May Market Summary and Analysis - 2024

As we delve into the current state of the insurance market in 2024, it's evident that the landscape has evolved significantly since the preceding years. While challenges persist, there are discernible shifts indicating a tempered trajectory in certain sectors.

State of the Insurance Market (for Construction Risk)

The insurance market continues to recalibrate after several years of sustained hardening. Premium increases, once steep and frequent, have moderated to some extent. Insurers are now focusing on refining their underwriting strategies rather than implementing sweeping changes.

In the first quarter of 2024, the market witnessed a more measured approach from insurers. While the upward movement of deductibles remains a focal point, the intensity of these adjustments has diminished. Similarly, scrutiny of policy terms and conditions persists, albeit with a more nuanced perspective.

High-risk sectors such as thermal coal, high-rise residential projects, and weather-exposed risks continue to command attention. Insurers are proceeding cautiously, mindful of the complexities inherent in these areas. Solutions originating from international markets, particularly London, are providing avenues for risk mitigation, albeit at a premium.

Contract Works (Material Damage)

In the realm of contract works, the market landscape is experiencing shifts as insurers adjust their capacity and underwriting strategies. Whilst there has been no drastic change in the market conditions for contract works placements, there have been some subtle changes and a definite feeling that that market conditions may be about to soften in the near to medium term.

For building risks that have traditionally been well priced and less affected by the hard market than other areas of the construction industry, the major insurers in the space are continuing to push for rate increases in the range of 5% - 15% as well as maintaining or increasing deductible levels for specific risks such as water damage. For claims effected risks the increases are higher.

For civil construction risks and other higher risk construction placements, that were much more severely affected by the hard insurance market conditions over the past few years, the insurers in the space are offering renewal at existing rates in most cases, although still maintaining deductible levels that were imposed in previous years. Again, this stance very much applies to risks that have performed well from a claims perspective and can demonstrate sound risk management practices.      

There is currently no new insurer capacity yet available within the local Australian market and some of the major insurers are attempting to diversify their books by taking a reduced capacity on some placements. The result being that a risk which was once insured 100% by a single insurer now requires two or three participating insurers to achieve the full 100% support. This can have an adverse effect on the overall pricing and policy terms and conditions.

We are aware of at least one major insurer in the Australian market that is planning to re-enter the contract works space in the near future. However we expect this insurer to take a cautious approach by offering co-insurer support behind a recognised lead where the terms and conditions are acceptable to them.

Over the past 6 - 12 months there has been an increase in insurer capacity for contract works placements available from the London insurance market than has been the case in recent years. However, the insurers in the space are currently taking a cautious approach to placements in Australia so it is yet to make any significant difference to the prevailing market conditions.

Despite these developments, opportunities remain for insured entities to secure coverage for their projects. Insurers are carefully evaluating risks and pricing to align with their risk appetite and market conditions. However, insured entities should be prepared to demonstrate sound risk management practices and engage with insurers early in the project planning process to optimize coverage and mitigate potential exposures.

Construction Liability

The construction liability market is showing definite signs of stabilisation in 2024, with premium increases moderating compared to previous years. While challenges persist, some insurers are displaying an increased appetite for writing business in this segment. Premium rates are still on an upward trend, albeit at a far more tempered pace.

The hardened market conditions of the past few years are now showing signs of altering. This is very much being driven by an increase in available capacity from the London market and a subsequent increase in competition. Our expectation is that these market conditions will further pick up momentum as the year progresses and lead to softer conditions later in the year and into 2025. 

Whilst rate increases have slowed and / or plateaued for some risks, insurers are continuing to demand elevated deductibles for “worker to worker” losses. Such claims are very difficult to defend and / or avoid as the party that has care of the site on which an injury has occurred will likely carry some responsibility and legal liability for an injury on the site whether due to its fault or otherwise. Therefore, insurers view such losses as inevitable for construction contractors and are continuing to impose elevated deductibles for such losses in order to control their exposures. This approach is quite consistent across the insurance market.

Whilst worker to worker losses continue to cost Insurers significant sums in defence costs and awards, insurers are also experiencing increases in claims costs resulting from inflationary conditions and a general increase in the cost of litigation over the past few years.   

There are still a very limited number of insurers available in the Australian market to write construction liability placements. However, the past year has seen several Lloyds Syndicates set up local offices within Australia and enter the local market as well as a greater interest from the London market which has led to more competition. To a large extent this is counterbalanced by the decision of QBE London (traditionally a large player in the Australian space) to limit their exposure to Australian construction risks. However, the prevailing market sentiment is pointing to a softening in the market conditions which may gather pace as the year progresses.   

Insurers are refining their underwriting criteria and coverage parameters to adapt to evolving market dynamics. Despite ongoing challenges in certain areas, such as worker-to-worker claims and emerging liabilities, there are opportunities for negotiation and collaboration between insurers and insured entities.

Professional Indemnity

The professional indemnity (PI) insurance market has undergone considerable transformation in recent years, with insurer appetites and terms being significantly impacted by sustained losses. While the market remains challenging, there are now indications of stabilization in premium increases.

The Professional Indemnity (PI) insurance market has hardened considerably over the last five years for engineering and construction related exposures. Many of the more prominent insurers in the space have exited the market for construction related PI exposures and / or have greatly amended the terms at which they will participate. This has led to insured entities being required to pay significantly higher premiums for less cover and subject to increasing deductibles.

The market has remained hard during the past 12 months as there is little new competition available. However premium increases, where renewal is offered by a holding insurer, have reduced from previous years, and in many cases premiums have flattened, which may be an indication that the market has or is close to reaching optimum levels. However, there is still pain being felt by some insureds following the withdrawal of significant insurer capacity in the local market in recent years.

Despite the challenges, opportunities for negotiation persist, with insurers recalibrating their underwriting approaches to align with evolving market dynamics.

Outlook

Looking ahead, uncertainties persist within the insurance market, compounded by broader economic factors. While premium increases have moderated, insurers remain vigilant in their risk assessment and underwriting practices. Quality client information and proactive engagement will continue to be instrumental in achieving favourable outcomes amidst evolving market conditions.