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6 October 2020
In the second part of the Insurance Market overview, we look at factors influencing individual insurance sectors, including cyber, marine, professional indemnity, liability and more.
We can make the following comments on individual insurance sectors in New Zealand.
The result of increased reinsurance costs means that we are expecting insurers to put pressure on the market to achieve rate increases.
That could result in increased premiums for material damage and business interruption cover. We expect that this will be inconsistent and may vary significantly from one insurance company to another and also regionally in New Zealand.
When we have an inconsistent market it’s vitally important to approach insurers early and with quality information so that the best possible client outcomes can be achieved.
The availability of affordable capacity for earthquake cover in the Wellington region continues to be the major area of concern for the market. All insurers are closely managing their capacity in this region and in particular are looking to get the best return when they do accept a risk. This does not necessarily mean just the highest premium, insurers also look closely at location, construction, age and earthquake strengthening.
Another area of concern is insulated panel construction (EPS). Following a number of significant fire losses (not in New Zealand) reinsurers have put pressure on insurers to increase rates and reduce their capacity on EPS risks.
It is essential for any business with a significant exposure to EPS that they can demonstrate a robust risk management programme to ensure that the exposure is mitigated as much as possible.
The lockdown periods have had a significant impact on the insurance companies’ results in this sector. Less vehicles on the road have led to less claims. The reverse side of this is that insurers have received less premium from commercial motor vehicle insurance policies due to fleets being laid up. Of all the insurance classes (with the exception of Travel insurance), motor insurance is probably the most directly disrupted by Covid-19. As a general rule, motor pricing is driven by losses, and so the longer term impact is yet to be seen.
This is also a class of insurance that has suffered from significant “claims creep” in recent years as new technology in vehicles has resulted in increased repair costs. This new technology has added to the time it takes to repair a vehicle and managing the claims process is important to ensure that the vehicle can get back on the road as soon as possible.
The marine insurance market remains competitive. This is despite Lloyd’s of London, who are a major global insurer in this sector, conducting a market review that resulted in several syndicates withdrawing from the class.
There continues to be readily available capacity for marine business in New Zealand, and the market remains competitive.
The lack of exposure to “bodily injury” claims in New Zealand, means that capacity for liability insurance is widely available and pricing is generally competitive. Insurers have been seeking modest increases to premium in recent years, however where an insured is able to demonstrate effective risk management and a good claims record, rate increases can be minimised.
There are certain industry sectors where insurers are seeking rate increases and require more comprehensive underwriting information. An example of this is risks that have exposure in the USA either physically or through product exports.
The Directors and officers liability insurance marketplace has been hardening globally for 24 months. This means that premiums have been increasing and insurers are becoming more selective on the risks that they write. In New Zealand we are now also experiencing this change in attitude. It is being influenced by recent court decisions on the duties of directors including the headline case of Mainzeal. The emergence of litigation funders in New Zealand and the Courts’ confirmation around “opt out” class actions are also cause for concern.
The economic uncertainty generated by the lockdown and restrictions due to Covid-19 has also had an impact on the D&O insurance market place. Insurers are now taking a very cautious approach to writing new risks or offering increased policy limits. Being able to demonstrate the financial stability of a company and the measures taken by the directors to navigate the current issues is essential.
It is generally wise to allow more time for arranging D&O insurance.
The Professional indemnity market remains fragmented. In Lloyd’s of London over 12 syndicates have withdrawn from writing professional indemnity in the last year due to their poor underwriting results. Industry sectors such as construction, financial institutions, financial advisers, solicitors and valuers continue to be challenging with increases in premium and often tougher conditions applied.
Insurers still have an appetite for many other occupations. However, modest premium increases are the norm on most policy renewals.
For the more difficult industry sectors insurers are seeking additional information and more time needs to be allowed for negotiation.
In the past, economic downturns have fuelled an increase in Professional Indemnity claims. As assets and investments lose value so claimants look to their professional advisers for compensation. Therefore there is a possibility that the Professional Indemnity market may deteriorate in the coming months.
The media has been full of news surrounding headline cyber incidents at some of New Zealand’s best known companies. NZX had possibly the most notable of these incidents when it suffered a DDoS (distributed denial of service) attack that took its website down for 6 days.
Westpac, Stuff, Radio NZ and MetService were other notable businesses reporting incidents.
We are also seeing an increasing number of claims on cyber insurance policies resulting from attacks on far more modest companies. The table below shows some examples from recent months of real claims from Crombie Lockwood clients;
|Industry||Quantum||Type of loss|
|IT services||$20,000||Ransomware attack affected customer system|
|Produce wholesaler/ exporter/importer||$52,529||System hacked and funds stolen|
|Construction & installation of plant for petroleum industry||$16,542||System hacked|
|Talent/management age||$7,017||System hacked|
|Manufacturing distributor||$40,000||Phishing - payments to unintended recipients|
Cyber insurance is a valuable part of a business’ response to a cyber-attack and will also be able to respond to privacy infringements resulting from a network breach. This will be particularly important with the incoming reporting requirements of the Privacy Act 2020.