Employer group Ai Group says insurance stress is a growing concern for business after a poll of its members found more than half reported unusual trouble seeking cover in the last 12 months.

More than 100 members, mainly medium sized businesses, responded to questions about insurance, whether it was a significant issue and the type of problems they were experiencing.

Ai Group chief executive Innes Willox said: “A concerning number of businesses are reporting that there is a general lack of insurance options. Because of this, some businesses reported paying an extremely high price, or not obtaining insurance at all.”

The most popular type of insurance sought among respondents was public liability (89.2 per cent), followed closely by Workcover (87.3 per cent) and property insurance (81.4 per cent). At the lower end was credit insurance (21.6 per cent), ‘other’ (54.9 per cent) and product liability (66.7 per cent).

Wilcox said: “To date, COVID-19 has not played a major role in current insurance difficulties but may still cause concern into the future given impacts still playing out in workplaces and the community.

“Ai Group’s analysis of the insurance situation found a number of local and global factors driving higher premiums. The explosion of largely foreign-funded class actions is one of the big drivers impacting on insurance concerns in addition to insurers factoring in climate change risks including more extreme weather events.”

The Swiss Re Institute estimated the global economic loss from natural and man-made disasters in 2019 at roughly US$140 billion. Ai Group said the insurance industry is now recognising its role in advancing transition to a low-carbon economy by mid-century to manage climate risks associated with large scale investments in new technology and innovation.

Ai Group’s report said: “In the absence of better mitigation of and adaptation to climate risks, insurers can attempt to more directly respond to their exposure by raising premiums and restricting coverage. This approach is rational but will be unwelcome for business and other customers – and is likely to create acute problems in communities that are especially vulnerable to climate impacts.

“Reducing underlying community risks and fairly sharing burdens are increasingly urgent questions.”

Environmental, social and governance (ESG) is increasingly being used by insurers to assess potential clients and as a risk management tool, Ai Group said. ESG policies help the insurance industry manage and improve risk models to better assess climate hazards and ensure development of capabilities to underwrite natural catastrophe risks into the future.

The report said some organisations will no longer do business with companies that do not operate in accordance with their ESG policies and values.

“These businesses integrate ESG into their decision making and are open about the possibility of excluding doing business altogether with organisations where the activities of that organisation are deemed to be inconsistent with their corporate responsibility principles.

“This alone can limit supply of insurance to certain businesses or projects, in turn driving up costs and reducing cover options. It can even cause some projects to become uninsurable and therefore, unviable,” it said.

Class actions also have an impact, with a rise in consumer and employment class actions. In August 2020, of 115 class actions listed on the Federal Court of Australia’s website, 20 (17.4 per cent) were employment cases.

In its submission to a current Parliamentary inquiry into Litigation Funding and the Regulation of the Class Action Industry, insurance broker Marsh said the average increase in premiums for Directors and Officers Insurance for ASX200 companies in 2019 was 118 per cent, with extreme cases rising 600 per cent.

Marsh said many of insurers had withdrawn from the D&O insurance market and others were far more discriminating about who they would offer insurance, with some restrictions so onerous it amounted to a de facto withdrawal from the market.

And then there was the pandemic. Ai Group said the fallout from COVID-19 was yet to play a substantial role in insurance problems for its members, but the likely impacts will be felt in coming years.

Willox said the results showed that businesses have been active in their pursuit of insurance in the last twelve months, but many have had trouble obtaining it, particularly due to unusually high premium growth and a general lack of options.

“Insurance is an essential component not just to doing business safely, but to doing business at all. Attaining affordable insurance can mean the difference between success or failure.”

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