Market Update: March 2025
06/03/25
06/03/25
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Welcome to our March 2025 Market Update, which provides an overview of the insurance industry and explores the emerging trends as we progress into the second half of the financial year.
In the 2024 financial year, the Australian general insurance industry reported strong profitability for the second year running, with an estimated Return on Equity (ROE) of 15%.
The result is led by an increase in investment returns, rather than an improvement in Combined Operating Ratio (COR). These consecutive years of double-digit ROE contrast with the low profitability of preceding years, which were impacted by multiple record-breaking natural catastrophes, the COVID-19 pandemic, and related economic disruptions.[1]
As insurers’ profitability improves, we have seen a shift in appetite and increased competition, with new insurer capacity regularly entering or re-entering the Australian market. While competitive tensions can be leveraged to achieve pricing relief for policy holders, inflationary pressures continue to impact premium costs. As a result, the minimum cost for insurers to secure capacity remains higher than before the most recent hard market cycle – even for highly protected and well-managed risks.
Overall, the general insurance industry reported an 11% growth in Gross Earned Premium (GEP) for FY24. This was driven largely by rate increases which, although slowing and forecast to continue to slow, are still being used by insurers to meet inflationary pressures. The stabilisation of the reinsurance market has brought a welcome relief, however, reducing the pressure for rate increases.
[1] Finity-Optimalite-2024.pdf
The property insurance market reports moderate average rate increases – a significant improvement on the double-digit average increases of previous years. Policy holders are benefiting from the availability of capacity, and leveraging opportunities exist for many risks.
Quality risk information, supported by accurate valuations, are positively regarded and can mitigate inflationary concerns of both the property owner and insurer.
While high risk and exposed sectors may continue to attract high rate increases and restricted conditions, those risks with a high level of insurer competition are benefiting from market conditions.
The frequency and severity of extreme weather events continue to significantly influence insurers’ allocation of capacity, particularly for high-risk sectors such as agriculture, construction and mining.
In August 2024, the Insurance Council of Australia (ICA)[1] reported an increase in losses resulting from declared catastrophes from 0.2% of GWP from 1995 to 2000 to 0.7% in the past five years. This demonstrates that the impact of extreme weather has outpaced economic growth and is a greater burden on our economy.
Exposed risks continue to experience high premiums for Property (and in some cases, Public & Products Liability), and as a result experience strict underwriting conditions.
[1] ICA Catastrophe Report 2023-2024.pdf
Increased insurer appetite and market capacity is benefiting policy holders, with estimated rate increases reported in FY24 of 0-5% on average expected to fall towards 0% for 2025.
Claims inflation and litigation remains concerning to insurers, and underwriting conditions are being imposed to address high-value, long-tail risks. Injury to contractor and labour hire subrogation exposure is a concern due to the difficulty in defending these types of claims, often many years after the occurrence, and insurers are imposing high excesses and premium penalties.
The impact of global political tensions and economic instability has reached Australia, with labour shortages, supply chain disruptions and inflation on cost of materials and operation.
The construction sector is particularly challenged by these factors, as well as major defect related losses and high number builder insolvencies in recent years. Contractor and supply management is important to ensure that project risk is managed in this volatile environment.
Motor insurance is impacted by the increasing cost of vehicles, repair and overall claims – including hire costs for third- party replacement vehicles. Vehicle technology, supply chain disruptions, parts shortages, and increased labour costs have resulted in higher average claim costs. Electric vehicles (EVs) and hybrid vehicles represented approximately a quarter of all light vehicles registered in Australia during FY24.[1]
Battery damage can often result in a total loss of an EV, regardless of the impact to the rest of the vehicle, and consequently, insurers can’t yet fully understand the true risk of insuring EVs. The emerging risk of Li-Ion battery storage in all settings is being researched and global claim trends watched closely by insurers.
[1] https://www.aaa.asn.au/library/electric-vehcile-index-q3-2024/
Directors & Officers Liability and Management Liability insurance has continued its softening trend.
This softening trend has benefited nearly all clients, and large, listed entities in particular are seeing significant reductions driven by active competition. This is partially a correction on excess layer placements perceived to be overpriced in previous years.
Large private and smaller companies did not experience the very worst of the hard market conditions so are not seeing reductions as large in percentage terms, but should expect to see improved outcomes.
Economic uncertainty and continued company insolvencies will be an ongoing concern for insurers, as will be the response to emerging environment, social, and corporate governance (ESG) issues. Insurer attention will be focused on claim movements to understand the impact on portfolio profitability in this rate-cutting environment.
The increasing sophistication of cyber threat actors, coupled with stringent regulatory mandates on data protection, places cyber risk management at the forefront of Australian business priority.
The Australian Signals Directorate (ASD)[1] reported the following:
Ransomware and data breaches remain significant threats, driving insurers to adopt more selective underwriting practices and coverage conditions.
After the heady increases to cyber premiums in 2021 and 2022, cyber rates are starting to soften. This has largely been driven by market competition, however the improvement in cyber security and risk protection of policy holders has also played a role.
Where a robust cyber security position can be demonstrated, more favourable premiums are achievable. The cyber market in Australia continues to mature and is expected to grow at around 20% per year for the next couple of years.[2] It is arguable that despite some high-profile events, the claim results have not been as bad as predicted.
There is potential, however, for widespread events to rapidly worsen insurer loss ratio, which could lead to corrective measures being put in place. Market dynamics are driving improved outcomes for insureds, however, the underlying claims environment is not completely certain.
Insurers will be concerned with emerging technologies and catastrophic risk exposure, underlying economic trends such as continued insolvencies, and scope for new types of class actions arising from issues such as ESG and Cyber. While most classes are expected to remain profitable, further reductions combined with adverse claims development could see that change.
Regardless of the state of the market, optimal results are achieved when best practice risk management controls are documented and demonstrated to insurers. This is particularly true when improvements have been implanted since the last insurer review or planned.
By providing high- quality information and working collaboratively with Gow-Gates, risks can be presented to insurers accurately which can help in obtaining favourable outcomes.
[1] Annual Cyber Threat Report 2023-2024 | Cyber.gov.au
[2] Finity-Optimalite-2024.pdf
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