A non-vanilla risk that’s hard to place
By Daniel Wood
The heightened focus by regulators and investors on ESG factors is having an increasing impact on insurers’ coverage across a range of industries. In Australia, one of the industries impacted is mining, a massive part of the economy and a complex risk assignment for any broker.
Will Laundy (pictured), director of Pillar Brokerage, was recently engaged by a client who services the mining sector.
“The client had received a non-renewal notice from their long-standing insurer as a result of a change in their insurer’s internal underwriting guidelines,” said Adelaide-based Laundy. He added that the client had not submitted a claim or changed their business activities.
“This left the client in an awkward position because the policy was required under a number of their contractual agreements and needed to be held continuously,” he said.
Laundy said there was another challenge.
“Their previous brokers had already been engaged with the broader market and had received ‘no’ responses from everyone they had contacted,” he said.
Just to add to the complications, said Laundy, the policy was past renewal date and had lapsed.
“Not a great position for a client to be in!” he said. “We knew this would be tough.”
The broker said the first thing his firm did was engage the client in “a candid discussion” about potential outcomes and what input his firm would need from them to assist the process.
“We then reviewed the previous market submission alongside the responses being received from underwriters,” said Laundy. “It was clear to us that there would be limited appetite for this policy, so we shortlisted those markets who have the ability and willingness to understand and write down similar risks.”
Laundy then reached out to a short list of underwriters to try and understand what was stopping them from being able to provide a coverage quote. They also invested considerable time with the client to increase and improve the underwriting information “directly addressing the issues raised.”
Repositioning the account
“Importantly, we repositioned the account given the client’s services related to products and technology more than traditional engineering,” said Laundy. “After further negotiations, we secured favorable terms which bridged the coverage gap and satisfied the client’s contractual requirements.”
Reduced insurer competition
“Insurers have taken hard lines on certain risks or industries with the flow on the effect of being reduced competition,” said Laundy. “These market factors are leading to natural increases to GWP [gross written premium] as well as increased broker quote requests.”
At the same time, he said, the market has created “significant opportunities” for underwriters to increase their GWP without needing to consider non-vanilla risks that may offer a little extra premium but the likelihood of large claims.
“The other factor impacting coverage availability for non-vanilla risks is insurers have strict underwriting guidelines and, in many cases, the market facing underwriter does not have the authority to write certain risks even if they would like to,” said Laundy.
Effort, time and internal politics
He suggested that the effort, time and internal politics that can be involved when an underwriter tries to internally refer a risk, are discouraging them from making this extra effort. Laundy said, in these circumstances, the “lower hanging fruit” is much more appealing.
However, on the upside, he said these market factors are “fuelling the rise” of underwriting agencies offering both a broader risk appetite and a greater ability to accommodate different risks.
Coverage in many industry sectors is becoming more challenging.
He pointed to property coverages as an example. Di Fiore said any property in a bushfire zone with dense bush has become very challenging to insure since the 2019 bushfires, including ski resorts, camping areas and caravan parks.
Are you an insurance broker? Please tell us below about the coverage challenges you are currently facing?
Keep up with the latest news and events
Join our mailing list, it’s free!
- Drivers warned of cheap car insurance scams that are 'too good to be true'
- 2022 Best Cheap Homeowners Insurance in New Mexico
- How To Get The Cheapest And Best Homeowners Insurance in Florida? – InsuranceNewsNet
- Millions of ACA health insurance plans may face hikes unless Congress acts
- Social media companies 'should do more to crack down on car insurance scammers'