How to reduce your business insurance costs

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More expensive premiums, higher excesses and narrower coverage are set to become an insurance reality for many Australian businesses. Here’s how SMB’s can prepare for a hardening market.

Australian businesses have benefited from a soft insurance market for some years now, but it’s time to prepare for a change.

We spoke with Steadfast Broker Technical Manager, Michael White about the cyclical nature of the market, the factors that drive it and how you can prepare for a harder market.

What is a hard or soft insurance market?

The nature of the market is driven by the availability of insurance, explains White.

“If there’s a lot of capital coming into the insurance market, it’s easier to get cover – so in a soft market insurers will chase business,” he says.

A soft market can therefore mean lower insurance premiums, discounts, broader coverage, smaller excesses,  narrow exclusions and insurers writing more policies with higher limits.

A hard market, on the other hand, is experienced when there is a decreased availability of insurance capital.

With decreased availability can come higher premiums, lower policy limits, bigger excesses, wider exclusions, narrower policy coverage and less competition between insurers.

Which pockets are hardening?

Certain parts of the Australian insurance market are showing signs of hardening already.

“We’re certainly seeing insurers not supporting certain kinds of risks such as for directors and officers generally, but in particular, D&O Side-C coverage for investor claims,” says White, referring to products that protect companies from claims made against it and its directors and officers.

High-risk property is also becoming harder to place.

“These are property risks where they have a lot of issues around the building – buildings that are unoccupied, poorly maintained or generally in a distressed condition,” White says.

Professions and businesses with a history of losses are also likely to find it harder to secure the kind of coverage they’re seeking, White adds.

The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later.

Taking advantage of a soft market

The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later.

“For example, if you have cover for $5 million and you know you are soon going to need it expanded to $10 million, it may be easier to get now and cheaper in the long run,” White says.

Your insurance broker may also be able to lock in future renewals on a favourable basis.

How to prepare your business

There are two main ways in which you can ready your business for a hard market.

The first is by factoring in increased costs. If you’re aware of the cyclical nature of the insurance market, you have probably been taking advantage of its current state and may have prepared by saving for the inevitable: more expensive premiums, higher excesses, lower policy limits or narrower coverage.

If not, start factoring in these costs now.

“The cost is going to be significant,” White says. “So businesses must budget for the increases if they want to maintain their cover.”

The second way is by having a long-term relationship with a good insurance broker. No matter what stage of the cycle the market is at, a good broker will understand it and your business, have good long-term relationships with insurers and be able to secure you the best cover for your individual circumstances, as well as being able to advise on likely future changes to insurance costs.

A good broker is also invaluable in a hard market when policy wordings are narrower, limits are lower and excesses are bigger  – as we’ve previously discussed, brokers can be your advocate should a claim be rejected.

For expert advice on insuring against the risks your small business faces, talk to us today.

Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs.

2018 on track to be worst year in a decade for insurers

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This year is shaping up to be one of the worst in terms of catastrophe losses the insurance industry has ever incurred, as data for the third quarter of 2018 paints a grim picture.

During Q3 2018, the US was beset by the destructive Hurricanes Florence and Michael, which together caused more than $31 billion in economic damages. The quarter also saw wildfires erupt in some parts of the country. California – in particular – continues to suffer its worst fire season on state record, having experienced 32 wildfires in Q3 2018 alone.

In Asia, meanwhile, Typhoons Jebi and Trami devastated Japan, while Southeast Asia had to deal with Typhoon Mangkhut.

“This has been a year in which the frequency of catastrophes seems potentially larger than last year,” RMS meteorologist and event response manager Tom Sabbatelli told The Financial Times.

The Financial Times analysed third-quarter filings from over 20 of the world’s major insurers and found that the companies have recorded losses of about $9.1 billion.

RMS is anticipating up to $20 billion of combined insured losses from Hurricanes Florence, Michael and Jebi alone.

These loss projections make 2018 one of the worst years in the past decade for natural catastrophes.

“[2018] is an above-average year. It is a reminder to the market that we shouldn’t expect a return to [the low level of natural catastrophes] in 2015 and 2016,” explained Jefferies analyst Philip Kett.

Of the many insurers affected by third quarter losses, AIG is expecting the biggest hit. In an earlier release, the company projected pre-tax catastrophe losses for the third quarter at around $1.5 billion to $1.7 billion.

This article was first published on insurancebusinessmag