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Hard to handle: how spiralling premiums are stressing business

“The insurance market is now to the stage where you will have no choice but to be uninsured. There is simply no market to get a quote in some circumstances.”

“We had to resort to using overseas insurance companies at exorbitant premiums. These are not licensed in Australia.”

“The excess went from $100,000 to $250,000 and the premium from $224,000 to $757,000.”

These are just some of the comments from Australian Industry (Ai Group) members who responded to a recent survey on business insurance woes.

The survey feeds into a growing body of evidence demonstrating that companies across the country are seriously struggling with the impact of rising insurance prices, reduced cover and lack of availability.

We’ve had hard markets before, of course, but this one would appear to be different. Experts have labelled it the toughest for almost two decades. The Black Summer of $5.4 billion catastrophe claims, combined with an extra layer of uncertainty from COVID-19, means the situation is very likely to get worse before it gets better.

As previously reported by, the Australian Small Business and Family Enterprise Ombudsman has already launched an inquiry into SME insurance availability and affordability.

“The feedback we’ve had from small businesses so far has been insightful and concerning, with many small businesses claiming to have been denied insurance outright,” Ombudsman Kate Carnell said.

The Ai Group survey report is entitled Business Insurance: Unaffordable or Unavailable?, and finds that “insurance stress” is increasingly an issue.

The survey attracted a limited number of respondents – just 107 – which could lead to suggestions it would logically attract only critics. Whatever their motive – and the survey report acknowledges subdued government action and the many pressures faced by the insurance industry – the comments do add to growing evidence that an issue is brewing.

Most of the respondents to the survey describe themselves as medium businesses (51%), with the remainder an almost even split between small and large businesses.

The majority, 95%, had sought insurance cover within the last year. The most common type of cover sought was public liability (89.2%), followed closely by workcover (87.3%) and property insurance (81.4%).

More than half (53.3%) of the respondent businesses reported “unusual trouble” obtaining insurance, while 42.1% reported no problems.

The most common issue was high growth in premiums (reported by 55.6% of businesses with problems seeking insurance). Coverage being too limited was reported by 14.8% and “inability to obtain desired insurance at all” by 13.6%.

Some businesses reported multiple problems. The most common “other” problem reported was a reduction in competition, with fewer insurers offering relevant cover.

Respondents are also encountering higher deductibles, the survey found, while others found underwriters unwilling to negotiate.

“We have only two choices – take it or leave it,” one business said.

The report also investigates the reasons behind the hardening market – and doesn’t blame insurers.

It highlights climate change and the increasing severity and frequency of natural catastrophes, which leads to rising reinsurance costs that are passed to consumers.

“In the absence of better mitigation of and adaptation to climate risks, insurers can attempt to more directly respond to their exposure by raising premiums and restricting coverage,” the report says.

“This approach is rational, but will be unwelcome for business and other customers – and is likely to create acute problems in communities that are especially vulnerable to climate impacts.

“Reducing underlying community risks and fairly sharing burdens are increasingly urgent questions.”

The report also highlights soaring class actions and the impact these are having on directors’ and officers’ premiums.

Broking experts have previously told that the hard market could have two years still to run, and the Ai Group report is not optimistic about the future, believing the full impact of COVID-19 is yet to be felt.

“There is likely more financial pain on the horizon for both the businesses buying policies and those insuring them,” it says.

“For insurers, the fallout from the COVID-19 outbreak includes a surge in health, travel and business interruption claims, pressure on sales from reduced business activity, and less use of face-to-face channels.

“Our poll did not indicate that these pressures had yet played a substantial role in the insurance problems reported by respondents.

“However, it is likely that the impacts of the pandemic will reach insurance consumers in the coming years.”

Ai Group calls for a range of government actions to help tackle the problem. “Governments can participate in accelerated global efforts to curb carbon emissions, and can improve Australia’s readiness and resilience to climate impacts,” it says.

“They can also investigate the class action process and take steps to ensure it is fair, streamlined and hard to exploit.

“These are not short-term solutions or easy options, but over the long term both would likely impact insurance costs for the better.

“Insurance is an essential component not just to doing business safely, but to doing business at all.”

Click here to read the full survey.