George Grasso, UAA Group’s EGM – Claims & Procurement recently spoke at CICA’s Regional Industry in the Hunter Valley, presenting various factors influencing today’s insurance market. In this article he discusses some of the key topics from his presentation.
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“the presentation wasn’t specifically about UAA, it focused on what is actually happening in the insurance market in general. I touched on key points, particularly in the space of losses which included the increase in frequency of losses, the types of losses, and also what’s happening with costs, and how this is impacting premiums.
“The other most concerning issue is the lack of capacity in the insurance market. Insurers and securities that have backed underwriting agencies or insurance companies, particularly for the liability and material damage
involving cranes, mobile plant and machinery, have been exiting the market. At UAA, our 10-year binder agreement with QBE affords us security to underwrite a larger book of business and for greater sums insured,” said George.
“Fortunately for UAA, our brokers and customers, we understand the industry exceptionally well. We understand how it operates and how it works as a result of our 50 years of involvement. Most importantly, we understand the importance of building relationships with the industry and key customers to really understand the risks and how we can work together to mitigate these risks. All this helps ensure there is a sustainable future for the industry and insurance companies and that our customers are not faced with constantly increasing insurance premiums. Taking a proactive approach to the industry has stood UAA in good stead” said George.
Increased inflation costs, the rising cost of commodities, materials, freight and labour and technological impacts have contributed considerably to an increase in claims costs, in some cases somewhere between 30 per cent to 40 per cent, UAA says.
“As you can appreciate, all insurance policies have algorithms, and these determine the expected costs for claims as well as a fair rate for a premium in order to create a pool to then cover claims over a 12-month period.
“What has shocked insurance companies are the overall levels of increasing costs. Increasing expenses and living costs are impacting every business and individual. Inflation costs exist, and have an impact, and insurers have no option but to increase premiums to cover these costs.
“From a global insurance perspective, risk management practices have been a key focus for insurers. Identifying existing risks and trends and working with the industry to reduce these risks does not necessarily work for all insurers, and many have taken the option to leave the industry and seek refuge in other industries that are deemed safer and more stable.
Image: UAA
“Most other insurers specialise in other areas – they don’t just focus on cranes and mobile plant and machinery. Those portfolios that they do have are small and insignificant in comparison to their larger book.
It’s easy for them to exit and focus on where they need to. For UAA this is our bread and butter and it’s important that we continue to work very closely with the industry to ensure we offer sustainable premiums and we are reducing risk at the same time,” said George.
UAA says it is doing everything it can to manage costs without jeopardising the quality and integrity of its machines, ensuring it is still able to get customers back on their feet as quickly as possible.
“In Australia, we are seeing a diverse range of liability and litigation claims. There has been a dramatic increase in claims around mental health. For example, if an incident occurs on site and somebody gets injured or, worst-case scenario, there is a fatality, even those that haven’t been affected physically or perhaps were not even on site, have been putting in claims for mental health issues. We are seeing crazy claims, I’m talking in the millions of dollars. It is a real free for all and an open cheque book to a degree and lawyers are leveraging off it,” said George.
“In my opinion, we need insurance companies and industries to get together and lobby Governments because something needs to be done, it has become unsustainable. Insurance companies are backing out, they’re not supporting it anymore. With liability insurance it is very difficult to obtain Personal Indemnity and Professional Indemnity coverage at this point in time,” said George.
Today, UAA insures a large majority of the cranes in the industry, says George.
“We don’t want to insure every crane, but we are one of the only insurers that specialise in this area. We have survived the test of time and will continue to do so. When underwriters evaluate an industry like the crane sector, there are many considerations around the risks. These include the type of environment the machines operate in, the hazards, the type of construction involved and its location – including exposure to extreme weather events including potential flooding or high winds.
“They also examine the claims’ history. Are there frequent claimants? What are the safety protocols, and regulatory requirements for the industry? How well are they policed, managed and monitored? The values of the machines and the aggregation of machines in terms of how many machines are located in one spot. All these sorts of things are considered when premiums are determined,” said George.
The cost of Professional Indemnity insurance has increased exponentially, with a high percentage of Professional Indemnity insurers exiting the market.
“Even entities such as CICA CraneSafe Assessors have been finding it difficult to gain Professional Indemnity insurance and when they do, they have seen in increases in premiums, which again relate to the increased levels of litigation.
“Climate change has also had a huge impact on the insurance industry. The ‘once in 100-year floods’, are more frequent and other extreme weather events including damaging winds have had a huge impact globally on the insurance industry,” said George.
Insurance companies have their own insurance and indemnity limits which are referred to as reinsurance, explains George.
“If there was a catastrophic event, we have reinsurance that will help us through that indemnity process. Where customers may be concerned about their level of excesses and what they cost, we have our own limit that we wear up front, and the reinsurance will trigger” he said.
Technology is also having an impact on insurance risk appetite and costs. “We are seeing a lot of alternative energy machines entering the market and these bring a whole new world of understanding. We have to ask, what are the potential losses and of types of instances, and what are the associated costs? The value of machines is a key factor within the algorithm that determine the premium.
“We have to determine the depreciating value and what the secondhand market will look like. From UAA’s perspective, we’re conducting research alongside the industry to better understand the emerging technology and determining how we adapt to ensure we continue to provide
high levels of security,” said George. Increasing regulatory compliance is another key factor influencing the insurance industry says George. “There is a greater emphasis on regulatory compliance, which is increasing costs internally for businesses in the insurance industry and no doubt in the mobile plant and machinery equipment industry. These regulatory requirements don’t necessarily generate income, they are an increasing cost factor impacting premiums,” he said.
“As we always say, it is important for customers to collaborate very closely with their brokers and insurers to tailor the appropriate coverage required. It is also important to be transparent and focused on the key elements that control premiums, to ensure that they insure their machines for the appropriate market price.
“We sometimes see machines overvalued, and we don’t pick that up during underwriting, we see that at claims time when an evaluation of a machine takes place. We see many that are overvalued, which has an impact on premiums,” said George.
“It is a testament to Australian business owners that they respect their assets and want to over insure them, but it can have a negative impact. I’m not saying this to find a way to then under insure, because customers will endure penalties if they are under insured.
“Customers have to measure their risks, measure appropriately the value of their machines, and work closely with the industry insurers and brokers to identify strategies that can actually help mitigate those risks,” said George.