Key Factors Impacting Property Insurance Premiums

1. Venue Construction 

The types of factors insurers consider when evaluating your venue’s construction for insurance purposes generally include:

– Venue Age and Maintenance

Be aware of your building’s age and maintenance history. Older buildings may raise concerns for insurers, especially if they show signs of neglect. Provide evidence of regular building maintenance programs to demonstrate to insurers you are actively mitigating the risk of weather-damage or injury-related damage.

– Construction Materials

The materials used in the construction of your venue matter significantly. Insurers prefer fire-resistant materials like reinforced concrete and brick. The condition of the building also plays a crucial role; older or inferior materials can increase fire risk and weaken structural safety, leading to higher premiums. 

– Building Updates

Document any updates to your building, such as rewiring or replumbing. Outdated electrical and plumbing systems can pose increased risks for damage or injury, thus impacting your insurance premiums.

– Potential Hazards

Identify and manage any hazardous materials, such as asbestos, according to building regulations. Doing so can help to mitigate the associated risks of handling hazardous materials. 

– Inspections

Consider conducting regular thermographic scans for electrical wiring and plumbing to detect maintenance issues before they lead to damage and a potential claim.  

2. Business Type and Activities  

The types of factors insurers consider when evaluating your business type and activities for insurance purposes may include:

– Business Type

Clearly define your venue type and the services offered (e.g., pub, nightclub, live music venue). The nature of your business influences premium rates. Insurers often review your social media and website to gauge your venue’s ambience, and the frequency and types of events hosted. 

– Operational Insights

Provide detailed information about daily operations, including cooking and cleaning practices, to help insurers evaluate your risk management processes. 

– Risk Management

Implement strong security measures, such as deadlocks on doors and windows, adequate lighting on stairways, anti-slip flooring and no-glass policies. Insurers favour venues that actively invest in risk management.

– Experience

Share your team’s experience in the industry to establish credibility and lessen the perceived risks for insurers. A proven track record can reassure insurers that you understand the risks associated with managing a venue like yours.

3. Protection 

Insurers will consider the processes and equipment you have in place to protect the venue, your staff and patrons, such as:

– Fire Safety

Ensure your venue has adequate fire protection systems, such as sprinkler systems, smoke detectors, and fire extinguishers. These systems are often mandatory and positively influence risk ratings. 

– Security Systems

Invest in security measures such as CCTV, bollards, security guards, and alarm systems. Effective security can reassure insurers. 

– Safety Compliance

Remain compliant with local safety and security regulations, which include maintaining safety equipment and following best practices. 

4. Exposure / Environment 

A key factor for insurers when considering how they will underwrite your risks and set your insurance premiums are other factors including where your business is located and its potential for environmental damage. For example, they generally consider:

– Geographic Risks

Recognise the environmental risks affecting your venue, such as bushfires, flooding, or cyclones, especially in regions prone to extreme weather. Consider the proximity to neighbouring businesses (like recycling centres or tattoo parlours) that could pose additional risks. 

– Insurance Exclusions

Understand that insurers can exclude certain risks from standard policies, making it essential to know what your cover includes to ensure it meets your needs. 

– Environmental Hazards

Insurers often research environmental hazards. Proactively gathering data on potential risks for your venue can strengthen your position when negotiating with insurers.  

Understanding Your Insurance Needs

Actively understanding and taking steps to manage your business risks, can help you navigate the complexities of property insurance effectively to benefit both your business and your insurance outcomes.  

Our Clear Insurance advisers have been working with clubs and RSLs for over 10 years and understand the nuances of your insurance needs. Call 1300 721 132 and ask about our no-obligation risk and insurance review. 

For businesses lodging claims, these trends and challenges can impact the time it takes to recover from a loss event.  

Factors affecting claim times 

The issues affecting claim times and business recovery are many and complex. However, the primary factors the insurance industry expect to persist include: 

1. Increasing Number of Claims Due to Weather Events 

It’s no surprise that Australia and the Asia Pacific are considered a disaster-prone region.  We’re experiencing tropical storms, cyclones, flooding and bushfires at an increasing intensity, driving up the number of claims.  

As our populations grow, so does the need for commercial and residential buildings, which in turn increases the demand for insurance. So, it’s no wonder the number of claims is on the rise. Add in global inflation, supply chain issues and loss of revenue during a loss event, and you have the perfect storm for increased costs.  

Asia Pacific is home to significant banking and financial institutions, high-tech manufacturers and a booming hospitality industry. When disasters strike high concentrations of a specific sector, claim values tend to rise for that sector. 

