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The Australian insurance market is witnessing a resurgence

Following the first two quarters of 2023, the Australian insurance market is witnessing a resurgence of capacity for businesses with quality risks. This welcome change comes on the heels of a multi-year trend of capacity decline that began in 2020, when insurers exited specific markets to shield themselves from losses.

One aspect that stands out during this period is the gradual stabilisation of annual premium increases for specific risk types. While the business insurance market has its share of challenges, this steadying of premium rates suggests that businesses may find some relief and predictability in their budgeting, enabling them to allocate resources more effectively.

Australian business insurance is now slowly peeling away from the challenges and premium increases that have characterised previous years. And the primary reason for the boost in underwriters’ appetite for risk during this period? The discernible improvement in risk management profiles.

This resurgence of capacity, backed by additional competition and dynamism, has seen a notable shift in market dynamics, especially with the re-emergence of the London and Singapore markets as promising alternatives that offer more favourable pricing. This is particularly the case for risks that were historically challenging to place.

These developments have contributed to heightened stability and increased competition within the industry, with premiums in most commercial lines beginning to stabilise, a departure from the volatile fluctuations of recent years.

It is no longer the norm for insurers to unilaterally dictate terms, with the insured parties now finding themselves with a broader range of options and a renewed sense of control regarding risk placement.

ESG and natural catastrophes in the spotlight

A heightened emphasis is now being placed on renewal strategies, necessitating a greater awareness of how to effectively showcase risk management practices and meticulously document claims history, especially in challenging market conditions. As competition intensifies, the focus shifts away from pricing considerations and towards coverage.

This shift is significant for high-risk elements like natural catastrophes, professional indemnity, and cyber risks, which all require a more strategic approach to policy placement, demanding insurance brokers’ expertise.

Insurance providers are now also seeking a tangible and documented commitment to ESG principles as an integral part of insurance submissions with regulatory mandates on the horizon.

Challenges persist within business insurance

Despite the cautiously optimistic market on a global scale and within the Australian context, businesses are grappling with a unique set of unpredictable burdens stemming from natural catastrophes, extreme weather events, persistent inflationary pressures, interest rate hikes, supply chain disruptions, and labour shortages, all of which continue to influence financial markets. These have constrained insurance providers’ risk appetite, most notably in the form of policy offerings with higher deductibles, reduced terms, and a narrower scope of coverage.

Furthermore, the impact of environmental factors, such as El Niño and extreme weather events, is adding to rising reinsurance costs and a tightening property insurance market, making it essential for businesses to invest in risk mitigation strategies that factor in climate-related risks.

Insurance program designs may require restructuring

Insurance advisors and risk managers are now tasked with explaining the substantial increases in premiums over recent years to their clients, in tandem with managing the growing sense of ‘rate fatigue’ experienced by businesses confronting yearly premium hikes. Consequently, an emerging shift in insurance program design aims to identify the most suitable business options. These could take the form of capacity reevaluation or considering alternative risk transfer structures, such as captives or parametric insurance.

The need for modified programs has also increased the adoption of insurance-linked securities (ILS) within insurance programs. These innovative strategies have the potential to stabilise costs in an otherwise turbulent environment, introducing a valuable opportunity to reassess the current placement strategy.

What do insurers want to see?

Insurers want to be listened to: they view businesses favourably when their recommendations are heeded and when proactive approaches are taken to beef up risk management processes. These bolster a company’s resilience, as well as facilitate favourable insurance outcomes, underscoring the importance of a collaborative approach between insurers and insureds, promoting a win-win scenario.

On the other hand, specific sectors, such as waste recycling, hazardous materials management, and commercial properties in areas prone to natural catastrophes, are still grappling with an extremely tough insurance market. With insurers being selective in underwriting risks in line with their appetite, businesses operating in these high-risk domains should focus on enhancing their risk mitigation strategies to better align with insurer expectations.

While many will have hoped for immediate relief from the pressures of a hard market cycle, various factors – including the ongoing inflation and interest rate fluctuations – continue to exert upward pressure on premium prices. Growth plans for Australian businesses are still being hampered, and demand careful financial management and strategic foresight.

What does the future hold?

The coming months show early indications of an improved market landscape for select risks, which will lead insurers to offer more capacity. Furthermore, we could see a decline in inflation and interest rates starting mid-2024 and extending into 2025.

Although we expect premium increases, these should be at a more moderate growth rate compared to the surge witnessed in 2022, with any reductions expected to still remain above pre-pandemic levels.

During this period, concerns about underinsurance will linger, prompting closer collaboration between business owners and insurance brokers, to ensure premium rates and coverage values stay in sync with the evolving market dynamics.

Using well-informed experts for the best coverage

To gain further in-depth insights from experts at Gallagher into what is happening across the market in Australia, read our full Business Insurance Market Conditions and Risk Dynamics H2 2023 report.

Gallagher’s market report is based on the experiences of our subject experts with clients and across the market. The report provides an ideal first step in keeping up to date with specialists’ observations on the latest trends in insurance across Australia and enables understanding of the key insurance market conditions and risk factors currently impacting businesses. As well as reviewing overall factors affecting the Australian insurance market, we also look at the specific areas of claims, D&O insurance, cyber, property, workplace risk, marine & cargo, and energy and renewables.

As insurance brokers, we feel strongly that the broker’s role is to be a trusted and market-knowledgeable adviser for companies. This could not be more true now when there are so many moving parts in the business risk landscape.

Gallagher’s in-house expertise and the vast global relationships built over the past century can guide you in traversing the constantly transforming landscape of business insurance and risk management.

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The Australian Business Executive (The ABE) provides an in-depth view of business and economic development issues taking place across the country. Featuring interviews with top executives, government policy makers and prominent industry bodies The ABE examines the news beyond the headlines to uncover the drivers of local, state, and national affairs.

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