Insurance prices surging but too early to assess COVID-19 hit: Marsh

Global insurance prices are surging, but are yet to fully capture the full extent of the insurance hit caused by the pandemic.

A traffic controller keeps watch at a road closure as a bushfire is seen threatening Avon Ridge in Brigadoon, Perth, on Wednesday. Picture: Getty Images

Global insurance prices are surging, but are yet to fully capture the full extent of the insurance hit caused by the pandemic, the broker to some of the world’s largest companies has revealed.

The latest Global Insurance Market Index from Marsh found global commercial insurance prices jumped 22 per cent in the December quarter of 2020.

This double-digit jump follows 13 consecutive quarters of overall price rises, with the Australian market one of the worst performing.

Price growth across global markets was led by Britain, which ballooned 44 per cent in the last quarter of 2020.

The Australian market saw a 35 per cent jump, in what marked its 17th consecutive quarter of overall price rises.

Local financial and professional services insurance pricing saw its 14th quarter of continued price growth, up 51 per cent in the last quarter of 2020.

Insurers continue to steer away from the space after being savaged by class actions and legal action.

The Marsh report noted major claims continued to dominate the market, particularly around director and officer insurance for listed companies, and construction and engineering claims.

Marsh Australia managing director John Donnelly said falling investment returns for insurers, brought about by low rates, were coupling with significant catastrophes to hurt insurers’ bottom lines.

“Across the world prices are going up and they’re all going up for the same reason: because no one is making money anywhere,” he said.

“Historically, investment earnings were a major contributor to profit and were supplementing the fact insurers lost money in their underwriting.

“With interest rates so low their investment earnings have been hit dramatically.”

Price growth across global markets was led by Britain, which ballooned 44 per cent in the last quarter of 2020. Picture: AFP

Australia’s horror summer of fires and floods caused heavy losses to insurers, with Marsh showing property insurance prices grew 31 per cent in the last quarter of 2020.

Marsh noted clients continued to focus on coverage restrictions and wording to mitigate the potential for price increases.

The broker also noted many clients had reduced limits on large-limit programs to minimise price impacts.

Mr Donnelly said despite the recent months in Australia not yielding a repeat of the horror conditions of a year earlier it was unlikely premium price rises had turned a corner.

Casualty pricing rose 15 per cent in the Australian market, the largest year-on-year increase in Australia since 2012.

Marsh noted casualty claims had increased due to systemic issues.

The broker noted social inflation was on the rise due to increased medical costs and plaintiff-friendly juries, coupled with the growth of litigation funders, which were all putting insurers under pressure.

Mr Donnelly said the Australian market was caught in the trap of rising prices coupled with a falling away of market members. “We’ve always had a strong locally owned insurance market, with IAG, QBE and Suncorp. In addition to that almost every major global insurer was represented here and competing for business,” he said.

“We were an oversupplied market. That’s changed with a number of mergers and acquisitions.”

Passengers wearing masks disembark a Melbourne tram on Thursday. Picture: Getty Images

However, the full impact of the pandemic had yet to reveal itself in premium price rises.

Mr Donnelly said the recent British court judgment that found in favour of insurance policy holders had set the scene for likely price rises.

“The big cloud that’s hanging over the market at the moment is COVID-19 and what’s going to happen with COVID-19 claims in our marketplace.”

He said it was likely the impact of those claims would start to flow through by the end of 2021 or start of 2022.

“The global results have a great impact and if the global results are poor those insurers will continue to press prices.

“The whole COVID-19 thing in Australia and globally has a lot to play out in terms of where the litigation lands.”