WHAT IS CURRENTLY HAPPENING IN THE INSURANCE MARKETPLACE?
The Insurance market is cyclical, which means the market goes through ‘soft’ cycles and ‘hard’ cycles.
Up until say 18/24 months ago, we had experienced a ‘soft’ cycle across most classes of Insurance, wherein pricing was very competitive and there was plenty of capacity around.
We are now currently experiencing a ‘hard’ market and available Insurer capacity is shrinking and pricing is increasing.
So, what do we mean by ‘Capacity’.
The technical definition is the supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition.
When the industry is hit by high losses, capacity is diminished as claims outstrip premiums and therefore in order to meet profitability either premiums increase and excesses increase OR they cease underwriting certain Industries altogether.
This is impacted even more so, by the historic low-interest rates, therefore restricting the amount of investment income return Insurers can earn and therefore impacting their overall profitability.
For example and unrelated to the Engineering industry, we have seen premiums increase for some industries, (such as Recycling / Plastic risks) by up to 500% with excesses increasing from up to $100,000 or more and where we had seen 1 or perhaps 2 Insurers contributing to write the risk, it was now necessary, in some cases, to involve up to 20 Insurers in order to attain 100% coverage.
Unfortunately for the Insurance buyer, industry experts are saying the hard market is here to stay for a while, at least the next 2/3 years or more. And it may get worse before it gets better.
Hard market conditions in summary:
- Premiums increasing
- Excesses likely to increase
- Policy cover may be restricted
- The number of available insurers is reduced
What does this all mean for Geotechnical and Structural engineering industry
Due to the unfavorable level and frequency of claims both in Australia and across the globe, Insurers view Geotechnical and Structural Engineers as High risk.
Most of the available Professional indemnity capacity is written by Lloyds in London and we are now seeing a number of syndicates at Lloyd’s imposing significant premium increases and increased minimum deductibles and in some cases withdrawing from writing PI insurance altogether.
Lloyd’s syndicates (who’s investors are a combination of the Private and Corporate sectors) have restrictions on premium they can write and risks that they can accept. And after recording a $3.73 billion loss in 2017 for all classes of risk, Lloyd’s made it clear earlier this year that it would need to address the situation and return to profitability.
The new approach is having an impact on underwriting agencies in Australia, with Lloyd’s capacity not as accessible as it has previously been.
The driving factors affecting the PI market can therefore be best summarised as follows:
- Poor underwriting results where claims are exceeding premiums written
- Increase in the number and quantum of PI claims
- An increasingly litigious environment with consultants often being sued for what is really poor workmanship
However, these claims have to be defended which is racking up substantial legal costs.
As already mentioned, we are currently in a tough market, however, it is not all doom and gloom.
CIA specialises in arranging Professional Indemnity Insurance for the Engineering Industry and we have not yet experienced a situation where we have been unable to obtain cover.
We specialise in arranging Insurance for the Structural and Geotechnical industry and we are familiar with all of the markets that underwrite this class of risk.
With access to an array of markets, and we act as your advocate to get you the best rate, whatever the market conditions are. We work to present the best “story” of your risk to drive competition between the insurance carriers to motivate them to offer their best rate to your company.
If you are currently experiencing problems with your PI Insurance renewal, please contact firstname.lastname@example.org or give Geoff a call on 1300 446 787 to see how CIA can help you.