Businesses self-insure as underwriters 'tear up' guidelines: report

Businesses self-insure as underwriters 'tear up' guidelines: report | Insurance Business

Businesses self-insure as underwriters
Businesses are tending to self-insure their property amidst an unsteady economic landscape, a report has found, and underwriting guidelines are being “torn up” and rewritten.

Company boards are increasingly looking to cut costs across the board and are increasingly taking on more risk themselves, opting for lower premiums and reducing their cover, according to an Aon Australia insurance market update for Q1, 2014.

Reduced insurance purchases, shrinking rates and growing gaps appearing between budget and forecast, have forced insurers to become “aggressive” on other business lines.

Simultaneously, underwriting guidelines are being challenged and rewritten too, as insurers focus on premium retention as their primary goal.

This means that some underwriting guidelines are now being challenged,” the report reads, “but in many cases, they are being torn up and rewritten to reflect changing needs.”

Additionally, reductions in reinsurance costs have meant that many insurers have been purchasing to lower levels in 2014 although retentions are higher than they have been previously. This is culminating in a careful approach to underwriting in highly exposed areas to protect portfolios against natural catastrophe weightings.

Meanwhile, while pressure to meet budget targets is causing them a headache and premiums on the decline, insurers are being forced to write more business to meet revenue targets, and consider untapped markets.

“Consequently, there has been a slight shift towards the SME market. Whilst the high-end corporate market remains solid, it is also difficult to penetrate, so the fluid SME market provides easier pickings.”

This spells good news for SMEs who will benefit from lower pricing in this market and have 40-50 different market participants to choose from.

The future of directors & officers is still unclear. The final decision in the recent Bridgecorp case in New Zealand in December may have potential ramifications for companies in Australia. The decision means that the court may impose a statutory charge over a D&O policy and thereby denying directors the ability to access proceeds to fund their defences.

While the courts want the insured to have access to a legal defence, this may not come at the expense of those entitled to compensation from the policy.

The knock-on effect of this will be a rise in the purchase of separate ‘legal expense only’ policies to complement traditional D&O policies. The likelihood of this happening in Australia will increase if special leave to appeal is granted in the Great Southern case.

The number of class action claims by investors continues to be a cause of concerns too and the amount of compensation involved has continued to grow.

“This issue is not going to subside, and those companies with share price volatility could find themselves at the centre of shareholder class actions,” the report warns. “To safeguard against this, companies need to ensure that continuous disclosure practices are constantly updated and that changes in the business are disclosed in a timely and effective manner.”

Read the full report here.