Construction industry underwriters are facing significant pricing pressure as a result of competition, with one leading specialist in the sector saying pricing is as low as he has ever seen it.
Since about 2009 during the GFC fallout, Australia has seen a number of new competitors in the construction arena, and experts in the sector say this has showed no sign of letting up, putting pressure on product pricing and underwriter business models.
MECON Insurance Group CEO Glenn Ross
said there is a mixture of Lloyd's and local insurance paper coming into new agencies.
"Some of them I would term professional agents - that's all they do - while others are brokers that are turning their hands to an agency,which can turn out to be a bit of a mixed bag," Ross said.
Underwriters senior vice president and chief underwriting officer, Alan Dawes, says there was unprecedented growth in new construction projects post-GFC that attracted those businesses looking to replace and replenish premiums during the downturn.
"Coupled with this, existing local insurance markets have also seen a large increase in their underwriting capacity," Dawes said.
The result has been significant pricing pressure for providers. "Pricing is as low as I have ever seen it at the moment," Ross said. Dawes added that: "As the volume and size of new projects diminishes, the market faces significant pricing pressure."
Ross said it is debatable whether the market has benefitted a lot from new agency players coming in, though he does note there are some potential improvements for brokers and their clients.
"They're not introducing anything particularly different. They are the same old things really: reasonably-priced, well-serviced paper. But it is keeping pricing low, which is a benefit for brokers and their clients I suppose. The agencies also generally set a high service standard, so that can put pressure on the mainstream insurers," Ross said.
Underwriters are being forced to innovate and write more business online to cut costs, though profitability more broadly is hard to guage.
"While many major insurers reported healthy profits in the latest reporting season, it is unclear how these are made up," Dawes said.
"Many have large personal and commercial lines books, and absent any catastrophe activity in the last 12 months have fared well. The individual corporate lines, such as construction, may not report results publicly, and can often be swallowed into a catch-all first-party treaty."