Key steps for property funds to achieve the best insurance deals

5th October, 2022 | No Comments

Historically, the insurance market has travelled a cyclical path, varying over time from being a buyer’s market to a seller’s market. The current insurance market cycle might indicate a tough market, but property funds can ensure they are covered in relatively favourable terms if they follow some key steps, according to Ryan Neary, Head of Professional and Financial Lines at GSA Insurance Brokers.

Mr Neary shared his thoughts on the current insurance market during the Property Funds Association (PFA) Master Class Series for 2022. In discussing the insurance market cycle, he said the industry talk is all about the ‘hard market’, with many businesses being forced to accept poor renewal outcomes due to the market conditions.

However, there is plenty that property funds can do to soften the influence of this current insurance cycle, according to Mr Neary. “The key to achieving reasonable premiums in this market is to be organised and put together a compelling submission. It’s definitely worth putting in a little more time and attention to detail so the insurers understand your business properly.

“Property funds who are working with a competent broker, commencing early and engaging throughout the renewal process, will benefit from superior results despite the market conditions.”

Mr Neary said some key factors influencing the current insurance market include floods, fires, Covid, cyber claims and inflation. “Four of these environmental catastrophes in Australia amounted to $6 billion in claims, which has put significant pressure onto insurers.”

Capacity constraints have also been an issue, with insurers dropping out of the market. “For context, the last hard market occurred during the GFC, but we emerged from it relatively quickly due to the London insurance market providing alternate options to the domestic market. This time around, London has been more constrained.

“Underwriters have become very selective with risk, which is why companies which work with their brokers closely for detailed submissions are the best placed.”

He said some key issues for property funds to consider include cybersecurity risk. “Cyber and data security has become the big topic across the board due to the aggressiveness of attacks. Cyber has had to be re-priced based on severity rather than frequency of attacks.

“It’s important to demonstrate that you are across the cybersecurity risks, and have robust processes in place. Many insurance companies are also conducting their own testing of clients to check their security.
“ASIC also set a precedent recently with its action on RI Advice Group, which was penalised due to breaching its obligations to prevent and report cybersecurity incursions.”

Another key step is having a sound compliance and governance framework. “Companies need to demonstrate they have been keeping up with regulations, and that they are not at undue risk of compliance breaches.

“For directors and officers insurance, and professional indemnity, it’s critical to demonstrate you are on top of governance and cyber governance.

“Insurers are mainly concerned around fraud, breaches of mandates and PDS’s. This shouldn’t be an issue for any company which can demonstrate how they counter these issues.

“The insurers just need to be convinced your house is in order.”

Key to putting together a favourable submission for insurers is to start the renewal process at least four months ahead of time. “Allow more time, understanding you need to make your application stand out. It’s currently important to engage and make sure insurers understand you and your business.

“Think about key risk areas, whether it’s climate risk, cyber risk or potential risks around greenwashing. Demonstrate your understanding and your processes and procedures for reporting and reducing these threats.”

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