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NSW pledges cladding crackdown

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The NSW Government says it will do all it can to avoid a tragedy like London’s Grenfell Tower disaster.

Flammable cladding on the North Kensington tower block caused the rapid spread of a fire that claimed the lives of at least 79 people.

Concerns were previously raised at the amount of similar cladding used in Sydney buildings and the lack of action from authorities, particularly following a fire at the Lacrosse apartments in Melbourne’s Docklands in 2014 which also spread rapidly due to flammable cladding.

Now the NSW Government is believed to be creating “a comprehensive building product safety scheme”, likely to include powers to prevent use of unsafe materials including dangerous cladding.

Meanwhile, engineering and business consultancy ICPS Australia says potentially dangerous building cladding can easily be tested to determine its flammability.

CEO Brad Nicholls says ICPS, in conjunction with Queensland University of Technology scientists, has made a testing regime available to the insurance industry since 2015.

“It is tragic that the loss of life in London’s Grenfell Tower has been the catalyst to put this serious issue higher on the agenda for insurers and building industry regulators,” he said.

“After the Lacrosse apartment building… caught fire in November 2014, we suggested to insurers that cladding be tested because of the obvious risk it poses if it is non-conforming.

“Non-conforming aluminium composite panels were identified as contributing to the Lacrosse fire’s rapid spread, so we decided a test method and flammability index was needed to help identify buildings that posed a risk of cladding ignition.”

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Kaikoura quake claims approaching $2 billion

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The value of Kaikoura earthquake claims received by New Zealand private insurers has reached $NZ1.84 billion ($1.77 billion), making it the second-costliest seismic catastrophe after the Canterbury quakes.

Insurers had received nearly 43,000 claims at the end of last month, with more than 31,000 for residential properties.

The Insurance Council of New Zealand (ICNZ) says commercial losses account for $NZ1.36 billion ($1.31 billion), with residential claims more than $NZ460 million ($442 million).

“Progress is now moving at a rapid pace, so we have a high level of confidence that most people will have received settlement offers by the end of this year,” ICNZ CEO Tim Grafton said.

Insurers are acting as agents for the Earthquake Commission (EQC), and are managing most of the residential building and contents claims under a pilot approach to speed the process.

ICNZ’s figure excludes land or house and contents claims managed by the EQC, and losses covered by insurance purchased offshore.

The 7.8-magnitude Kaikoura quake struck in November last year, causing damage from Invercargill in the South Island through to Northland.

The EQC says it has received more than 38,000 claims from customers for residential damage, making Kaikoura the second-largest event in its history, which spans more than 70 years.

The hardest-hit communities were in the Marlborough, Kaikoura and Hurunui areas. The main locations for claims were Christchurch, Wellington, North Canterbury and Marlborough.

ICNZ says 40% of all residential buildings had initial assessments completed by the end of last month, and 29% were fully or partially settled.

The time between assessment and settlement for residential properties is typically 4-12 weeks depending on complexity, it says.

Class action set to target ‘worthless’ car warranties

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Law firm Quinn Emanuel Urquhart & Sullivan is to file an $80 million class action against a McMillan Shakespeare Group subsidiary offering extended car warranties.

The claim is for a refund to tens of thousands of consumers sold “worthless” products from National Warranty Company when they bought a used car, truck or other machinery, the law firm says.

Litigation funder Vannin Capital and Quinn Emanuel decided to bring the action after the Consumer Action Law Centre highlighted the problems.

“They were concerned that a number of people had bought these worthless financial products and, having paid for them, were not getting any benefit whatsoever,” Quinn Emanuel partner Damian Scattini told insuranceNEWS.com.au.

The claim is likely to be lodged in Queensland next month, although a final decision is yet to be made.

McMillan Shakespeare says the potential claim is said to cover the 2011-15 period, and appears to mostly relate to a timeframe before it became involved in the business.

“Full details of the potential claim are yet to be provided,” it said in a response to the ASX.

The Consumer Action Law Centre says the class action highlights the risks from “junk” products.

“We’ve seen people misled and ripped off by these useless extended warranties for years,” CEO Gerard Brody said.

“You think you’re protecting your car, but if you read the fine print, you’re at the mercy of the warranty company. There’s no guarantee you’ll be covered when you need it.”

Dealer-issued warranties are administered by warranty companies or insurers that are not legally liable if a consumer makes a claim, while often car dealers are also not responsible, he says.

