An interview with Peter Chapman, the General Manager of Expense Reduction Analysts – Asia Pacific’s insurance team. Peter’s background is general insurance broking, having worked in the industry for more than 35 years with national and international broking houses both in the Australian and London markets.
Q1. Peter, how do you see insurance premiums changing over the next 12-24 months?
According to the Marsh Insurance Market Update (i), global insurance markets generally remain favourable to buyers. The second quarter of 2017 marked the 17th consecutive quarter in which commercial rates declined, according to Marsh’s Global Insurance Market Index. But despite most buyers still being able to secure rate decreases, the size of those rate decreases is shrinking.
There are always opportunities for good, “clean” portfolios. What I mean by “clean” is a risk with a reasonable claims history together with Risk Management practices in place.
Q2. Where do you see the high-risk areas for premiums?
There are signs though that the Directors & Officers (D&O) market is starting to toughen. There has been an increase in the number of class actions in Australia, and this can impact the premiums offered by insurers. There has also been an increase in the number of Employment Liability Claims (EPL) – things like wrongful dismissal and bullying.
With the cost of claims creeping upwards and room for discounts dwindling (ii), insurers have reached a “critical mass” dilemma, and therefore are turning to more creative ways to stay competitive.
As a result, there has been an increase in “bundle” deals by packaging up multiple policies, allowing insurers to leverage a higher premium volume and be more competitive on a portfolio basis.
Q3. Are there any other volatile areas?
Cyber Protection continues to be the “hot topic” with many clients in the services industry. There has been an increase in the number of policies purchased as clients are more willing to understand their exposures in this developing risk area.
Mandatory reporting of any cyber breaches has also been introduced with effect from 22nd February 2018. This applies to all companies with a turnover of at least $3 million, most government agencies and not for profit organisations.
Q4. Can you give me an example?
I recently met with a client whose email account had been hacked. The hacker authorised payment of a fictitious invoice for many thousands of dollars, and the breach was only picked up when the auditors came in. This kind of cyber breach is called Social Engineering.
Q5. What about Workers Compensation?
There are good opportunities for reducing Workers Comp premiums – by ensuring the correct classification of employees, and by having claims management procedures in place. There should be quarterly claims management meetings between you, your broker, and your insurers to ensure that reserves are reviewed and reduced where possible since this will directly influence the ongoing premium costs. This is particularly true in the Managed Fund States (NSW, VIC, QLD, and SA).