January 2023 Market Update - Property

Over the last 6 months, Insurers remain selective in their underwriting approach as they continue to promote quality over quantity. The material equation of the Queensland and New South Wales floods has exacerbated this approach with the Insurance Council of Australia deeming it the most expensive natural disaster in Australia with total insured losses amounting to $5.65B.

In conjunction, 14 October 2022 produced an important decision relating to Business Interruption. The High Court of Australia refused the applications by policyholders and found largely in favor of the insurers, stating that the insuring clause did not cover Covid-19 business interruption losses (see our article here). These cases will be used a precedent moving forward however insurers are thoroughly reviewing their business interruption portfolio as it relates to property insurance.

We have experienced various challenges with properties situated above the 25th parallel and properties comprising flammable building products (such as expanded polystyrene or aluminium composite panelling – see our article here). Though coverage may be restricted, or higher deductibles imposed, we consider a well risk managed property can continue to be insured via traditional methods. However, brokers need to ‘think outside the box’ and consider alternative insurance such as derivatives as an alternative. For information regarding such products, see our article here.

In our own portfolio we continue to see the following categories:

Highly protected, well-maintained properties not significantly exposed to natural catastrophes: premiums are levelling out and there is appetite from competing insurers. These insureds are, generally experiencing some softening.
Properties located in areas adversely exposed to perils (fire, flood, storm and tempest), which are poorly protected (compared to industry peers), are tenanted with high-risk activities (manufacturing, food and beverage) or which are subject to previous claims experience, are experiencing reduction in cover, increases in excess and premium uplifts.

Insurers’ focus remains on comprehensive disclosures. Given escalation in building costs and materials it is prudent for independent valuations to be sourced. Pre-Renewal discussions should include a review of all properties (not just the largest locations) to determine whether there will be placement challenges amid current market conditions.

As we have previously reported, insurer resourcing – already impacted for the quest to cut overhead costs and move to digitalisation – is under significant pressure. The consequence is poor response times, and in some instances, no response at all. The latter is more common where the underwriting submission is “thin” on adequate and appropriate risk particulars.