The Australian Competition and Consumer Commission has increased its focus on these products in the past couple of years.

El Nino: no worries

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The Bureau of Meteorology no longer expects an El Nino this year following a reversal of early-autumn warming in the eastern tropical Pacific Ocean.

All eight international climate models surveyed by the bureau suggest tropical Pacific Ocean temperatures are likely to remain El Nino-Southern Oscillation (ENSO) neutral this year.

While equatorial sea surface temperatures in the central Pacific are slightly warmer than average, far-eastern Pacific surface temperatures, which were several degrees above normal near the Peruvian coast during March and April, have cooled.

Trade winds and the Southern Oscillation Index are within the neutral range, and other ENSO indicators remain neutral.

The bureau is no longer on “El Nino watch”, triggered by a 50%-plus chance of the system developing.

Three out of six climate models point to a positive Indian Ocean Dipole by the end of winter, which is associated with a dry winter and spring for southern and central Australia.

NZ businesses back broker performance

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About 75% of companies in New Zealand are satisfied with their brokers’ services, according to research commissioned by Suncorp New Zealand.

Nearly 60% feel the same about their insurers.

“A majority view insurers positively,” the research report says. “Businesses are seeking insurers to provide solutions that mitigate risk in the most cost-effective way, provide tailored products to meet the varied needs of businesses, and development of innovative products.

“To achieve this, they need a stronger relationship with business to understand their needs –and also, conversely, better explain what is on offer and how insurers can support businesses.”

The study says New Zealand businesses tend to be conservative when it comes to risk-taking. About 42% have taken on moderate risk and only 11% took on larger risks in choosing a business course of action.

Compliance costs, cyber crime and rising input costs are among the main threats they face.

“Most businesses take some action to minimise risk, including growth, having insurance, planning, diversifying locations, having good processes and systems, conducting market intelligence and having the right staff,” the research says.

Suncorp has established its inaugural Business Success Index based on the survey earlier this year of more than 400 New Zealand companies.

About 48% agree a business will not reach its potential if management does not take risks, and 55% agree risk can push a business to improve and grow.

Almost 60% say learning to take calculated risks results in better business decisions.

ICNZ focuses on building fitout failures in quakes

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The Insurance Council of New Zealand (ICNZ) says a seminar on buildings’ internal fitout failures during earthquakes is part of a bid to tackle the issue after high-rise commercial properties in Wellington were damaged during the Kaikoura event.

“There is a lot of work and discussion going on behind the scenes among officials and between ourselves and other organisations, and so there is a much higher level of awareness of these issues,” ICNZ CEO Tim Grafton told insuranceNEWS.com.au.

Internal non-structural elements include ceilings, internal wall partitions and various building services such as heating and cooling systems.

Mr Grafton says tighter regulations may be needed to ensure internal features are more closely checked after building construction and later refits.

“What we are seeing is that buildings are being signed off for their structural elements, but the non-structural things are passing through without getting a good inspection and due sign-off,” he said.

ICNZ will host the seminar with the Earthquake Commission and building consultancy and research group BRANZ. The forum at Te Papa Wellington on July 26, is aimed at businesses, and up to 200 participants are expected.

The 7.8-magnitude Kaikoura quake last November lasted for a relatively long time and was unusually complex.

“There is a lot of work still under way to understand the nature of that event and how it caused damage to buildings, some of which were up to the new building standard and had been built in recent years,” Mr Grafton said.

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Corporate

Suncorp raises Tower takeover bid

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Suncorp has increased its takeover offer for Tower to $NZ1.40 ($1.35) per share, valuing the New Zealand insurer at about $NZ236 million ($227 million).

The group, which has already built a 19.99% stake in Tower, raised its offer from $NZ1.30 ($1.25) after completing a detailed study of the target’s financials.

The bid has topped a $NZ1.17 ($1.12) offer from Canadian financial group Fairfax.

Suncorp New Zealand CEO Paul Smeaton says there is a strong strategic rationale for combining the two businesses.

“We strongly believe in the compelling benefits of the acquisition and the significant value that would be created for Suncorp shareholders and benefits to market competition,” he said.

“We are also committed to protecting Tower’s unique strengths through complementary multi-brand distribution and offering Tower’s customers access to a broader range of products and services.”

The insurer is awaiting approval for the bid from New Zealand’s Commerce Commission, which in March released a statement of preliminary issues for further inquiry.

