The heightened focus by regulators and investors on ESG factors is having an increasing impact on insurers’ coverages across a range of industries. In Australia, one of the industries impacted is mining, a massive part of the economy and a complex risk assignment for any broker.
Will Laundy (pictured), director of Pillar Brokerage, was recently engaged by a client who services the mining sector.
“The client had received a non-renewal notice from their long-standing insurer as a result of a change in their insurer’s internal underwriting guidelines,” said Adelaide-based Laundy. He added that the client had not submitted a claim or changed their business activities.
“This left the client in an awkward position because the policy was required under a number of their contractual agreements and needed to be held continuously,” he said.
Laundy said there was another challenge.
“Their previous broker had already engaged with the broader market and had received ‘no’ responses from everyone they had contacted,” he said.
Just to add to the complications, said Laundy, the policy was past renewal date and had lapsed.
“Not a great position for a client to be in!” he said. “We knew this would be tough.”
The broker said the first thing his firm did was engage the client in “a candid discussion” about potential outcomes and what inputs his firm would need from them to assist the process.
“We then reviewed the previous market submission alongside the responses being received from underwriters,” said Laundy. “It was clear to us that there would be limited appetite for this policy, so we shortlisted those markets who have the ability and willingness to understand and write similar risks.”
Laundy then reached out to a shortlist of underwriters to try and understand what was stopping them from being able to provide a coverage quote. They also invested considerable time with the client to increase and improve the underwriting information “directly addressing the issues raised.”
“Importantly, we repositioned the account given the client’s services related to products and technology more than traditional engineering,” said Laundy. “After further negotiation, we secured favourable terms which bridged the coverage gap and satisfied the client’s contractual requirements.”
Laundy, who set up his own brokerage two years ago after more than a decade with global firm Arthur J. Gallagher, said placing non-vanilla risks like this one, is “more challenging than ever.” He said part of the problem is the hard market and rate increases.
“Insurers have taken hard lines on certain risks or industries with the flow on effect being reduced competition,” said Laundy. “These market factors are leading to natural increases to GWP [gross written premium] as well as increased broker quote requests.”
At the same time, he said, the market has created “significant opportunities” for underwriters to increase their GWP without needing to consider non-vanilla risks that may offer little extra premium but the likelihood of large claims.
“The other factor impacting coverage availability for non-vanilla risks is insurers have strict underwriting guidelines and, in a lot of cases, the market facing underwriter does not have the authority to write certain risks even if they would like to,” said Laundy.
He suggested that the effort, time and internal politics that can be involved when an underwriter tries to internally refer a risk, are discouraging them from making this extra effort. Laundy said, in these circumstances, the “lower hanging fruit” is much more appealing.
However, on the upside, he said these market factors are “fuelling the rise” of underwriting agencies offering both a broader risk appetite and a greater ability to accommodate different risks.
Coverages in many industry sectors are becoming more challenging.
Anthony Di Fiore is specialty risks manager for Adroit Insurance and Risk, a Geelong-headquartered firm. “There is just a lack of support for non-vanilla risks,” said Di Fiore.
He pointed to property coverages as an example. Di Fiore said any property in a bushfire zone with dense bush has become very challenging to insure since the 2019 bushfires, including ski resorts, camping areas and caravan parks.
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