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Two-tier marketplace emerging for property

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A two-tier marketplace is set to emerge for property this year with conditions starting to ease for good risks while “challenged” areas remain difficult, Willis Towers Watson says.

Premium rates are still rising strongly with the report pointing to gains of 10-20% for risks not affected by catastrophes or losses, while catastrophe exposed risks are up 20-30%. Loss affected or challenging risks are seeing increases of 30% or more.

Rates will remain in focus until underwriting profitability returns with scrutiny on sub-limits and coverage extensions, and tightening of policy wordings, the Willis Towers Watson property and casualty market update says.

Natural catastrophe and attritional losses, against the background of COVID-19 uncertainty, are contributing to sustained rate increases that vary widely according to class of business and an account’s loss history and perceived rate adequacy.

“This continues to be a results-driven market and not one driven by capital depletion,” the report says. “Despite dramatic increases in rate levels, most property underwriters continue to experience poor financial results due to continued frequency and severity of losses.”

The market is keeping an eye on impacts from the recent Queensland and NSW floods, with the Insurance Council of Australia (ICA) reporting on April 12 that losses had reached $586 million and with speculation the figure could top $1 billion.

Shared and layered placements have seen an increase in the number of markets needed to fill programs, making renewal negotiations more complex and longer to finalise.

The report also says that due to COVID-19, infectious disease coverage has been “extremely limited at best, or more commonly outright excluded”.

In general liability, the market is expected to continue to harden through the year, especially for excess layers, with loss severity increasing along with the percentage of claims litigated.

Rates are rising 10-25% for primary layers while for excess layers the gains are in the 10-50% range.

Willis Towers Watson says the market is impacted by significant losses from many sources, including personal/worker injury, sexual abuse, concussion/brain trauma injury and bushfire.

“The result is unsustainable combined ratios,” the report says.