Inflows of capacity have solidified an overall softening of the market. Insurers continue to scrutinise sectors of both construction and financial professionals.
Professional indemnity – information technology services
The market for Software-as-a-Service providers operating in B2B environment remains stable with wide appetite and broad coverage available – proposers that can show strong user licensing regimes, cyber security controls and data management are obtaining broad coverage and rate relief. IT businesses with poor cyber health face difficulty attracting insurer interest. Appetite for US exposure (where turnover exceeds 25 per cent of total) continues to remain limited.
Investment into the Fintech sector declined 24 per cent compared to H1 2023 and was caused by uncertainty in the market amid high interest rates and availability of capital. Insurers’ concerns remain solvency risk, especially for start-ups and those operating in higher risk sectors such as credit card lenders, unsecured personal loans, short-term business overdrafts and lines of credit and startup business funding.
Cyber risk management continues to remain at the forefront of insurers’ concerns.
Insurer appetite including capacity and policy coverage remains stable for health and medical technology risks. Software services utilising artificial intelligence technology are being scrutinised where medical information is being collected, stored and used as regards ancillary cyber risk.
See our cyber market update here for further analysis. Insurers are questioning methods of compliance with strict regulatory obligations by healthcare providers (including technology services). Risks exposed to complex and higher risk sectors such as general hospitals and reproductive health continue to experience rate uplifts of 10 to 20 per cent.
Professional indemnity – Financial Services Licensees
Wholesale asset and investment managers are obtaining 0 to 10 per cent rate changes. New market entrants and aggressive appetite from London are fuelling competition, stabilising rates with some policyholders receiving discounts of up to 25 per cent. Insurer appetite depends on the extent to which there are new funds, capital raises, returns to investors and success of the investment strategy. Funds with retail investors are seeing more interest than 12 months ago but capacity is limited.
Underlying investments in agricultural assets, sustainable investments, carbon, mortgage or development assets have limited appetite. Investments in CBD office assets continue to be closely monitored, noting the reduction in rental values affecting office holdings. Insurers are querying valuation methodologies and assessing assets by geography.
Investments into direct property, equities and private equity/venture capital are favoured on the proviso proposers can illustrate appropriate risk management and due diligence processes. The Federal Government’s recent inquiry into the ‘wholesale/sophisticated investor test’ is unlikely to result in any changes to the test.
Risks characterised by artificial intelligence applications are being monitored to assess claims exposure going forward, which may influence premiums. Insurers are applying broader digital asset and cryptocurrency exclusions. Submissions to the Federal Government’s proposed introduction of a regulatory framework for entities providing access to digital assets closed on 1 December 2023 – we are yet to see draft legislation with half the year passed.
Licensees for hire are still subject to very limited capacity from the market, particularly where their corporate authorised representatives have varying types of underlying assets or have retail authorisations. Licensees must illustrate (with supporting information) strict protocols in place as regards oversight of Corporate Authorised Representatives (CARs) as a prerequisite when considering offering terms.
New entrants insuring financial planners (being financial advisors and their corporate authorised representatives) have improved market rates, however, whilst this sector continues to be the area with the greatest subject of complaints within the jurisdiction of the Australian Financial Complaints Authority (AFCA), insurers remain cautious.
ASIC is urging AFS licensees to ensure the accuracy of their records in relation to their financial advisors on the Financial Advisers Register by 1 August 2024. See our article here for further detail.
Professional indemnity – accountants
Greater capacity from London together with new local entrants with broader appetites, has markedly improved conditions for accountants. Rate reductions of between 10 to 20 per cent have been observed. Some new entrants impose restrictions on professional business activities, particularly around limited Australian Financial Services (AFSL) advice. It is important that firms ensure their description picks up their past and present professional services.
Appetite remains limited for firms working with publicly listed entities, prominent levels of audit services, business valuations and providing research and development taxation advice.
Recent and proposed legislative reforms have the potential to impact both small and large practices, such as:
New breach reporting (known as dob-in) provisions effective 1 July 2024 will present challenges for registered tax agents when accepting new client engagements requiring practices to report code breaches committed by another tax agent and to self-report breaches.
ASIC’s submission to the Parliamentary Joint Committee on Corporations and Financial Services seeks the introduction of penalties and other meaningful sanctions where an accountant falsely or negligently certifies a client as a ‘wholesale/sophisticated’ investor.
The importance of file notes of advice to clients cannot be underestimated as a risk management tool in the midst of reform to tax laws.
With the onset of significant changes to personal income and business taxes, insurers are bracing for an onset of claims brought against accountants arising out of the negligent lodgement of returns and incorrect tax advice.
Professional indemnity – property and real estate
There is broad appetite for real estate professionals.
Insurers are cautious about strata managers, residential property managers and those with high percentage allocations of off-the-plan apartment sales.
Appetite for property valuers remains limited. Insurers are monitoring proposers by closely assessing geography, asset type and loss history in light of the recent flux in the interest rate environment. Insurers expect to see stringent due diligence and well researched/supported valuation opinions.
Professional indemnity – solicitors
Premiums are steady on excess of loss placements however insurers are continually exposed on larger claims and frequency claims on conveyancing matters remain an ongoing exposure for smaller, particularly regional practitioners.
Once the policy limits reached $30M, significant capacity is available in the market and rate reductions have materialised.
The potential introduction of ABC Insurance underwritten by Liberty Specialty Markets as a new primary market is awaited pending court approval. This will have a significant impact on the market in NSW as an alternative primary insurer to Lawcover.
Continue reading our full range of market updates here:
July 2024 Market Update Overview
For more in depth market updates by product class, profession and industry, please see our individual reports below:
Workplace Risk
Executive & Professional Risk
Transaction (M&A) and Contingent Risks
Construction