Shifting sands in Australian business insurance: current key trends and risks

The recent Gallagher Business Insurance Market Conditions and Risk Dynamics H1 2024 report has delved into the current insurance landscape and emerging trends relevant to businesses navigating today’s risk landscape.

In the last six to 12 months, Gallagher has found a noticeable re-entry of Australian insurers into the market.

Current business insurance trends

Motivated by the chance to partake in higher premium levels typical of a “hardened” market at its pricing peak, insurers’ re-engagement has spurred heightened competition, drawing in players from London, Singapore, and other global markets focused on risks based in Australia. This trend has brought about a more balanced premium rate environment compared to earlier periods.

This evolving market scenario is prompting insurance brokers to broaden their exploration of business insurance solutions, which now increasingly includes a variety of limits, deductibles, restructuring strategies, captives, and parametric insurance options.

This shift comes as a response to ongoing challenges in securing coverage for certain high-risk categories such as EPS, food, or recycling sectors. Additionally, the persistent threat posed by weather-related risks underscores the critical importance for businesses to reassess their building reinstatement costs due to ongoing high inflation and the scarcity of skilled construction workers.

As of April 2024, the intensified competition among insurers has contributed to more stable premium rates, enhancing buyer confidence in both coverage and pricing.

Companies are progressively acknowledging the importance of enhancing risk management, undertaking timely property valuations, and conducting thorough risk surveys to better navigate the stringent underwriting conditions, especially relevant in managing the rising costs associated with property and liability claims, which have been exacerbated by inflationary pressures and supply chain challenges.

Current business insurance market and risk dynamics

Key current market and risk factors identified in the report include:

• increasing regulatory constraints that challenge businesses and their directors to maintain sustainability, compliance, and transparency, with a focus on ESG and cybersecurity risks
• geopolitical issues that continue to affect supply chains and trade relations
• a complex claims environment characterised by a spike in complaints, regulatory scrutiny, and issues arising from underinsurance and sometimes non-disclosure, which adversely affect claims processes

The report also highlighted the rapid advancements in artificial intelligence (AI), which present both challenges and opportunities for the business and insurance sectors. Notable emerging issues include the potential for cybersecurity threats, concerns around “AI-washing” in relation to directors and officers, and the role of AI in streamlining claims processing.

Gallagher’s business insurance market forecasts

Looking forward over the next six to 12 months, the report forecasts

• likely reductions in rates as the competition among insurers grows and market capacity widens
• an increase in demand for natural catastrophe insurance as companies prepare for potential weather-related property damage claims, with parametric insurance solutions gaining traction for such risks
• the persistent shortage of skilled labour in construction continuing to influence business interruption claims
• a rise in underinsurance and its financial implications becoming more visible, compounded by a trend towards non-disclosure as companies seek to cut down on insurance expenses
• continued influence of inflation on enlarging future claims settlements
• increased usage of captives, parametric solutions, and self-retention programs as companies aim to better manage their total cost of risk through alternatives to traditional insurance offerings