Insurance in a changing world - 5 key considerations
1. The Australian economy is moving into a downturn
Covid-19 and the lockdowns we are experiencing have moved the Australian economy into a recession. Conservative estimates indicate that the economy will shrink by around 5% in 2020-2021 and will take a few years to get back to pre-COVID 19 levels.
Insurance is a key financial product and the insurance markets are impacted by the movements of the economy and the cost of capital. As the broader economy faces tough times, so will the broader insurance market and ultimately, these tough times will impact the businesses and individuals who purchase insurance.
2. Review your insurance to ensure you’re paying the “right” price.
Buying insurance should be driven firstly by your needs and requirements for coverage. Determining whether you have the right coverage is essential, especially as insurers tighten terms and conditions and underwriters are looking more closely at the risks across their portfolio. Now is a great time to review your insurance to ensure your risks are covered to a level that you are satisfied and that your terms and conditions provide the coverage that is appropriate for the months and years ahead.
3. A “Hardening” Insurance Market – can drive increased insurance premiums
Insurance Premiums are generally governed by the insurance cycle - which moves between a “hard” and “soft” market, based on economic and other factors. Factors like a worsening economy, higher claims - perhaps due to a string of natural disasters and storms - and poor investments can lead the market to harden. In a hard market, insurance premiums tend to be higher, and underwriters are less willing to take on additional risks.
4. Insurers are tightening their belts – premiums increasing rapidly and some withdrawing from certain occupations
As the insurance market hardens (see above), insurers are looking to reduce their exposure to certain occupations and risk classes. If your business operates in those occupations or risk classes, it can require looking to international markets to find the capacity and a provider to carry your risk. As insurers tighten their belts, an insurance broker is well placed to assist you to navigate the insurance market and to find alternatives that best fit your requirements.
5. Buying without advice online
Buying insurance online without the proper advice can lead to an insurance product that is not fit for purpose. Whilst buying online may be fast and efficient, the lack of advice and consultation around your needs and requirements can lead to a poor outcome for you. In particular, understanding the policy wording is essential and unless you’re an expert, it can be good to get some assistance.