Cover blown as rates rise
Australian Financial Review
Monday November 16, 2009
Corporate insurance is on the increase, write Matthew Drummond and Katja Buhrer.The increase in corporate insolvencies has prompted insurers to severely scale back trade credit insurance, slashing limits and raising premiums by up to 50 per cent.Insurance to pay workers' compensation claims is also on the rise as injured workers take longer to return to work. But there are signs that the premium increases for general liability and property insurance have done their dash as premiums are likely to be flat next year.Terry Ibbotson, the head of QBE's Australian business, which has about one-third of the commercial insurance market, has pushed through average premium increases of 7.2 per cent across his business customers. But he said no further increases were planned."Our rate increases are in and have been since November 2008," he said. "I wouldn't see us increasing our rates for some period of time unless we see further substantial weather-related losses going forward."That increase pales in comparison with the 25 per cent average increase QBE has added to trade credit insurance. Trade credit insurance protects a business against its big customers failing to pay their invoices. QBE has pulled out of certain sectors altogether, such as insuring wool producers who export to textile makers in Europe.David Huey at Atradius, another big trade credit insurer, said his premiums had also risen by an average of 25 per cent and many small businesses had cancelled their policies.He agreed that no further price rises were expected."We've budgeted for it to flatten," he said. "We believe the recovery is there and we're not budgeting for a second wave [or premium increases] at this point, but it depends on the global economy."One insurance executive who declined to be named said some sectors, including construction, vehicle part makers and small exporters were seeing limits curbed by up to 80 per cent and premiums up 50 per cent. Electric goods makers that had insurance against retailers failing to pay their invoices were also facing rising premiums. "Stuff is not moving out of the stores, so the amount of the manufacturers' goods sitting on the retailers' shelves on pre-purchase orders is increasing, and that creates accumulation risk for us," the executive said.Workers' compensation has also been affected by the downturn. In Western Australia, workers' compensation rates have risen for the first time in four years, with a 9.9 per cent increase from July 1 this year.KPMG's insurance sector leader, Brian Greig, said the price rise reflected an increase in the duration of workers' compensation claims due to the economic downturn."During the boom period, people didn't stay on workers' comp claims because they could make more money by going back to work," he said. "As things have softened in WA now it's potentially a little harder to get them back to work if they are getting a reasonable income from a workers' comp policy. That's a fact of life that occurs in workers' comp during a downturn."The past two years have been exceedingly difficult for insurers. There has been a spate of big claims linked to bushfires, floods and hail damage as well as lower investment returns caused by the plunge in global sharemarkets.Insurers began to lift rates late last year and premiums for commercial lines of property and general liability have had price rises in the high single figures.Accenture senior partner Andrew Parton is expecting premium rates across commercial and personal lines to continue to increase."On average we saw around 5 per cent premium growth last financial year with flat GDP and we could see close to this level of rate increase over the next period," he said.But Scott Lenning at insurance broker Marsh said premium rises observed in the first half of this year had begun to soften, suggesting the level of increases is tailing off."A lot of underlying factors pointed towards increased premiums and hardening of other conditions due to the financial crisis, but there are a bunch of things that kept it all in check and prevented insurers from increasing premiums," he said. "There remains sufficient capacity in Australia and the international market to keep downward pressure on premiums. It's really as simple as that."Duncan West, chief of Insurance Australia Group's CGU business, which also has a major market share in commercial insurance, is expecting small price movements with aggressive competition limiting rate rises. Allianz general manager corporate affairs Nicholas Scofield said: "Further increases are possible, but they're not likely to be as dramatic as what we've seen over the past 12 months." On the personal side, home and motor rates have increased by between 8 and 9 per cent in the past year. IAG is looking for high-single-digit increases in personal lines next year. Third-quarter statistics from the NSW Motor Accident Authority showed a 14 per cent rise in average premiums for annual compulsory third party insurance policies for the year, to $390.
© 2009 Australian Financial Review
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