Gallagher has urged Australian businesses to reassess their risk management practices and insurance coverage as they face a growing landscape of financial and operational threats.
The brokerage has emphasised the need for tailored insurance solutions to address liabilities that may arise long after business operations cease.
Gallagher said understanding major risks can help businesses prepare and mitigate their financial impact.
The brokerage noted that events such as bushfires, floods, cyclones, and severe storms continue to threaten property, infrastructure, and supply chains.
Torolf Hamm, senior director, physical climate risk at WTW’s climate practice, recently warned Australians that climate change has exacerbated extreme weather risks, leading to property damage and business interruptions.
Gallagher said unexpected shutdowns can lead to significant revenue shortfalls and increased operational recovery costs.
Defective or unsafe products can trigger recall expenses, legal liabilities, and brand damage.
Cyber breaches and ransomware attacks expose businesses to high costs for data recovery, legal expenses, and reputational repair.
Vanta’s 2024 State of Trust report has revealed that many Australian businesses have been focusing on cybersecurity measures amid rising cyber threats, with 52% of respondents focusing more on addressing cybersecurity threats than operational risks (41%), financial challenges (40%), and potential harm to reputation (30%).
Service providers risk claims for financial losses or damages caused by their professional advice or services.
Businesses can face claims for injuries or property damage related to their premises or operations.
Senior executives may face lawsuits from shareholders, employees, or regulators related to alleged mismanagement or negligence.
Another Gallagher report expects various factors to influence the global D&O insurance market: geopolitical tensions, regulatory evolutions, technological advancements, and the emergence of new risks.
Gallagher said claims linked to workplace issues, including harassment, discrimination, or wrongful termination, can lead to significant payouts.
Accidents such as fires or water-related incidents can result in costly repairs and operational downtime.
Businesses involved in environmental incidents may incur substantial remediation and legal expenses.
Gallagher explained that the heightened frequency and severity of these risks are affecting both businesses and the insurance sector. Insurers face rising claims costs, which are driving up premiums and impacting coverage availability.
Since 2010, natural disasters have accounted for more than $34 billion in insured claims globally, with flood-related events contributing 38%, storms and hail 34%, cyclones 18%, and bushfires 10%.
In Australia, flood risk remains particularly prominent, with an estimated one in 12 properties exposed to potential flooding.
The rising costs of disaster recovery, compounded by inflation, have increased repair expenses by 27% compared to pre-pandemic levels.
Reinsurance premiums, which influence the pricing of local insurance policies, have similarly risen by up to 30%.
Extreme weather events in Australia are projected to result in losses exceeding $35 billion annually by 2050.
Liability insurance costs are also climbing. Public and product liability, professional indemnity (PI), and D&O coverages are experiencing growing claims costs, partly due to inflation in litigation and compensation. PI premiums, for instance, have increased by 27% since 2015.
Insurance companies and brokers could help their business clients reduce their exposure to high-cost risks by taking proactive steps, including:
Gallagher also recently highlighted the importance of run-off insurance for businesses exiting the market through closure, sale, or retirement.
Without this coverage, businesses may be vulnerable to delayed claims, often referred to as “zombie claims,” which surface after a company has closed.
The brokerage giant explained that these claims, linked to past actions or projects, can expose former business owners to legal and financial risks. Run-off insurance ensures that liabilities associated with prior operations are covered, providing a safeguard against unexpected expenses.
