Tough reinsurance renewals set to extend hard market

The expected tough January reinsurance renewals could extend the hard market for at least a year, Lloyd’s Regional Head of Australia and New Zealand Chris Mackinnon said.

While market talk emerging from the Monte-Carlo and Baden-Baden reinsurance conferences is not always a clear guide, there is a heightened expectation that the renewal season will be challenging, Mr Mackinnon told the National Insurance Brokers Association (NIBA) summit yesterday.

“We think that’s going to lead to a continuation of the hard market for at least the next 12-18 months particularly in any of the nat-cat exposed risks that we look at,” he said.

Mr Mackinnon says that following a period of remediation syndicates at Lloyd’s are performing well and portfolios are expanding again, but a turnaround in rate growth has come after a much longer period of decline.

Mr Mackinnon also highlighted the importance of clear policy wordings, and lessons to be learned from business interruption disputes triggered during the pandemic, given that the insurance transaction relies on a promise.

“We’re using language that is not clear, it’s not providing any kind of clarity to our customers around those promises that we’re making,” he said. “I think we really need to learn from the lessons of the Quarantine Act versus the Biosecurity Act. We need to ensure that wordings are crystal clear.”

The issue remains critical at the moment also with war exclusions applying to some cyber policies.

“Does a state-sponsored cyber attack constitute war and how to you prove it when there are no tanks rolling across the border. Loose language simply will not cut it in those circumstances,” he said.

Mr Mackinnon says parametrics are offering more straightforward policies that have little complexity, provide more clarity and certainty for customers, and they can be used effectively alongside more traditional policies.

Globally systemic risks also offer more opportunities for private and public partnerships where the Government has access to the level of capital required while the insurance sector can provide expertise to support arrangements, he said.

“We actually think that governments really should be encouraged to work much more closely with the insurance sector, to tap into our resources, expertise, skills, modelling,” he said. “Their balance sheets are bigger than ours. We can help with the technical expertise to run it but we need that capital to back us.”

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