Bushfires, floods and now a global pandemic, what’s next for the insurance industry?

This article has been co-authored by Georgia Wiadrowski.

During recent times, the Australian insurance industry has taken a hit on various fronts. First, the recent bushfires across Australia which is estimated to reach $5 billion, then the hail storm which resulted in $1½ billion in claims and the floods on the east coast which is currently at $800m.

Now let’s consider the recent Australian Prudential Regulation Authority (APRA) monthly report for the year ending 31 December 2019; the report shows that more and more businesses are being placed in unauthorised foreign insurers (UFI’s). The UFI’s are not regulated by APRA nor required to comply with APRA’s general insurance prudential requirements.

At the end of last year, a total of $856 million in premium was placed in UFI’s (mainly in the UK and Singapore). This was an increase of $128 million from the previous year. Data shows that the overwhelming majority of premium, ($519 million) was placed in fire and industrial special risk, indicating that Australian Insurers are less likely to take these risks forcing more business to be placed in UFI’s.

As at 31 December 2019, there were 1,662 intermediaries licensed to conduct general insurance business. Of these, 777 intermediaries placed business directly with underwriters. Interestingly, 735 out of 777 intermediaries placed business directly with APRA authorised general insurers as opposed to Lloyd’s underwriters and UFI’s.

The level of disruption that Australian Insurers and Lloyd’s Underwriters will experience is completely unprecedented. With the higher than expected increase in claims, we are likely to see Insurers take a more cautious approach to underwriting and underwriters re-writing policies to clarify wording and include further exclusions. Premium increases are likely, however, we may see a temporary hold on monthly premium payments for certain businesses given the current financial crisis.

It is difficult to see how, in the long run, there will not be increases in premiums and policies with stringent terms and further exclusions. This may, in turn, lead to further risk being placed with UFI’s. It will be interesting to see how the local and overseas market work together with businesses to keep insurance products fair, whilst also reflecting commercial reality.