Stiff competition between professional indemnity (PI) insurers has slashed rates but businesses have been warned to prepare for a significant rise.
Typical PI rate reductions across the corporate sector were in the low double digits in the June 2007 quarter, according to insurer Aon Australia, in a continuation of soft pricing from the same period last year.
“Insurers with large amounts of capacity and broader risk appetites competed aggressively,” Aon market services head Lambros Lambrou said.
“Continuing strong financial year profitability provided ideal negotiating conditions for many commercial insurance renewals.”
Aon said large capacity in the market will ensure PI rates will continue to fall for some time yet, but it issued a note of caution at the rate at which pricing has fallen.
“This potentially means a significant move to the upside once profitability in this class has been eaten up,” an Aon market sector report stated.
The insurer added that conditions in the general liability market meant current premium levels appear to no longer have any contingency built in for a change to tort reform legislation, nor the potential for “large catastrophe losses”.
“As a result, should these events occur, there is a risk of a quick and abrupt correction in pricing,” the report said.
Competition in the June quarter was even fiercer in the small to medium enterprise (SME) segment where there were many examples of even greater rate reductions and scant regard paid to risk management.
“In the SME segment, of note was the ease at which some insurers appeared to be paying ‘lip service’ to risk management, no longer considering it to be of such a high priority when providing terms to small and mid-tier firms seeking cover,” the report said.
From the end of March to the end of May is traditionally the renewal season for PI and buyers have appeared reluctant to move insurers having obtained improved coverage.
