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Aviation, cropping clients face tough markets: Gallagher

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Aviation clients are seeing soaring premiums, the crop insurance market is becoming more difficult amid drought, while natural peril and public liability costs are increasing, broker Gallagher says in a half-yearly market update.

Premium increases of 30-50% have affected some Australian aviation clients and further gains are expected in the next 12 months due to capacity constraints, a lack of competition and a weak dollar, the report says.

Allianz and AIG withdrew from the local aviation market in 2017 and Swiss Re Corporate Solutions has announced its intention to stop writing new business for the sector.

“This leaves QBE and Lloyd’s as the only significant insurance providers left for the Australian aviation industry,” Gallagher says.

“Compounding the issue is a reduced appetite for risk with the alternative markets available outside of QBE catering to only around 10-20% of the risk requiring cover.”

The Gallagher update warns difficult climate conditions, including drought and storm and fire risks, are worsening agricultural insurance problems.

Gallagher says the normal $125 million premium pool for fire and hail cover is likely to fall below $100 million following significant planting reductions due to low soil moisture, especially in northern NSW and southern Queensland, while irrigated crops are also affected by water shortages.

“Unfortunately, the insurance market is very limited in terms of availability, crop type and region. While cotton is well supported the appetite among insurers for horticulture and viticulture is curbed and for vegetable cropping is non-existent,” it says.

“Any significant losses this season will result in a further contraction of an already difficult marketplace.”

More widely in Australia, claim impacts from secondary perils, such as storms, hail and flooding are becoming greater.

“There is every indication that the frequency and severity of secondary perils is being driven by climate change and heavy risk exposure in densely populated areas, including state capitals,” Gallagher says.

“Put simply, the higher the concentration of assets, the greater the impact of claims.”

Insurers are applying increasingly sophisticated models to assess risk profiles of properties and postcodes and in some cases additional excesses, or restrictions on cover, are being imposed.

Further premium increases and restrictions are expected over the next 12-18 months, the report forecasts.

In public liability, clients with a good claims history and stable turnover are seeing price increases of 5-15% as insurers increase scrutiny.

Issues include greater complexity of claims, while the rise of litigation and litigation funding is adding to legal costs.

As of September 4, there were 107 class actions in the Federal Court, including16 securities class actions filed this year.