“Quite significant price increases” in business property insurance
The Steadfast Taswide Launceston office was a hotel and a pub.
âIt was called the Courthouse Hotel, but before that it was actually the original courthouse for the area. The prison was diagonally opposite and they used to take prisoners underground and into cells and then bring them to the courthouse, âhe said.
Steadfast Taswide recently bought the building and renovated it after it was occupied by one of the unions, and before that by the Tasmanian fire department.
The Hobart office, Farrell said, was originally a home designed by one of Tasman’s leading architects, Henry Hunter, in 1855. Their third heritage-listed office is in Burnie and dates back to 1913.
Not surprisingly, Farrell is well aware of the challenges of obtaining commercial property insurance for heritage buildings. He also says it’s hard enough to get commercial property insurance for non-heritage buildings. This is especially true for non-standard constructions made of materials other than bricks and mortar.
âIf you have a structure built from things other than brick and concrete, according to the people who make it up, we’re also seeing some pretty big price increases in that area,â he said.
Hotels, pubs and other places that cook ready meals and have cool rooms find it difficult to obtain insurance coverage for their properties.
âIt’s getting harder and harder to place and getting expensive,â Farrell said.
He said that one issue that can increase roofing costs is the use of expanded polystyrene (EPS) in cold rooms. EPS is an effective low temperature insulator and is often concealed behind plasterboard, sheet metal, concrete walls or in ceilings.
According to the Steadfast website, âWhile in recent years we have seen more and more buildings use a primary fire retardant in EPS foam insulation such as hexabromocyclododecane (HBCD) to promote increased fire resistance in buildings. EPS building and construction applications, the number of properties is still small in comparison.
If a fire causes the polystyrene to catch light, it can be very difficult to extinguish, increasing damage costs, Farrell said.
He said the rising cost of commercial property insurance reflects an upward price trend in other sectors of the insurance industry.
The Australian Prudential Regulation Authority (APRA) raised concerns about the commercial real estate market several years ago and warned it would adjust its monitoring intensity in response to worsening trends.
Read more: Head of APRA to insurers: Put your house in order
According to Fairfax Media, At an insurance conference in Canberra, Geoff Summerhayes, who at the time was APRA’s chief insurance officer, said the regulator may need to step up its oversight of the sector if commercial real estate insurers fail to solve the problems of “stability and durability”.
âIt’s tough right now for some risks – we are certainly seeing diminished capacity, diminished opportunities and insurers, which means the consumer is paying more,â said Farrell.
He said the past three years have been particularly difficult in the Australian insurance market.
âLast year it calmed down a bit because of the COVID situation and most insurers were pretty gentle. The capacity of the Australian insurance market is currently limited due to storms, bushfires, floods, âhe said.
Farrell said these are some of the factors that play into this tough market.
“When is the cycle going to end?” Where are we in the cycle? This is the problem, no one knows. And again, you don’t have to be Einstein to understand why it’s difficult, âhe said.
Earlier this month, Ausure chief executive Scott McCarthy expressed a similar point of view in an interview with Insurance company.
Read more: “[The insurance cycle clock] does not work anymore”
âI don’t think the cycle will be like what we were used to in the past where it was always represented by a circle or a clock. I don’t think it will be like that anymore, âMcCarthy said.
He said the insurance cycle clock was no longer working. McCarthy said things could get easier, but the industry is unlikely to return to a situation where traditional insurers are really hungry for business.
âI think all the brokers in Australia know all too well that the big traditional markets offer less and less the solutions we need,â said McCarthy.