter of, how far can we go?”

In terms of solutions, the client, broker and underwriter can only do so much.

Ai Group stresses that government support is also needed – whether that’s in cutting carbon emissions to tackle the climate change threat, disaster mitigation projects or reducing state taxes on insurance.

Insurers often say that reducing the risk reduces the premium, and Mr Booth believes the “active input” of all levels of government is critical.

“That is something that NIBA and the Insurance Council have been saying for a long time,” he says.

“The Australian climate is such that if you want property insurance to be affordable you have to take steps to make sure that the broader risks of flood, fire and storms are properly managed through land use planning, building standards, building controls and so on.

“Australia has to learn to live with its climate, more so than it has done in the past.”