When multiple weather events hit the same area in a short period, it’s challenging for insurance loss adjusters to define damage on unresolved claims and more recent damage clearly.  

It highlights the need for businesses to keep accurate records and capture photos or video of the damage to expedite claims.  

2. The Rise of Electric Vehicles 

The increase in electric vehicles, scooters and bikes is leading to widespread use of substandard charging systems. Lithium-ion batteries can spark fires that are extremely difficult to extinguish. These fires are becoming more common. They are larger and more costly to restore, which in turn affects business recovery times.  

3. Sustainable Solutions & Carbon Reduction 

The demand and regulatory requirements for carbon reduction targets are growing.  

It can become problematic when an insured business wants to rebuild following a claim event. That’s because new sustainability codes for the building may apply that were not previously required or applicable due to the age of the original building.  

Additionally, construction projects can be subject to supply chain issues, including shortages of specific materials. Such shortages can increase the time required for business recovery.  

Insurers are exploring ways to balance the cost of sustainable construction within their policies, so it’s worthwhile discussing this with your adviser or seeking independent building replacement valuations to ensure your policy includes adequate sums insured limits.

4. Cybercrime 

Cybercrime is a growing and ever-evolving threat, particularly with the increasing use of cloud-based storage for sensitive and personally identifiable information. 

Cyberattacks are becoming increasingly sophisticated, tricking even the most savvy workers into clicking on malicious links. Tricks may include impersonating senior company executives or creating invoices that appear legitimate.  

Businesses can take steps to mitigate the risk, such as implementing cybersecurity systems, providing cyber training, and purchasing insurance to help cover costs associated with investigations, legal action, or financial losses. 

5. Business Interruption 

Businesses must have comprehensive plans in place to address emergencies, such as a cyberattack or a weather event, that may disrupt normal business operations. This preparedness can provide a sense of security and confidence in the face of potential disruptions.  

Testing plans and ensuring team members know their roles in the event of an emergency is an essential part of the business recovery process.   

6. Business Recovery 

It’s critical for businesses to actively consider risk mitigation strategies and conduct regular reviews of their insurance programs.  

These measures can greatly influence the speed and success of recovery efforts. For example: 

• Risk mitigation strategies, such as regular maintenance programs or security systems, can help minimise the effect of fire, storms or vandalism and bolster recovery efforts
• A regular review of your insurance program can ensure your business maintains adequate cover in the event of a claim

Next steps to consider

There are plenty of steps you can take to help protect your business. We recommend: 

• Preparation & Training – Update your business continuity plans and train staff on your emergency recovery plans and procedures
• Risk Awareness – Understand the risks to the business and the level of risk the business can financially support
• Risk Mitigation – Mitigate risks where possible
• Independent Valuations – Consider using independent insurance replacement valuations for accurate sums insured. It can provide a sense of reassurance and confidence in the adequacy of your insurance coverage
• Seek Expert Advice – Seek advice from your insurance adviser, who can review your business risks and explain how to transfer risks that you cannot keep or mitigate to insurance that fits your business needs.

If you would like to talk to someone about your insurance program, contact Clear Insurance. Our no-obligation risk and insurance review provides a detailed gap analysis report designed to help you make informed decisions about risk and insurance program. 

Premium rates are predicted to increase this year. However, actuarial firm Finity indicates the pace of increase is weakening and becoming more targeted.

That means they expect more moderate increases for most commercial line risks.

What are commercial line risks?

Commercial Lines are business risks and liabilities that impact business operations. Such risks may include:

• Commercial vehicles
• Worker injury
• Flood damage
• Medical malpractice
• Small business insurance
• Construction projects
• Property damage
• Broken windows

Commercial Lines insurance products cover those types of business risks, for example:

• Property Insurance
• Construction Insurance
• General Liability Insurance
• Worker’s Compensation Insurance
• Business Interruption Insurance
• Medical malpractice Insurance
• Flood Insurance
• Commercial Motor Insurance

Not all companies require the same coverage, and risks vary depending on their operations.

Finity’s forecast, therefore, suggests commercial line premium increases will better reflect the level of risk insurers cover.

More good news 

Finity predicts that financial line insurance premiums will stay flat or decline in 2024. the insurance market update states that premium increases for financial lines began to slow mid-year. That’s a notable change from the price hikes of recent years.

For clients, insurers are softening their approach to the price and placement of risk in some areas.

What are financial line products?

