The withdrawal of public liability cover by several major insurers across Australia has caused mass anxiety among tourism operators, with many fearing they may have to close their businesses for good if they can’t secure a policy.
While many in the industry are claiming the risks are just too high for insurers to justify investing in tourism during lockdowns, Mandy Cooper (pictured), director at Cooper Professional Risks, says the situation is even more complex than it appears on the surface.
“The public and general liability market has been under-priced for the last five or so years and there was starting to be a correction of the rates, but it was too late,” Cooper explained.
“But the other problem is underwriters and underwriting generally has seen a shift in operations. Underwriters don’t play the long game anymore. They run on a business for 12-months and you can’t always operate an insurance company that way, let alone a syndicate. You need to look over a five-year return to make it really happen.”
The recession also plays a role – Cooper says when money starts to fall from the economy, businesses look for other ways to make profits. Public liability, unfortunately, is not one of them.
“Being a long tail claim…the problem is that liability claims generally increase as you’re approaching a recession,” she explained.
“Insurance economics 101 says that when the economy and money is tight, people look for other ways to make money and claims go up. Generally, in a recession, premiums will go up but… because the demand for tourism insurance is down, these basic premium pools that they’re trying to keep in touch with to support the scheme and facilities, suffer. So, that’s the hard part.”
Additionally, insurers have to consider the financial stability of their clients and their ability to pay their premiums.
“Often tourism policies are more expensive and they’re often minimum deposit, so there’s no refund for a mid-term cancellation and you’ve suddenly got all these insureds with their cash flow running at a quarter and yet their expense for their small liability is now two or three times the premium,” she explained. “How do they justify it?”
And it’s not just public liability cover that insurers and underwriters are reconsidering – Cooper says it’s happening across the entire insurance market.
“We’ve seen it in a lot of occupations,” she said. “I have seen it in the security industry - one of the coverholders has pulled out, so that’s reduced the market and made the other underwriting agencies and coverholders a lot more selective about what they’re going to write.
“Underwriters and coverholders out of Lloyd’s are basically cherry picking some of the accounts and some of the covers they want to write now.”
