Claim cost pressure is a key concern in the Australian market as insurers “aggressively” pursue business in a soft pricing environment, Aon says.

Australian prices fell by 1%-10% in the third quarter, with property notching the largest drop at 11%-20%, according to a global market update.

The update notes “rising claims inflation in long-tail classes is increasingly at odds with declining pricing, which has continued to fall faster than underlying loss costs”.

As loss ratios face pressure in the soft market, insurers have increasingly scrutinised claims and adopted more technical coverage positions, the update says.

Pacific chief claims officer for commercial risk solutions Mark Ronan said: “Open claims have experienced material cost escalation driven by higher labour and material prices and compounded by escalating supply chain costs related to conflict in the Middle East.”

The third-quarter update also flags “narrowing” underwriting profitability in the Australian market.

Related article: Property line a driver as commercial pricing continues to slide

Aon says this has “created greater urgency for clients to take advantage of current favourable market conditions”.

For now, the market remains firmly in buyers’ favour, with abundant capacity for all major lines, according to Aon.

“The pricing environment has continued to improve as insurers have aggressively sought retention and growth, particularly in the large corporate space.

“Property placements have experienced the largest decreases at renewals, with double-digit reductions available for well-performing risks.

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

In property, large corporate risks have attracted heightened competition, enabling simplification of program structures.

“In a bid to differentiate, insurers have been willing to reintroduce coverages lost in the hard market, enhance policy wordings and offer expanded sublimits,” the update says.

Aon notes insurers are watchful around El Nino conditions, which are associated with increased bushfire and drought risk across parts of Australia.

The update’s global assessment says the building of digital infrastructure and artificial intelligence will reshape the risk landscape for years, not quarters.

“Data centres, and the power generation behind them, represent some of the largest capital investment programs in the world today. Insurers are still working out how to scale to that demand, both in raw capacity and in the complexity of the underlying risk.”

See the report here.

---

From the latest Insurance News magazine: Find out how the industry is getting to grips with 'turbocharged growth' in the building of vast data centres

---