Suncorp says its Vero New Zealand subsidiary continues to work closely with the commission and is confident there is a strong basis for approval.

An acquisition also requires Reserve Bank of New Zealand clearance.

Tower says its shares have entered a trading halt while it evaluates the updated Suncorp proposal.

“The Tower board of directors will further update the market as quickly as possible,” Chairman Michael Stiassny said. “In the meantime, the Tower board make no recommendation in respect of the merits of the Vero proposal.”

Tower has so far recommended the Fairfax offer, which requires a shareholder vote, while waiting for Suncorp to firm up its proposal.

QBE flags earnings drag from emerging markets

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QBE says higher-than-expected claims in the emerging markets business will hit its half-year earnings, which are due to be announced on August 17.

The division’s combined operating ratio will blow out to 110% due to Latin American weather-related claims and adverse experience in legacy portfolios, plus higher claims from Asia.

It will add about 1% to QBE’s overall combined operating ratio, which has been revised upwards to 94.5-96%.

QBE previously projected its combined ratio would be 93.5%-95%.

“We are encouraged by the improvement in the combined operating ratio in Australia and New Zealand, as well as North America, while Europe continues to perform well,” Group CEO John Neal said.

“Nonetheless, heightened claims activity in our emerging markets division will increase the group’s interim and [full-year] combined operating ratio by about 1%.”

QBE made a net profit of $US844 million ($1.12 billion) last year and the combined operating ratio improved to 93.2% from 94.3%.

Analysts from Morgan Stanley estimate the 1% combined operating ratio downgrade is equivalent to a $US60 million ($79.57 million) impact on QBE’s earnings.

New Epsilon Chairman relishes industry return

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Paul Lynam says underwriting agency Epsilon will look to expand following his appointment as Chairman.

As reported in a Breaking News bulletin last week, Mr Lynam will join the Sydney-based independent underwriting agency on July 1.

He has spent 12 months on “gardening leave” after departing as CEO of Arthur J Gallagher’s Pen Underwriting at the end of 2015.

He left Gallagher three years after it acquired the Lloyd’s agency he founded, SRS.

“It has been a very long gardening leave process and I’m more than ready to get back in,” he told insuranceNEWS.com.au.

“I had a number of opportunities, but Epsilon appealed to me because of its potential for growth and the fact it does not own a retail broker, so there’s no conflict.

“Currently it has a relatively small stable of portfolios, and we will look for opportunities to grow into other classes. We will also look for talented underwriters to join our team.”

Mr Lynam’s former colleague Paul O’Leary will join him as Epsilon’s Chief Underwriting Officer. Mr O’Leary previously held the same position at SRS and Pen.

Epsilon CEO Morgan Long says the arrival of the two will be a major factor in Epsilon’s expansion strategy.

“As the only international player in the underwriting agency space with no retail broking conflict, we see it is time to take advantage,” he said. “Both Pauls bring with them a wealth of experience and market presence, both here in Australia and in particular the Lloyd’s market.

“We intend to broaden our capabilities and market offering as we see opportunities in a changing market.”

Moody’s acts on LMI ratings as housing market feels strain

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Moody’s Investors Service has downgraded the insurance financial strength rating of Westpac Lenders’ Mortgage Insurance to A1 from Aa3, while revising the outlook to stable from negative.

It has also placed Genworth Financial Mortgage Insurance’s A3 insurance financial strength rating on review for downgrade.

The moves follow Moody’s decision to downgrade the long-term ratings of 12 Australian banks and their affiliates due to “elevated risks” in the household sector amid surging Sydney and Melbourne property prices.

“High and rising household debt in the context of low nominal wage growth has led to very high levels of household leverage,” Moody’s says.

The risks heighten the sensitivity of bank credit profiles to a shock, despite capital and liquidity improvements in recent years, according to the ratings agency.

Moody’s cut the long-term rating for Westpac to Aa3 from Aa2, in line with the same change for rivals ANZ, Commonwealth and NAB.

It says the Genworth Financial Mortgage Insurance review is also driven by the household risk scenario.

“As a mortgage insurer, there is potential for higher losses emanating from residential mortgage loans with higher loan-to-value ratios.”

The review will examine portfolio loss development and potential for deterioration, plus capital adequacy.

It will also examine sustainability of the business franchise, given lender tendencies to retain a greater level of risk on their own balance sheets and competition from foreign businesses.