Financial lines protect businesses against financial risks that impact the business. Such risks may include:

• Commercial crime
• Cyberattacks
• Third-party claims against directors and senior staff
• Fraud, theft, and embezzlement
• Kidnap, ransom, and extortion
• Employee claims

Examples of Financial Lines insurance products are:

• Directors’ and Officers’ liability insurance
• Cyber, Security and Privacy Protection insurance
• Employment Practices Liability insurance
• Commercial crime insurance
• Professional Indemnity insurance
• Investment management insurance
• Management Liability insurance
• Not-for-Profit Liability Insurance

Finity says the slowdown on Financial Lines is due to increased competition, better technology, and an easing in class action claims, a major driver for premium increases.

However, as lengthy class actions for cyber breaches, regulatory breaches, employment, and discrimination emerge, we have yet to discover the longer-term impact on premiums.

The Value of Your Broker

You can chat with your insurance adviser anytime about your premiums for the year ahead.

In fact, the best time to talk to your broker is when you’re:

• Considering changes
• Planning budgets
• Buying or selling assets
• Considering contractual agreements

That’s because such decisions can impact your insurance cover and, in some cases, may void your existing cover.

Your broker can advise on whether you need to extend, change or reduce your cover.

Should you feel concerned about rising premium costs, a chat with your insurance broker can help you decide where to cut back on insurance while safely managing your financial risk.

Why did claims costs start to rise?

According to research by Crawford [1], there are many factors causing claims inflation. From port closures to the restricted movement of goods and people during Covid-19, the construction sector has suffered limited labour and material supply which has slowed production and driven up the costs of essential commodities and parts.

Throw into the mix the war in Ukraine, Brexit, extreme weather events, climate change, increasing rent, energy and transportation costs and rising interest rates – it’s little surprise the cost of construction keeps rising.

Building Cost Trends in Australia

In Queensland, the rise in construction costs was worsened by the property price boom and Olympic bid success. Why? It created an environment where development proceeds with confidence despite the State’s Building and Construction Industry being at or close to capacity.

Such factors can lead sub-contractors to be selective about the work they take on and thus how they price projects. That approach places further upward pressure on overall costs, causing the cycle of limited supply and increasing costs to continue.

Current Costs of Building Materials

Data from the Australian Bureau of Statistics Producer Price Indexes tell us that:

• Building material costs are on average around 1.35 times higher today than in Q2 of 2019.
• Timber is 1.4 times the cost today than in Q2 of 2019.
• It takes about three months for inflation to be felt in building cost price increases.
• Australia’s hardest hit were regional areas following catastrophic weather events, covid lockdowns and supply issues.

Despite material costs stabilising, the construction market remains volatile.

According to Rider Levett Bucknall’s Q3 2023 Escalation Update report:

• Market volatility continues, with supply chain and labour issues impacting pricing and partially offsetting material price stabilisation
• Tenders have significant variations in trade pricing, reflecting differences in risk assessment and future work projections
• Insolvency of major subcontractors and economic concerns is leading to higher pricing across all trades
• Project durations are extending by approximately 20%, due, in part, to low resource availability and reduced productivity
• Contract negotiation timelines are increasing as parties struggle to agree on risk allocation and terms
• Head contractors and sub-contractors are face pressure from ongoing legacy projects with significant financial shortfalls
• Head contractor margins are continuing to rise, especially on projects with longer durations and/or a higher risk profile

All of which is being magnified to varying degrees in Australia’s regional areas.

Insurance Builder Network

According to Crawford’s survey of their Contractor Connection Managed Repair Panel, their insurance builder network is experiencing the same cost pressures as the broader construction sector.

The shortage of specialist insurance builders is increasing the burden to fit rebuilds into the Building Regulatory Framework requirements which focus on new build projects and not the rebuild of existing buildings. Using inexperienced insurance builders often leads to further delays.

The impact on Business Interruption Claims

The problems in the construction market are having a severe impact on business interruption claims in Australia.

Every delay extends the period a business cannot operate or return to capacity, increasing the overall cost of insurance claims.

According to Crawford’s Claims Inflation Update report they have seen a rise in businesses wanting to transfer the risk of building costs to their business interruption cover, especially for managed cost-plus projects where there is greater uncertainty over material damage costs and timelines.

Insurer Appetite

With the growing failure of building businesses due to cost over-runs, insurers are keen to ensure projects are completed. When builders fail it can take months, even years, for projects to restart, if at all.

The appetite among builders to take on unfinished projects is understandably low given the increased risks.

Loss adjusters are thus keen to track projects, ask the tough questions and query building programs to identify slippage.

The Way Forward

The insurance industry knows that mitigating the risk of claims is a critical factor in tackling claims inflation.

