Rate hikes on the horizon for SMEs

Rate hikes on the horizon for SMEs | Insurance Business Australia

Rate hikes on the horizon for SMEs

Brokers may want to prepare their SME clients for further rate hikes after a new report predicted commercial insurance premiums will continue to rise in 2019.

The most recent data from Swiss Re Institute forecasts a 7.4% increase for Australian commercial insurance premiums this year and a 6% increase in 2019.

“We expect the current trend of premium rate hardening in commercial insurance in Australia to continue into 2019, particularly in short-tail lines like property,” said Swiss Re’s group chief economist, Jérôme Jean Haegeli.

The Australian Commercial Insurance Market report also noted that, by line of business, premium growth in motor and property lines has been mainly rate driven due to poor prior-year performance. Liability lines in particular face sharp rate increases due to rising class actions and the report suggested there will likely be capacity constraints in financial lines, leading to rate hardening.

Longer term, the report predicted that business interruption risk will be a main driver of sector growth as many companies in Australia, particularly SMEs, are yet to take out coverage for business disruption.

While a 2017 Vero survey found that close to 90% of Australian SMEs have no business interruption cover, the Swiss Re report warned that risks of business interruption are on the rise, partly due to increasing digitalisation.

“Cyber risk is increasingly becoming a main source of business disruption potential,” reveals the report. “Digital connectivity, increased use of data and proliferation of sensor technologies in production facilities mean higher exposures to cyber threats.”

Concern about business interruption has also risen as a result of globalisation.

“Most multinationals and even mid-sized firms have agreements with a number of input and service providers across the world, and thus more supply-chain vulnerabilities,” it outlined.

However, Melanie Slack, Australia and New Zealand country head of Swiss Re Corporate Solutions, noted that innovative insurance products are helping alleviate the issue.

“Measuring financial (BI) losses, especially those sustained by large complex risk-managed operations, caused by wide area damage events like Cyclone Debbie remains a challenge to risk professionals, brokers and insurers,” she said.

“To counter this uncertainty, and to reduce the time it takes to settle and remove the costs incurred in settling, many of our clients are turning to parametric or index-based solutions to provide quick liquidity after an event and to counter shortfalls in revenue from untenanted occupancies, commodity price fluctuations, and reduced loss payments due to underinsured assets.”