Marsh partners with Indigenous broker

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Aboriginal-owned insurance broker Origin has become an authorised representative of Marsh Australia.  

Origin will offer “Supply Nation-certified” services to Marsh’s private and government clients.

Marsh CEO Scott Leney says aligning with organisations that share its values is an important part of the global broker’s vision for growth.

“As an authorised representative of Marsh Origin will tap into the full range of our offering for clients, further fulfilling Origin’s aim to deepen the links between corporate and Indigenous Australia,” he said.

“We look forward to working in partnership on this important goal.”

Former rugby league star David Liddiard founded Origin in 2015 to help businesses and government organisations meet Indigenous procurement targets and to create sustainable work opportunities for Aboriginal and Torres Strait Islander people.

“A key issue for Indigenous businesses that partner with corporate Australia is authenticity,” Mr Liddiard said.

“Marsh is genuinely committed to improving opportunities for Aboriginal and Torres Strait Islander people and offers Origin the values and leadership required to make a real difference.”

Origin MD Adam Rhodes says the partnership is a “big step” to bridging the gap between Indigenous and non-Indigenous Australians.

“It will allow us to provide best-in-class risk advisory and broking services to companies that are committed to supporting Indigenous suppliers, and better enable us to attract the growing force of Indigenous business,” he said.

iSelect hatches tech plan with Nest

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iSelect has signed a multi-year agreement with US tech company Nest Labs to be the exclusive partner for a suite of its connected home devices in Australia.

Nest Labs creates programmable, self-learning, sensor-driven, Wi-Fi-enabled thermostats, smoke detectors and other security systems, and was acquired by Google in 2014 for $US3.2 billion ($4.22 billion).

Its Nest Cam IQ security camera can tell a person from other objects and features a powerful speaker that can scare off intruders. Other software has the ability to recognise individual faces.

The partnership – due to start early next financial year – is expected to strengthen comparator iSelect’s revenue and earnings, and drive product innovation across its core insurance, energy and telco businesses.

Insurance Made Easy seals small business link-up

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Steadfast member Insurance Made Easy has become the sole preferred insurance broker for Small Business Association of Australia (SBAA) members.

Founder and MD James Gillard says the endorsement allows Insurance Made Easy to leverage its SME experience and knowledge for the benefit of SBAA members.

“Mapping members’ risk profiles and aligning these with a range of tailor-made and competitive general insurance solutions is what we are very good at,” he said. “There are key issues important to the SME market that we are also passionate about, such as tax relief, new financing models, access to free advice services, and we want to be part of that journey for SMEs.”

SBAA CEO Anne Nalder says the group has been working with Insurance Made Easy for the past few months.

“It has gratefully supported our association at our recent inaugural summit and was able to educate SMEs about the potential risks in their businesses,” she said.

Atradius unveils ‘time-saver’ credit portal

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European trade credit insurer Atradius has introduced the Atrium credit management online portal, giving customers instant access to information on buyers’ creditworthiness and, in most cases, immediate credit limit decisions.

Chief Market Officer Andreas Tesch says the platform is a “tremendous time-saver” that will reduce errors and make applying for cover and filing claims more efficient.

Once the customer has a clear picture of the buyer, they can directly apply for a credit limit, with most required information already included on the application.

“Its design enables our customers to constantly monitor and smoothly interact with their buyers and with Atradius,” Ms Tesch said.

“It supports better risk management and growth potential, with a clear insight on safer trade.”

More features will follow this year.

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Regulatory & Government

NSW passes bill to reinstate insurance-based ESL

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The NSW Parliament has passed legislation to reinstate the insurance-linked emergency services levy (ESL), after the Government backed away from a move to a property-based charge.

The bill was introduced and passed last week, after Premier Gladys Berejiklian’s backflip shocked the insurance industry last month.

The legislation gives no definite timeline for how long the insurance-based levy will remain in place.

The Fire and Emergency Services Levy Act, making the switch to the property-based collection, was due to take effect next month. The new bill says the switch has been postponed to “a start date appointed by the regulations”.

“Any such regulation must be published on the NSW legislation website at least one year before the start date,” an explanatory note says.

Rules covering the ESL Insurance Monitor have been set in place until at least July 1 2020.

“The amendments confer additional functions on the monitor in connection with the re-established insurance contribution scheme,” the explanatory note says.

“The monitor will be able to assess overcharging by insurers in the first two financial years of the re-established insurance contribution scheme.”