That means seeking professional valuations and working with your insurance broker and insurer to manage your risks. When they deploy experienced adjusters, inspectors and contractors at the right time, it can make a significant difference to the customer experience and timeline of the claim.

Contact Clear Insurance today for support with your insurance needs.

[1] Claims Inflation Update Digital Report, Crawford, August 2023

So, why are property insurance premiums going up?

Well, there are several factors at play. The five main factors are:

• Low-interest rates
• Inflationary pressure
• Natural disasters
• Reduced maintenance
• Nervous investors

We’ll take you through how each of these elements impacts insurance premiums and what you can do to help.

1. Low-interest rates

Insurers are required under their Australian Financial Services Licenses to have capital reserves to cover the cost of claims. Additionally, they take out insurance policies to help cover the cost of significant claims that could eat up or go above their capital reserves.

Insurers buy their insurance from reinsurance companies who seek financial support from the Retrocessionaire market, otherwise known as the capital markets.

It sounds complicated.

In simple terms, every aspect of the insurance market relies on interest rates to help build money to cover claims. When interest rates are low, the pools of money don’t grow. Therefore, it pressures every level of the insurance market to raise premiums.

Eventually, the premium increases filter down to you at a business level.

2. Inflationary Pressure

The global increases in material and labour costs, plus supply chain issues, are driving up the cost of property repairs. So, whether it’s a partial or total property rebuild, property claims costs are becoming unpredictable and costly for all concerned.

Thus, insurers are unable to set property insurance premiums accurately. For businesses, it means higher premiums to cover worst-case scenario claims.

To assist, property owners can seek expert property assessments and develop regular maintenance programs to ease uncertainty for insurers. With accurate estimates and mitigation plans, insurers can feel confident and set appropriate policy limits and premium prices.

The global increases in material and labour costs, are driving up the cost of property repairs.

3. Natural Disasters

From Hurricane Ian and European windstorms to Australia’s bushfires and floods, the number of natural disaster claims is rising yearly. In fact, due to the extreme weather events of 2022, the global insurance industry is projected to see catastrophe losses of up to US$112 billion.

The 10-year average for natural disaster losses was US$81bn. That’s a massive shift.

So, why does this matter?

It matters because the amount of money in insurance pots needs to be improved to cover catastrophic losses. When insurance is a risky investment for the capital markets (Retrocessionaire market), it reduces the money available to cover claims.

Once again, the costs will pass down the insurance market until they reach business owner premiums.

Therefore, we must tackle underinsurance. With accurate property assessments and business information, insurers and reinsurers can set realistic premiums while boosting investor confidence in the insurance market.

When there’s enough money in the insurance market, premium prices can start to ease.

The number of natural disaster claims is rising yearly.

4. Reduced property maintenance

Periodic maintenance by property owners reduces the need for expensive claims.

A recent claim example following a significant rain event led to multiple leaks at a licensed venue. The venue owners subsequently learnt that essential roof maintenance of around $12,000 would have mitigated the damage. Repairing the water damage cost insurers $180,000 and a hefty hike in ongoing insurance premiums due to the claim.

It’s a harsh lesson to learn.

Regular upkeep of property assets is a cost-effective way to mitigate weather damage and save on premium costs.

5. Nervous investors

The riskier the insurance industry becomes, the less appealing the insurance market is to investors. Who wants to invest in a money pit with zero returns?

When the insurance market cannot raise capital to service insurance claims, there’s only one way for reinsurers and insurers to go. Unfortunately, that’s to pass the costs back down through higher premiums.

When insurers have accurate data from business owners, they can confidently calculate premiums based on known risks. Therefore, it’s in your best interests to declare everything an insurer needs to know about your business and its assets. 

The riskier the insurance industry becomes, the less appealing the insurance market is to investors.

Need advice on insurance for your property portfolio?

Clear Insurance advisers use over 75 years of commercial insurance expertise to advise business owners with multiple properties and complex insurance needs.

Our risk review provides a detailed analysis of your existing insurance programs against your business risk profile to ensure you have the most appropriate insurance program for your needs.

Contact us today for peace of mind.

You can read the original article titled ‘Marine insurers to ‘feel the pain’ of the container crisis‘ on the Insurance Business Australia website.

If you would like to talk to an insurance adviser about your current insurance program or would like a risk and insurance review, you can contact Clear Insurance today on 1300 721 132 or complete our online enquiry form and an insurance adviser will be in touch.

For more information on business insurance or if you have questions, you can contact Clear Insurance on 1300 721 132 or complete our online enquiry form and an insurance adviser will be in touch.

Underinsurance in a ‘hard’ insurance market.

