Marsh has released their latest insurance market report which makes for interesting reading for the industry.
The
Insurance Market Mid-Year Update details the challenging market conditions insurers have found over the first half of the year.
“The first half of 2015 (H1) has been an active period for the Australian insurance market as it continues to respond to competitive pressures,” the report said.
“Heightened cyber security risk, political and economic uncertainty, low interest rates and slow economic growth are all challenging the market at a time when there are significant new capital in flows and surplus capacity.
“Locally, the outlook remains positive despite warnings of economic headwinds in Australia spurred by a low growth environment and the continued fall of commodity prices. There appears no end in sight to the soft market conditions, driven by the combination of new capital, surplus capacity and the lack of catastrophes.”
The report takes particular note of the increased M&A activity over the first half of the year, which shows no sign of abating.
“The M&A activity, locally and globally, is beginning to change the shape of the market,” the report states.
“We fully expect the M&A activity to continue in the global market.”
Whilst premium reductions are common across the board in the industry, the report gives one area of business that could see flat market conditions over the second half of the year.
“In the financial institutions (FI) space, limits and risk profile remain stable with modest premium changes of -5% to +5% in the first half of the year. FIs are enjoying favourable treatment by insurers, with the notable exception of those heavily involved in wealth management and financial planning, due to the continued severity and frequency of the claims activity.”
Cyber risk is also given increasing attention as Marsh believe that early adopters of cyber policies will be the ones to benefit in the long-run.
“Cyber risk continues to be one of the most pressing strategic priorities for corporate boardrooms and governments around the world, and particularly for target industries such as financial institutions and service providers, healthcare, energy and utility infrastructures,” the report states.
“Against estimates that the global premium spend on network security and privacy will grow from US$2 billion to US$5 billion over the next five years, the number of first-time Australian purchasers is increasing but lags in comparison with other global jurisdictions.
“Tellingly, those early adopters in purchasing cyber programs are continuing to consider the risk and increase the limits purchased.
‘Insurers’ lack of data and policy responses to emerging risk exposure makes the measurement of cyber risk and subsequent capital needs an ongoing process. Consequently, cyber is one of the few financial lines areas not seeing general reductions in premiums at this time.”