Budget papers show the insurance-based ESL is expected to generate revenue of $794 million next financial year, plus an additional duty of $79 million.

Deferral of the fire and emergency services levy was estimated to reduce revenue by $894 million.

NSW reopens builders’ warranty to private insurers

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The NSW Parliament has passed legislation to overhaul the state’s home building compensation scheme, allowing private insurers to enter the market next year for the first time since 2010.

The changes aim to encourage greater competition, ensure the scheme’s financial sustainability and maintain high levels of consumer protection.

Builders’ warranty is mandatory in NSW, with builders required to hold it for residential work worth more than $20,000. It protects homeowners if a builder cannot complete work or fix defects due to insolvency, death, disappearance or licence suspension.

“The current scheme has been in significant deficit for many years and is in need of serious reform,” Minister for Finance, Services and Property Victor Dominello said.

“We are delivering on our promise to deliver a modern, fit-for-purpose scheme. The future scheme will be risk-based, self-funding, sustainable, innovative and competitive.”

Key elements of the reform include:

  • Providers can offer split cover for defects and non-completion, with homeowners entitled to $340,000 of cover for each product
  • The introduction of risk-based pricing
  • Providers may offer products that exceed minimum standards, and which need not be limited to cases where a builder is dead, disappeared or insolvent
  • Enabling the State Insurance Regulatory Authority to use data analytics and enhanced information-sharing between building regulators to detect and manage builder insolvency.

The Insurance Council of Australia (ICA) says individual insurers will assess whether they wish to enter the market.

“The introduction of risk-based pricing will allow premiums to better reflect each builder’s level of risk,” ICA spokesman Campbell Fuller told insuranceNEWS.com.au.

“ICA believes this system may act as an incentive for sounder building and financial practices in the construction industry. Insurers will review the legislation to assess whether it provides commercial opportunities.”

EQC reforms to raise cap, change claims process

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The Earthquake Commission’s (EQC) cap for building cover will be raised to $NZ150,000 ($144,170) and residents will have to lodge claims via their private insurers under reforms announced by the New Zealand Government today.

“Requiring EQC claimants to lodge claims with their private insurer will help the EQC and private insurers work better together in future,” EQC Minister Gerry Brownlee said.

The proposed EQC Act reforms follow a discussion paper in 2015 and consultations.

Under current rules the commission handles claims up to $NZ100,000 ($96,113), with “above-cap” claims then passed to private insurers.

The Government, which faces an election on September 23, plans to continue working on the proposed changes and hopes to release a draft bill later this year or early next year. Changes would likely take effect in 2020.

Under other changes, the EQC would no longer provide residential household contents insurance, and the reforms clarify that land cover is for natural disaster damage that directly affects the residence or access to it.

The Insurance Council of New Zealand (ICNZ) says it supports the thrust of the reforms but the changes do not make clear that insurers should be responsible for assessing and managing claims for house damage, not just receiving them in the first instance.

“The worst outcome would be if the law requires all claims to be lodged with insurers, and then that information is passed to the EQC to assess the damage and manage the settlements for our customers,” ICNZ CEO Tim Grafton said.

“Insurers are wanting to make this simpler and more efficient for their customers, not more complicated.”

Mr Grafton says claims-handling arrangements piloted after the Kaikoura earthquake, with private insurers involved earlier in the process, have paved the way for a similar approach in future.

“There still will be learnings from this exercise, so there needs to be some review of how this has worked, but certainly it is a vast improvement,” he told insuranceNEWS.com.au.

ICNZ says the Government has listened to its request for some form of land compensation in addition to building cover.

“This means that where land damage has occurred, separate funding to the building cover is available to fix the land or access to the property, so the house can be repaired or rebuilt,” Mr Grafton said.

NSW cuts insurance duties for small business

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NSW has abolished a range of insurance duties for small businesses from next January, in changes announced in last week’s state budget.

About 677,000 businesses with a turnover below $2 million will be exempt from duties on premiums for commercial vehicle, professional indemnity and product and liability cover.

“These tax cuts will encourage small businesses to take up more appropriate levels of insurance by removing the disincentive caused by higher insurance premiums,” the budget papers say.

The measures are forecast to reduce government revenue by $318 million over the four years to 2020-21.

The state has also abolished duties on crop and livestock insurance, at a cost of $12 million over four years, and confirmed the duty on lenders’ mortgage insurance will be abolished from July 1, reducing revenue by $122 million.

