FM Global’s Operations Senior Vice President – Australia, Lynette Schultheis, recently took part in a panel discussion at the RIMS Australasia 2021 Conference. Members shared thoughts on a wide range of insurance industry trends from natural catastrophes and cyber risk to an increased need to focus on supply chains and future buying behaviour. The session was facilitated by Marsh’s Managing Director and Head of Placement Asia Pacific, John Donnelly.

The panel

  • Lynette Schultheis | Operations Senior Vice President – Australia Operations, FM Global
  • Kevin Bates | Group Head of Risk and Insurance, Lendlease
  • Demetra Day | Head of Major Accounts Division, Australia & New Zealand, CHUBB
  • Nigel Fitzgerald | Chief Executive Officer, AIG Australia
  • Rob Collins | Head of Insurance, Qantas Airways Limited
  • John Donnelly | Managing Director, Head of Placement Asia Pacific, Marsh

Some heat has come out of the insurance market during the past year, with premiums still increasing but at lower rates with the exception of cyber risk. The Marsh Global Insurance Index shows that average premium increases peaked at 22% in the final quarter of 2020, falling to 15% in the second quarter of 2021.

The Pacific region has now seen increases for 17 consecutive quarters. Property premium increases were above average, peaking at 31% in the third and fourth quarter of 2020, but down to 14% in the second quarter of 2021. This was the lowest quarterly increase for two-and-a-half years.

Global insured losses of $US42 billion in the first six months of 2021 were 10% higher than the 10-year average and 4% higher than the previous year. It was the second highest value of first-half losses in the past decade.

First-half results are not considered as important as full-year results because the northern hemisphere wind season runs from June to November, with recent Hurricane Ida losses estimated at between $US25 million and $US35 million. Marsh’s Managing Director and Head of Placement Asia Pacific, John Donnelly, warned similar storms could quickly reverse current market recovery trends.

A more positive outlook  

Although the market was reaching “pricing adequacy”, Donnelly noted that this had historically seen one or two insurers undercutting prices to win business, although this was unlikely to be aggressive in the short-term. While natural catastrophe and cyber would continue to be challenging, he flagged a more positive outlook than we’ve seen in the past four years.

FM Global’s Operations Senior Vice President – Australia, Lynette Schultheis, said many companies were still in resilience mode as they dealt with the implications of the COVID-19 pandemic. She noted that everything is amplified during tough market conditions – using recent cyber events and Hurricane Ida as proof points – and urged clients to increase scrutiny of their supply chains.

Cyber risk has been the outlier in market trends, with Qantas’ Head of Insurance Rob Collins saying risk manager run the risk of losing credibility with CEOs and CFOs. Having spent years convincing senior stakeholders that they needed to invest in cyber insurance, he said it was very difficult to go back and talk about premiums doubling or tripling while coverage shrinks and some long-term partners abandon the market. He warned that if risk managers couldn’t get the coverage they need now, they wouldn’t buy in the future when the insurance industry feels it has worked it out.

Chubb’s Head of Major Accounts ANZ, Demetra Day, said the cyber insurance market had seen significant change during the past year with rate increases, coverage amendments and reduced capacity. She blamed this on the increased frequence and severity of loss events. Chubb’s Cyber Risk Index shows that vulnerabilities have tripled in the past year.

Day said ransomware now accounted for more than a quarter of cyber incident notifications from its clients. This category alone cost the Australian economy an estimated $1.4 billion in 2020. She pointed to the Federal Government’s $10 billion cyclone insurance guarantee, she said similar thinking was needed to provide cyber insurance market stability and coverage availability.

A buyer’s perspective   

Lendlease’s Group Head of Risk and Insurance, Kevin Bates, said buyers wanted insurers to stop justifying why something feels rational and listen to the impact it’s having on clients. Although buyers value their relationship with insurers, he suggested these partnerships had become less balanced in recent years.

He asked other members of the panel whether “take it or leave it” quotes and reduced coverage meant partnership were being replaced by commoditised trading relationships. Although he’d heard some great conversations about what post-pandemic solutions look like, he suggested these needed to move faster. If pricing was prohibitive, he warned that businesses would find other ways to protect themselves and transfer risk.

Using natural catastrophes as an example, FM Global’s Schultheis responded by saying profitability wasn’t determined purely by pricing. Although market trends were seeing clients having to agree to lower limits and higher deductibles, she said FM Global was also seeing clients invest in risk improvement and protecting their assets. This was important because continuous pricing increases is not sustainable.

Given a choice between increasing premiums and improving risk, she said it should be an easy decision every time for an insurer or a client. She noted that this was reflected in FM Global’s combined ratios over time because clients record less losses due to better risk quality.

Final market thoughts

Looking at where the market is headed, AIG Australia’s CEO Nigel Fitzgerald said low interest rates meant the insurance industry would continue to focus on underwriting returns. He noted that this has been an incredibly busy time from a regulatory perspective, which would ultimately put the industry in a better position and make it harder for non-traditional insurers to enter the market. He predicted flatter and shorter pricing cycles than in the past.

FM Global’s Schultheis said her team tried to be transparent and forthright in client conversations during the pandemic. This was always focused on improving risk but sometimes meant having tough conversations around premium increases or client fit. She looked forward to getting back out for dinner with clients and re-establishing relationships in a way that’s difficult to do via video calls.

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