A lot has been said about the hard insurance market and how insurers in Australia have been reducing capacity for higher risks, but the spotlight has not been as bright when it comes to rebuild costs and sums insured. Valuation expert Andrew Slevin points to the rising cost of materials and contractors, and how the increase and a host of other issues are affecting insurance.

“With the globalised nature of supply chains, Australia’s market will continue to be impacted by changes to commodity prices that will have a direct impact on current replacement and rebuild costs for infrastructure and real estate,” Slevin said.

“While disruption to logistics and supply chains has already driven prices of commodities to levels not seen for several years, we expect a broad basket of commodities to benefit further from global public infrastructure spending plans, including cement, steel, copper, zinc, lead, and other metals.”

Steel prices, according to the CEO, are now anywhere from 70% to 100% higher than they were a year ago. Slevin attributed the rocketing prices to delays on supply coming back online following the coronavirus-induced shutdowns of production facilities.

“In due course,” he said, “commodity and material prices are likely to stabilise, once capacity that was previously idled or production is brought back on stream, but for some sectors this could take months or years. At the same time, large infrastructure projects will demand expertise from consultants, engineers, and contractors, meaning increased competition for labour and specialist skills.”

Slevin, who also cited higher shipping costs, highlighted that rates for the best consultants are expected to go up given that many of these skills are not easily scalable. And with the Australian government recently committing $15.2 billion into infrastructure over a 10-year period, Slevin believes large amounts of resources will be tied up and make it more expensive for the private sector to undertake large projects in areas including property.

“As a company that advises clients on rebuild costs and on reinstatement, there’s a real challenge around whether companies have really factored changes into their thinking,” he noted. “If Australian businesses are benchmarking reinstatement or construction costs against past prices, in an environment where some commodities have doubled over the past six months, they may have an inaccurate view on current reinstatement costs.

“If they suffer a loss, not only will they likely face challenges from insurers on the sums insured, but they will also find replacing the facilities and restarting business could take much longer than before. With global commodity prices at levels not seen for some time, and in some case up over 70% year on year, we are likely to see significantly higher rebuild costs in Australia than when policies were signed pre-pandemic, exposing current policyholders to underinsurance risk.”

It’s important now more than ever to correctly insure sums to prevent underinsurance

For Slevin’s camp – which specialises in the valuation of industrial, commercial, and residential buildings, as well as plant & equipment and civil works – the message is clear; that is, that asset owners, financiers, brokers, and insurers should see to it that sums insured and expected reinstatement periods for tangible assets are constantly reviewed and updated.

“Doing so will help to recognise the systemic effects of COVID on supply chains and prices,” said the CEO, “and will reduce the potential for under- and over-insurance should a claim arise.”

Additionally, amid the current market where insurers are seeking to limit exposure and future losses, Slevin thinks asset owners will be under significant pressure to provide an “awful lot more” accurate and justified information on their properties going forward to ensure that they can get coverage.

“Certainly,” he told Insurance Business, “there’s a significant change in attitude around the insurance companies wanting more information to be able to make better risk decisions.”

You can read the full article titled ‘We are likely to see significantly higher build costs in Australia’ on the Insurance Business Australia website.

If you would like to discuss your insurance program with an experienced adviser, you can contact Clear Insurance on 1300 721 132 or complete our online enquiry form.

The peak body, which represents 77 councils, says the measure is needed to keep insurance affordable and prevent Queensland residents from carrying an “unfair burden”.

The LGAQ says the recent Australian Competition and Consumer Commission (ACCC) report shows premiums have risen 178% in northern Australia in the last decade, compared to 52% in the rest of the country.

More than 62,000 properties in North Queensland are currently uninsured, with more than 95% of those uninsured property owners citing cost as a reason!

LGAQ President and Sunshine Coast Council Mayor Mark Jamieson says, “This is just simply unacceptable in a state as highly vulnerable to natural disasters as Queensland.

“Our member councils want a reinsurance pool established to help reduce those costs so their communities are not unfairly burdened, and we support their call.

You can read the full article by Insurance News at “Queensland councils join forces in reinsurance pool push“.

Clear Insurance are true client advocates

At Clear Insurance we understand the importance of insurance and how you can use it as a risk transfer tool to protect your business. We also understand that insurance can be a financial pressure for small businesses. It’s important to know that there are always options, such as premium funding, independent valuations and risk management practices that can help you to manage risk and your insurance premiums.

If you’d like to discuss your insurance program or request a risk and insurance review, contact the Clear Insurance team on 1300 721 132, email info@clearinsurance.com.au or complete our online enquiry form and an adviser will be in touch.