Insurance Council of Australia CEO Rob Whelan says businesses will get “welcome financial relief” from the changes.

“For some small businesses, insurance stamp duties add thousands of dollars to their expenses each year,” he said.

“Though small businesses will still pay stamp duties on other insurance products, the Government is moving in the right direction.”

General and life insurance duties are estimated to bring in $927 million for the Government next financial year, down from $956 million this year.

ASIC orders refund to car-yard policyholders

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A general insurer must refund more than $330,000 in premiums to more than 500 customers after mis-selling add-on insurance at car yards.

Virginia Surety stated a life cover component was underwritten by TAL Life – without TAL’s knowledge. This put claims at risk, according to the Australian Securities and Investments Commission (ASIC).

Between June 18 2013 and December 31 2015 it sold consumer credit insurance – a bundled add-on product including general and life cover – to customers at car yards mostly in Queensland and NSW, ASIC says.

The regulator has ordered the refund of life premiums, including interest, and imposed conditions on Virginia Surety’s financial services licence.

The insurer must engage an independent expert, approved by ASIC, to review its compliance practices and report to the regulator.

ASIC Deputy Chairman Peter Kell says the fact Virginia Surety was selling the insurance without the life insurer’s approval “indicates serious deficiencies with its compliance”.

“We have put all insurers in this market on notice that they need to change their practices and ensure they are properly considering the interests of consumers.”

TAL has agreed to honour the life cover and pay any valid claims, even though customers will receive refunds from Virginia Surety.

Climate change inquiry seeks feedback

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The Senate has opened an inquiry into climate change’s implications for national security, with the role of mitigation policies in reducing risk among the topics to be addressed.

Other areas of focus include:

  • The capacity and preparedness of relevant national security agencies to respond to climate change risks
  • The role of Australia’s overseas development assistance in climate change mitigation and adaptation
  • The role of humanitarian and military responses in addressing climate change, and the means by which these are implemented
  • Threats and long-term risks posed by climate change to national security and international security.

Submissions close on August 4. For more information, click here.

Senate delays general insurance inquiry report

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The Senate Economics References Committee has delayed reporting on its inquiry into the general insurance industry.

The inquiry is examining transparency, competition and rising prices in the industry, along with the possibility of setting up a government-run home and motor comparison website.

The inquiry received 22 submissions, and public hearings were held in Sydney and Melbourne in April.

The committee was due to report by last Thursday, but has been given an extension to August 10.

NSW motor premiums fall as greenslip reform looms

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Average motor premiums in NSW have fallen below $600 ahead of the switch to a new compulsory third party (CTP) scheme in December, according to the State Insurance Regulatory Authority.

Motorists can expect a 5% reduction for cover bought after July 1.

A government crackdown on fraudulent and exaggerated claims, launched in February, is achieving desired outcomes, with claims for soft tissue and minor injuries declining and other claims being withdrawn.

 “This behavioural change is already starting to have a positive impact on premiums,” Finance, Services and Property Minister Victor Dominello said.

“When the new scheme starts at the end of the year, the NSW Government will deliver on the elusive trifecta of improving benefits to those injured on our roads, significantly reducing premiums for motorists and taxis alike, and putting an end to insurer super-profits.”

In March the NSW Parliament passed the Motor Accident Injuries Bill, paving the way for implementation of the new greenslip scheme.

FMA consults on personalised robo-advice

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New Zealand’s Financial Markets Authority (FMA) wants submissions on its proposals to allow personalised financial advice generated by computer program or algorithm.

General insurance is on the list of proposed eligible areas for robo-advice, along with listed equity securities and government bonds.

The FMA plans to use its exemption powers to push this through until proposed financial adviser law reforms come into effect in 2019.

“Until then, the current environment of reduced access to advice for consumers and barriers to technological innovation for providers will continue,” the consultation paper says.

“Currently, the law is hindering the development of personalised robo-advice models in New Zealand. We are keen to embrace innovation in this space.

“We also want to create opportunities for those who may not otherwise have access to it, a low-cost option to gain financial advice.

“Our view is that it is within the scope of our powers to consider an exemption to accommodate the use of this new delivery channel.”

Submissions close on July 19. For more information, click here.

ASIC steps up fintech drive with Japan deal

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The Australian Securities and Investments Commission (ASIC) and Japan’s Financial Services Agency (JFSA) will jointly promote fintech businesses under an agreement signed on Friday, as the local regulator seeks to build the fast-growing industry.

