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Wide-ranging factors have increased the risks of doing business, both globally and locally. This heightened risk landscape necessitates a strong and ongoing approach to risk management. Businesses and risk managers should consider various factors when formulating their insurance programs and strategies to ensure comprehensive protection.
The costliest insurable losses for Australian businesses
Understanding the most expensive insurable losses can help businesses better prepare and protect themselves. Here are some of the key high cost risks:
- natural disasters: such as bushfires, floods, cyclones and storms may cause extensive damage to properties, infrastructure and inventory
- business interruption: when a business is forced to suspend operations for a prolonged period it can lead to substantial financial losses
- product recalls: if a business manufactures or sells products that are found to be defective or unsafe, expensive recalls involving product retrieval, replacement, customer notification and potential legal liabilities may be required
- cyber attacks: businesses of all sizes are vulnerable to data breaches, ransomware attacks and other cyber incidents. the costs associated with data recovery, legal expenses, customer notification and reputational damage can be considerable
- professional liability: service providers can face expensive claims if their advice, services or recommendations result in financial loss or damage to clients
- public liability: businesses can be held liable for injuries or property damage that occur on their premises or as a result of their operations, leading to legal defence costs and compensation claims
- directors and officers' liability: executives and senior managers can face personal liability for alleged wrongful acts or decisions made in their capacity Claims can arise from shareholders, employees, regulators, or other stakeholders
- employment practices liability: allegations of wrongful termination, discrimination, harassment or wage disputes can be costly for businesses
- property damage: accidental damage to buildings, equipment, or inventory due to events such as fires or water damage
- environmental liability: claims related to pollution, contamination, or environmental impacts can be extensive.
The impact of these high cost risks on insurance providers
The insurance industry is also significantly affected by these risks, influencing cover options and premium costs.
Natural disasters have cost insurers more than $34 billion in claims globally since 2010, split between flooding (38%), storms and hail (34%), cyclones (18%) and bushfires (10%). The actual damage bill is much higher1.
The cost of restoring damage has increased by 27% higher since the pre COVID-19 pandemic, and global reinsurance premiums (the insurance that insurers buy) have increased by up to 30%.
One in 12 Australian properties is believed to be at some level of flood risk, the costliest event in terms of remediation expenses, while fire risk remains significant with the cost of extreme weather events expected to grow by 5% each year and reach a total of at least $35 billion annually by 2050.
The cost of premiums can be expected to reflect more expensive claims, an increased allowance for disasters and higher reinsurance costs.
What are the high cost insurance claims for Australian businesses?
Certain categories of claims involve the largest costs individually, especially those in liability risk areas2.
- Public and product liability insurance (PL): claims costs have been driven by social inflation, legal and litigation cost inflation and medical cost inflation
- Professional indemnity (PI): the average premium has grown by 27% since 2015 due to increasing claims costs
- Directors and officers' liability (D&O): increasing claims and premiums, especially to side C cover related to shareholder class actions.
Strategies for businesses to protect against expensive risks
Businesses can adopt several strategies to minimise risk expenses:
- thorough risk assessment: prioritise exposures and implement risk management strategies and safety protocols
- avoid underinsurance: ensure adequate coverage for exposures that could significantly impact the business's bottom line
- regular policy reviews: update insurance policies to align with industry changes and evolving business needs
- evaluate deductibles and premiums: consider the trade-off between higher deductibles and lower premium costs
- risk transfer: use contractual agreements to transfer some risks to third parties
- comprehensive cover: consider insurance that provides multiple types of coverage to offer a broader scope of protection. This can be particularly beneficial for businesses with diverse risk profiles
- customised insurance solutions: work with an insurance broker who understands your industry sector. They can customise coverage to address the specific risks applicable to your business.
Gallagher brokers work to secure optimal cover
The factors impacting insurance premiums and market conditions are varied and also depend on each business's risk profile, claims record, approach to risk management and the broker capability.
At Gallagher we work with a large variety of businesses with unique risks, challenges and circumstances. As a leader in risk management, we provide expert guidance to meet insurer expectations through the renewal process, to access cover that instils confidence in business risk protection solutions.
Let Gallagher be your trusted partner in navigating the evolving insurance and risk landscape. Consider a complimentary Gallagher business insurance risk review to ensure your business is adequately protected.
