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Bushfire liability market ‘continues to challenge’ 

The global liability market for bushfire and wildfire related losses continues to provide challenging conditions as natural catastrophes increase, a new report says. 

Broker Lockton Australia’s first Blazing Trails report says 2022 saw the flattest insurance rate conditions in nearly four years, with a 0% to 7.5% increase the norm.  

The report says “bushfires are one of the few natural catastrophes that can be directly caused by an organisation”.  

“Given a number of the largest bushfires losses in Australia were attributable to electricity assets, this report has been designed to inform all stakeholders in the sector (including infrastructure owners, government bodies, and vegetation management operations), by sharing macro and micro perspectives that can improve outcomes for insurance buyers.” 

But the report deliberately steers clear of a debate about climate change. 

“In this report, we refrain from weighing in on any climate change debate and focus on the impact to the insurance industry, and in particular to buyers of catastrophic liability insurance (and reinsurance) with respect to wildfire, more commonly referred to as bushfire in Australia.” 

The report says with new insurance capacity entering the market buyers are competing and must stand out. 

“In 2022, over $100m of new Australian/UK capacity entered the market via new syndicates or existing insurers increasing their capacity for bushfire exposed risks. Much of this capacity was at the primary layers, providing much needed competition at the most expensive portions of any program.” 

The report urges organisations to make sure they are across legislative frameworks for the risk and or insurance. 

“Some organisations obtain conventional limits near or beyond $1 billion,” the report says. 

“Stress testing with reputable catastrophic modelling is critical to understand exposure and to guide purchase decisions.” 

The report says more innovative thinking is needed for risk transfer solutions. 

“From wildfire bonds in the US to long-term structured deals secured locally, there is always another way,” the report says. 

While new technology such as Rapid Earth Fault Current Limiters, is reducing the risk of igniting fires, more work is needed. 

The report says increases in retentions have not been a focus for insurers. 

“This is because bushfire losses are likely to result in full loss limits of the primary and lower excess layers. This means any chance of self-insured retention is offering insurers little protection, so it is not impacting rates unlike other insurance lines,” the report says. 

The report predicts that in the absence of major global bushfire events over the next few years, premiums should continue to flatten. 

“That doesn’t mean on average premium rates will fall, however the rate increases should continue to taper off. Nevertheless, the fear remains that if the global warming trend continues, bushfire liability limits could well reduce even further and the cost of the capacity may increase, with insurers being even more selective on which risks to underwrite.”