Liability Insurance Market Update 2023
The Professional Indemnity (PI)game has been pretty tight lately....
Insurers are all about those small and medium sized businesses (SME's) these days. They're juicier targets for them.
Premium rates are going up, but nothing to drastic, around 7-10% on average for low risk cases.
Insurers are trying to balance their growing reinsurance and compliance costs by downsizing the limits they offer offering bundled liability packages with lower policy limits instead. To keep exisiting limits, insurers need more support from new insurers and the new guys generally charge more premium for their capacity.
The little guys in the professional services field continue to play it safe buying policy limits under $5,000,000. For the big shots, insurers are more focused on holding onto their existing customers than trying to get new ones making competition weak (some insurers aren't accepting new business because they're short on staff and struggling to find replacements.
Product wise, a few local insurers have started excluding Cyber coverage from their Professional Indemnity policies following the trend in London who has had some bad cyber loss experiences. If you have a risk of third party cyber claims, it's a good idea to find insurers who will still cover it or think about getting separate Cyber cover.
Insurer's aren't too keen on underwriting certain types of risks they don't find attractive, like real estate, valuation (people remain uncertain about house prices), big tech risks with large cyber concerns, large financial institutions (high claims losses with civil claims, regulation and crime) and design and construction risks (lots of claims due to project delays stemming from supply chain issues). Lloyd's syndicates are still dealing with the consequences of the Lloyd's 'thematic view' which highlighted design/construction and international professional indemnity as the worst performing classes.
Looking ahead the hardening market is expected to continue.
Risk selection and the application of more technical rating will continue to take centre stage. Increasing reinsurance costs and ongoing compliance and regulation are pushing insurance costs up, probably more so than claims performance and are becoming less flexible in their ability to respond to anything outside their standard policy offering.
While opting for higher excesses and demonstrating genuine risk management policies may off-set some premium increases, for some professions, the PI policy will need to be considered a catastrophe claim response tool rather than funding the smaller ground-up losses.
Overall it's not easy to find coverage in overseas markets because our accounts aren't that appealing on a global scale so the key is to get a head start on renewals to avoid last minute log jams and (nasty) surprises.
Director's and Officers market breakdown
- Side A Directors and Officers Liability insurance (D&O) is like personal protection for directors and officers. It covers them when their company leaves them hanging.
- Side B Company Reimbursement (CR) is when the company gets protection if it backs up its directors and officers in claims against them. It's like company protection.
- Side C Securities Entity cover is when the company gets coverage for claims brought by shareholders. More company protection.
The D&O insurance market chilled out a bit since the back end of 2022. More insurers hopped on the bandwagon, and things got more competitive. Prices got better, especially for those who got screwed with high prices in 2020 and 2021.
In New Zealand, corporate insureds didn't benefit as much as the USA, UK, and Australia from the softer global market. Our premiums are lower, risks are smaller, and our insurance programs are different. But some lucky folks got higher limits and faced competition in London's insurance market.
Commercial and small business insureds still had to deal with 5-15% premium increases because they have lower premiums.
Tips for Clients
To score a better deal at renewal, be proactive! Besides filling out the proposal, spill the beans about your company's corporate governance and sustainability/ESG stuff. And make sure to give them all the renewal info at least four weeks in advance, so they can get to work on time.
Directors, pay attention to whether the coverage includes separate defence costs. Also, watch out for exclusions related to insolvency claims, coverage for raising capital, or claims by majority shareholders.
We're hopeful that things will get better in the local market in New Zealand in 2023.
The competition overseas will eventually have an impact here too, and insurers will want to protect the portfolios they've been fixing and get serious about new business to meet their growth targets. Small businesses probably won't get much attention from international markets, so they might face slight premium increases as insurers play it safe with inflation.
We can't say for sure how long the softer market conditions will stick around. Financial lines claims take time to show up after they're reported, so things might change sooner than we think.
As risks keep evolving in New Zealand and worldwide, directors should care about what their Directors Insurance covers. Also, consider whether the coverage limits are still enough, considering inflation and the overall economy.
It's good news for Employers Liability (EL)
Thankfully, the frequency and amount of claims are generally low because of the ACC system and the fact that suing for personal injury in New Zealand is pretty limited. As a result, premiums are steady, and there's plenty of insurance capacity to go around.
