How do you insure a pollution treatment plant?

Brady gave the example of a property constructed with lots of expanded polystyrene, a material used in building cladding that is notoriously flammable. The location of the property can also make its insurance hard to place. For example, he said, a building next to an abattoir. Abattoirs, apart from other risks, can also be prone to fires.

Finding coverage for a complex risk

Right now, Brady and his brokerage are working on the insurance renewal for a firm that designs, manufactures and installs pollution treatment plants.

“That’s a really tricky one for a us to place every year,” he said. “We’ve currently got it placed with an international market because there’s no-one here in Australia that had the capacity or the willingness to work with us.”

Brady said his firm usually starts negotiating with insurers three or four months ahead of the renewal date.

“It’s one of the things that we’re working on really hard at the moment to bed down,” he said. “It looks like it should go through with the existing markets but we’re just going to have to juggle a bit of capacity because there’s quite a high overall limit.”

The firm in question, he said, makes pollution filters for industrial manufacturers so that any dangerous chemicals that are a by-product of the manufacturing process are neutralised and stopped from reaching waterways like creeks or rivers. Some of their clients are in the mining industry.

“The pollution effectively gets washed and decontaminated so it’s safe for disposal,” said Brady.

He said there’s a requirement on this firm to carry a “really high” limit of liability under their professional indemnity (PI) program.

“Given that, if their design was in any way defective, or their design didn’t achieve the results that are required, there’s quite a level of onus on them,” said Brady.

Insurers have reduced aggregate exposures

The brokerage director also discussed another challenge facing insurance brokers: many insurers have reduced their aggregate exposures. Brady said this is largely a result of last year’s numerous flooding disasters that generated many thousands of claims.

“We’re working a hell of a lot harder just to achieve the same results we were three or four years ago,” he said.

Brady said, currently, particularly in property insurance, the main “defence mechanism” for insurers when the conditions are relatively tough is to reduce their capacities.

“If you’ve got a property, for example, that’s worth $20 million in total, instead of one insurer taking the entire $20 million of risk, they’ll reduce their capacity and only provide a small percentage of that overall exposure,” he said.

Brokers are left to find excess capacity to fill the slip and bring the cover up to 100%.

“That’s something that is becoming even more frequent, even with lower grade risks, which we would ordinarily expect a single insurer to take,” said Brady.

He’s also noticed that, across his firm’s different insurance areas, strict renewal objectives and risk requirements are becoming a lot more common.

The view from a Sydney brokerage

Matthew Beckett, senior account manager with Bellrock Broking in Sydney, also sees natural disasters and catastrophic weather events as two of the big issues ahead for brokers.

Beckett specialises in the property sector and expects some challenges there with complex placements. He included properties in areas adversely exposed to perils, relatively poorly protected and involving high-risk activities in sectors like manufacturing, textiles and chemicals.

“In these scenarios I’ve learned the best solutions are found when we work closely and transparently with insurers and our clients to find a viable path forward for all parties,” he told Insurance Business.

Beckett said he’s looking forward to the new products insurers launch this year.

“With capacity returning to the market in 2023 it will be interesting to explore the innovative and customised products that may emerge,” he said.

A Tasmanian perspective

In Tasmania, John Farrell, director of Steadfast Taswide Insurance told IB that Australia’s ongoing record round of storms and floods are contributing to his biggest challenge: rising premiums.

Much like last year and the year before, Farrell said hard to place risks – he included high hazard sectors, such as in construction and also property related coverages for heritage listed buildings – are still hard to place.