With LGIS membership renewal just around the corner, it's a good time to look at what's happening in the broader insurance market, and trends within your Scheme.

Commercial insurance market update

Insurance pricing in the Pacific region increased 5% in the fourth quarter of 2022, the same as in the prior quarter. The fourth quarter was the twenty-first consecutive in which composite pricing rose, continuing the longest run of increases since the inception of the index in 2012. Whilst there has been some moderation of pricing increases, the market is witnessing some of the biggest headwinds around frequency and severity of natural disasters.   

Indemnity providers have been using coverage levers to moderate price increases with focus on property and liability exposures. In addition to coverage and capacity, indemnity providers are using client commitment to risk improvements as an indicator of 'good business'.

Current economic conditions are also driving claims inflation which is impacting the global insurance markets.

In Australia, inflation is growing at its fastest pace in 20 years, the cost of living and increases in construction costs are front page news. Inflationary factors such as changes in construction costs, increase in labour charges, supply issues and increased equipment costs all have a material impact on the values that are required to be declared and the associated cost of cover.

Early Indicators for LGIS

For 2021/22 LGIS reported a claims spike across multiple classes of cover and all indicators show that this will continue in 2022/23. In the upcoming renewal period, contributions will be revisited to ensure that pooled funds reflect the changing claims performance of the sector and ensure its sustainable, long term protection.

Property

Our members have been exposed to several significant natural events from cyclone to bushfire, and more recently the Kimberley flood event. Several losses arising from poorly constructed buildings have also impacted the claims outlook with the Scheme breaching its pooled cover four times over the last five years.

Coverage restrictions are likely to include:

Liability 

• Claims inflation resulting from litigation trends, as well as material cost inflation is impacting Scheme performance – there has been an increased number of claims and costs of defending these matters has increased.
• There is continuing pressure on demonstrating the sector's response to bushfire, flood, ageing infrastructure, child and aged care exposures, and close out of risk recommendations. 
• Demands for better risk control is driving indemnity providers decision to provide protection in the cyber space. High profile losses, arising from ransomware attacks and locally poor control environments, will drive coverage and pricing. Limit increases are recommended where possible and members are advised that pricing will continue on a similar trajectory to the last two periods as we manage market expectations for significant spikes. The LGIS Board is currently considering the best approach to assisting the sector with managing cyber-risks; results of the cyber-project will be released to assist the sector.

Motor

Similar to other types of protection, motor is heavily exposed to the current economic condition and we have witnessed claims erosion over the last two years. Despite these changes we expect pricing to remain relatively stable.  

Workers Compensation

The projected claim numbers for 2022 is expected to be the lowest since the inception of the WorkCare scheme at around 870 claims. This downward trend is not too dissimilar with the Western Australia WorkCover scheme having experienced similar reductions in the past two to three years.

Whilst the reduction in claim number is welcome, the average claim costs for the local government sector has increased by 47% since 2017, from $17,275 to $25,319 in 2021.  With 2022 still developing, we envisage the trend of increasing costs to continue.

The increasing claim costs can be attributed but not limited to:

• Sector's ageing workforce. Between the period of 2017-2021, over 60% of claimants were aged over 50.
• Increasing hospital costs.
• Prolonged time off work resulting in higher weekly compensation.
• Increased surgeries.

For 2021/22 the WorkCare portfolio reported a trading deficit and the loss trend has continued through 2022/23.  Member contributions will invariably need to increase to keep pace with increasing claim cost.

Similar to other types of protection, the market for workers compensation excess of loss has diminished further leaving the Scheme with only one viable indemnity provider, resulting in increased cost.

Bushfire Injury

The reinsurance market for bushfire volunteers personal injury excess of loss continues to be limited due to the benefits afforded to the volunteers, which is aligned with the entitlements under workers compensation. With three quarters of the volunteer base over 50 years of age, it is likely that the risk profile will continue to deteriorate impacting contributions and retention limits.

If you need any more information about our renewal process or any updates about the risk transfer markets, please contact your LGIS account managers.