Aon has warned of impacts on insurer earnings as Australian rates continue to fall.

“Narrowing underwriting profitability” is among challenges flagged in the broker’s assessment of the Australian market, as part of its global third-quarter update.

Claims inflation, combined with soft market pricing, is another issue facing the industry.

Aon notes insurers increasingly scrutinise claims and have adopted more technical coverage positions as loss ratios feel the strain in the soft market.

“Competitive market conditions are creating favourable outcomes for buyers, although insurer profitability is likely to come under increasing pressure as sustained rate reductions flow through to earnings,” the update says.

Property price reductions led the Australian market at 11%-20% in the third quarter. Rates for directors and officers, cyber and casualty fell 1%-10%, and motor prices ranged from down 10% to a 1% rise. Prices overall declined 1%-10%, supported by abundant capacity as insurers “aggressively” sought retention and growth, particularly in the large corporate space.

“Rate reductions have been more modest for casualty and cyber, while pricing for directors and officers has shown signs of moderating,” the update says.

Aon urges buyers to “reinvest strategically” while market conditions remain in their favour.

“The opportunity is now. Consider using premium savings to strengthen program resilience through increased limits, broader terms and conditions, or protection against emerging risks.

“Reassess limit adequacy and loss exposures to ensure program structures are aligned to risk and deliver the lowest sustainable total cost of risk.”

See the report here.