*Employers can face risks from various conditions, like injuries caused by work-related stress, depression, anxiety, or mental anguish. There's also the risk of diseases or infections caused by a gradual process, especially if the employer hasn't provided a safe workplace. And let's not forget about diseases or infections caused by air conditioning systems or passive smoking. Plus, there's the potential for bystander claims when someone witnesses a traumatic injury or death.
The EL market is expected to stay stable, with just some small premium increases of around 5% to account for inflation, assuming the risks don't change much.
The General Liability insurance market is still going strong and keeping up with the competition.
Insurance companies seem to be offering decent coverage limits for different types of businesses and industries. If they've properly assessed the risks in the past, they might raise rates by around 5% based on similar revenue and risk profiles (as long as the insured and the industry have had good claims experience) However, don't expect insurers to be too enthusiastic about adding extra coverage benefits!
Insurers are getting more demanding when it comes to underwriting information (this across all liability lines) and they need more time to go through the whole process. Businesses that export to or operate in the USA could face some challenges in keeping their coverage or avoiding increases in premiums, deductibles, or even limitations on the coverage available for their USA operations.
If they haven't done it already, insurers are looking to add exclusions for cyber-related risks and communicable diseases to their policies. So be prepared for those changes if they haven't already been applied. The reality here is these endorsements while becoming universal should impact your decision to renew your GL policy as they were never designed to cover these losses in the first place.
The Statutory Liability insurance market is holding steady, but..
There are a few things to keep in mind. Firstly, the costs for defending claims and the reparation orders under the Health and Safety at Work Act 2015 (HSWA) have been going up. Reparation orders now start at around $80,000 to $250,000 (depending on the injury), and for serious life-changing injuries, they're even including the 20% of wages that ACC doesn't cover.
This means insurers are hiking up premiums and requiring higher deductibles for HSWA violations, depending on the industry and claims history.
Secondly, if your organisation falls under the regulation of the Financial Markets Authority (FMA) or has to follow the new rules for financial advice or Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT), insurers are adjusting premiums, raising deductibles, or sometimes not offering coverage at all. It's all because of the increased risks involved.
If you're in the business of primary producers, forestry, and manufacturing , you should brace yourselves for higher premiums and deductibles based on industry claims and your own track record.
Organisations affected by the new FMA rules or AML/CFT changes should also expect to pay more or have higher deductibles, or maybe even be excluded from coverage. Insurers will want to see the latest AML/CFT audit to make sure everything's compliant before deciding on coverage. For other businesses, there will likely be modest premium increases of around 5% to keep up with inflation, as long as there aren't any major changes in risk factors.
Lastly, let's talk about the cyber insurance market
In the past few years, there have been some changes in how cyber risk is underwritten, all thanks to a surge in cyber incidents (especially those ransomware attacks) But here's the good news, the global cyber insurance market is finally starting to stabilize and soften.But don't get too carried away as there are some things you need to know about this "softening." While there's more competition and new players entering the market, insurers still have expectations. They want clients to meet certain minimum cyber security standards and if your risk falls below those standards, it's going to be tough to get decent cyber insurance coverage.And here's another thing to keep in mind: those retention and premium increases we've seen in recent years? Well, they're not likely to reverse so even though there might be some softening, we're sitting at 'the new normal' when it comes to premium benchmarks and retention expectations in the cyber insurance market.
Overall, it's a bit of a mixed bag. Small businesses are enjoying stable and affordable cyber insurance options without too much hassle. But for mid-market and corporate risks, it's a different story. They're experiencing market conditions more in line with global trends, which are slowly making their way to New Zealand insurers.
Endorsements like ransomware restrictions and event limits are becoming more prominent as the cyber risk landscape evens out and insurers put clients cyber security risk management under the microscope.
If you're seeking cyber insurance, be prepared to provide a substantial amount of information to underwriters. It's not just about presenting good information, though. It's also about being open to feedback from underwriters and showing a willingness to address any risk concerns they may have. Implementing measures like multi-factor authentication, data encryption and having tested business continuity plans, and employee training, will help secure favourable coverage, pricing, and deductibles.
Keep in mind that cyber risk is an ever-changing landscape, so insurers and market commentary are constantly considering factors that could impact the cyber insurance marketplace. This includes things like geopolitical tensions, zero-day vulnerabilities, and cyber control circumvention.