Down the lines

Premium rates reached negative territory in the first quarter, with finpro leading the way

Commercial rates in Australia fell 2% in the first quarter of this year, the first contraction since 2016, according to broker Marsh’s latest Global Insurance Market Index.

The overall price drops were driven by a 10% contraction in financial and professional lines, double the 5% slide seen in the December quarter.

Property, one of three lines tracked by the index, was flat for the second straight quarter following 26 quarters of rate increases, while casualty price rises slowed to 3% from 4% – the fourth straight quarter premiums have risen at a weaker pace.

Australian commercial rates last declined in the fourth quarter of 2016, by 2%.

After that they slowly hardened, peaking at 35% growth in the fourth quarter of 2020, before easing as insurers’ risk appetites improved. Scott Eccleston, Marsh’s head of global placement Pacific, expects rates to continue trending in insureds’ favour.

Marsh commercial rates tracker

“We see a continuation of improved buying conditions,” he says. “What we have seen in the past few quarters and what we’re seeing in international markets, I cannot see any change in the trend.

“We expect the first half of this year to be improving … and that’s on the back of improved underwriting performance from insurers, very few natural catastrophe events, and just general change in attitude from insurers going into growth mode.

Rating adequacy has probably been achieved and head offices … are now putting pressure on insurers to grow.”

The Marsh index is the broker’s proprietary measure of commercial insurance rate changes at renewal. Australia makes up about 80% of business in the Pacific market, as covered by the price monitor.

Within financial and professional lines, Australian directors’ and officers’ liability rates continued to decline during the first quarter.

Mr Eccleston says D&O insurers have achieved rate adequacy and retentions have gone up significantly.

“The D&O market is so competitive now that it’s driving the [Pacific] composite rate, so I’m not surprised that we are now in decreases in the composite rate.”

The rise in competition for D&O business contrasts with a few years ago, when insurers reined in capacity and coverage in response to claims blowouts.

“We have also seen a lot more new entrants, particularly out of London, wanting to write that class of insurance. Obviously, where there is more competition it creates cheaper pricing,” Mr Eccleston says.