The current insurance market and adapting to the changes

The current insurance market and adapting to the changes

As an astute business owner, you may have noticed that insurance costs in Australia are generally trending upwards, between 10% - 20% for business (30% or more if significant claims or higher risk industries) with home insurance averaging increases between 10% - 15%. This is due to several different factors that have collided to create a significant decline in industry profitability, including less investment income and natural catastrophes, with the recent flooding in QLD & NSW expected to cost $1 Billion. While some business owners may look to balance the costs of insurance premiums against taking on more risk (self-insuring), it’s fair to say that the consequences of not having an insurer to take the risk can be quite devastating, if the worst happens. As you have become more resilient since the start of COVID-19, you should look at your insurance cover to see if it still meets your needs.

Understanding the drivers of the lack of industry profitability, whilst not changing the outcomes, can help business owners to structure their businesses. It is wise to reflect on the current insurance market, where insurance premiums are (mostly) still increasing and some types of insurance cover may be difficult to obtain.

Why is the insurance industry suffering from declining profits?

Not many people in Australia can forget the traumatic bushfires and storms during the 2019 - 2020 seasons, followed by the COVID-19 pandemic, which is continuing to wreak havoc to people and businesses in communities worldwide. Many businesses impacted badly have restructured their operations or have become more resilient as Australia recovers. In addition, insurers can no longer depend on investment income to offset claims. This was for many years the main driver of profits for many insurers globally.

Then there’s the growing reluctance of the global head offices for Australian offices to shoulder the losses experienced here. Many insurers with head offices overseas, such as Europe are experiencing the latest wave in COVID-19. The Pandemic caused recessions in many economy’s, which countries are just starting to recover from.

Globally the US and Caribbean hurricane season was the most active on record, with 30 storms. The most damaging was Laura, which caused US$9 Billion in damage. These are only some of the key drivers that have led to declining profits in the insurance industry and overall losses continuing to be incurred.

What about the future?

Basically, declining profits have resulted in rising premiums and insurers increasing excesses, reducing the amount of cover they are prepared to offer, as well as requiring risk management. Insurance has become more difficult to obtain, quite likely in the locations or industries that have posed the most risk. Risk management and risk mitigation will be further analysed, meaning that a company’s prior claims history may also become a greater deciding factor when it comes to obtaining insurance cover. This situation is forecast to continue until the industry begins to realise more profitability, reflecting the ending of the global pandemic and related economic growth, which is unlikely before 2022.

To navigate these uncertain waters, business owners need to focus on their newly developed resilience and improve risk management strategies. A good strategy in the current insurance market is to discuss your situation with your insurance adviser, who will work in your best interests to optimise your insurance dollar spend to assist you in protecting your business.

To decide what type of insurance policies are suitable for your business, talk to an insurance specialist today and find your local adviser.

General Advice Warning

The information provided is to be regarded as general advice. This type of insurance product is designed for small and large businesses, who want to be covered against financial loss to the business, including loss of income, following a fire, storm or other type of insured loss.  We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider relevant product disclosure statement(s) before making any decision to purchase this type of financial product.


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