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HARDENING INSURANCE MARKET

James Wallace, Director of Wymark Insurance Brokers, explains what a hardening insurance market means for pest managers and their premiums. 

 

Insurance options and pricing are always a hot topic for discussion amongst pest managers. Whilst price certainly isn’t everything when deciding on a suitable insurance policy, it’s worth understanding the key factors that drive pricing.

Like many markets, the insurance market is cyclical, typically described as a soft or hard market.

  • Soft market – Insurer charges lower premiums and increased willingness to accept risk.
  • Hard market – Insurer charges higher premium and reduced willingness to accept risk.

 

What part of the cycle we are in depends on many factors, including but not limited to, interest rates/investment returns on premiums collected, claims paid, and the insurer’s ability to retain risk. There are general macro factors that influence all insurance markets, as well as specific factors that may influence individual insurance markets such as pest management.
Whilst not the only reason for increased premiums and excesses, claims play a large role due to a number of factors including:

  • Increasing costs in defending claims
  • Large settlements to claimants
  • Claimants’ propensity to litigation
  • Application of consumer law resulting in claimant-friendly outcomes
  • Report writing and a failure to understand requirements.

 

Currently, there are fewer insurers willing to cover the pest management industry. This is in large part due to there being fewer insurers willing to take on more risk or having little appetite for high-risk loss-making portfolios, as well as insurers imposing stricter constraints on themselves and requirements on new applicants.

Until recently, insurers could rely upon favourable interest rates to cover loss making portfolios where claims paid exceed premiums received. With the current environment of low interest rates, this is no longer possible and striking the right balance has become increasingly difficult.

Insurance is a community pool of premiums, and as such is affected by the volatility and profitability results in all industries, not just your own. Catastrophes (such as bushfires) can drive up the cost of reinsurance for the insurer and to maintain their financial health and ability to pay claims, premiums rise, a trend seen in markets worldwide, Australia included.

Like every business, insurance companies must respond to the current market environment and this may mean an increase in premiums. However, insurers don’t increase premiums without reason.

 

James Wallace, Director, Wymark Insurance Brokers