ASIC has made similar arrangements elsewhere, most recently with Hong Kong’s Securities and Futures Commission.

It has also agreed to promote the fintech sector with the UK, Singapore and Canada’s Ontario province.

“Japan has been a world leader in technology for a long time,” ASIC Commissioner John Price said.

“As we move into a new era of financial regulation, we look forward to sharing experiences and insights with our colleagues at the JFSA.”

ASIC will refer innovative fintech businesses to its Japan counterpart for advice and support, and vice-versa. The two regulators will also exchange information, including on regulatory, economic or commercial developments in each other’s jurisdictions.

WA to increase worker death compensation

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The WA Government is to increase compensation to families after workplace fatalities.

A planned amendment to the Workers Compensation and Injury Management Act will increase the sum paid to dependants to $554,727, indexed annually, from $304,185.

The weekly allowance paid to support each child will rise to $133 from $58.10, while outdated definitions will be removed to ensure equality of compensation access for de facto partners.

The amendments will also simplify the method for dividing funds between multiple dependants, and streamline the claims process.

The new lump sum is 2.5 times the maximum compensation payable for non-fatal injuries.

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Life Insurance

FPA wants advisers’ voice heard in disputes

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The Financial Planning Association (FPA) says a single external dispute resolution (EDR) body could harm third parties during a dispute.

In a submission to Treasury, it says third parties should be allowed to participate, so they are not damaged by any determination.

It says if an adviser is involved in a dispute before an EDR body, the determination could inflict reputational damage if they cannot present their version of events.

“The scheme functions should include ensuring that such a financial adviser has a reasonable opportunity to be heard,” the FPA says. “We would envisage the scheme rules would restrict the ability of members to prevent such third parties from being heard in relevant matters.”

The FPA says having only one EDR scheme reduces the scope for different approaches to governance and dispute resolution. This may disadvantage members of current schemes.

“To help deal with this problem, we recommend that the functions should also include ensuring the minority interests of members of the scheme are reflected in the scheme rules and practices,” the submission says.

Statements of advice must aid consumers: Kell

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The Australian Securities and Investments Commission (ASIC) says life insurance statements of advice (SOAs) are not a compliance tool for advisers, and should benefit consumers.

Deputy Chairman Peter Kell told a parliamentary joint committee hearing into the regulator that the Federal Government wants statements of advice overhauled.

“There is a perception these SOAs have not necessarily been that useful for consumers, and that is actually who advisers are supposed to work for, first and foremost,” he said.

“I suppose our starting point was that simply coming out with a model SOA that was pretty similar to what is out there at the moment. The definition of insanity is doing the same thing over and over again and expecting a different result.

“So we did deliberately take a bit of a different approach.”

Liberal MP Bert van Manen told the hearing the regulator’s draft statements of advice will attract many negative submissions, and Mr Kell conceded the consultation paper and draft statement have not been popular with advisers.

“Given some of the messages that have been left on my phone, I would think that is an accurate statement,” he said.

“We were asked to undertake a project looking at how we could potentially improve the consumer usability of SOAs for life insurance as part of the reforms.”

Mr Kell insists SOAs have to change.

“This is a genuine attempt to say, ‘Right, let’s not try and do the same old thing, let’s actually look at what is going to work here for consumers.’

“We are very happy to receive even highly critical feedback.”

New cancer treatments cut mortality rates… at a cost

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New cancer treatments shape as a significant cost for life insurers, according to Gen Re Chief Medical Officer John O’Brien.

Some new drugs have dramatically changed mortality rates, although not every new treatment has been successful, he says.

Medication should be offered on a “just price” basis when it is life-saving, London-based Dr O’Brien says.

When a new leukaemia drug was introduced in 2001, it cost $US25,000 ($33,021) per patient. The recovery of development costs was put at two years, based on this price.

“The effect of the drug is to prolong survival, and the numbers of patients treated with it increased progressively,” Dr O’Brien says.

“The price in 2013 hit $US92,000 ($121,734) per patient per year, raising the question whether the profit gained is excessive.”

Dr O’Brien says other new cancer treatments are similarly priced, or set slightly above existing drug prices.

“This practice has meant progressive price rises to the point where most of the newer drugs that hold promise cost about $100,000 ($132,328) per patient.

“The ethics of excessive profit-taking in the situation has to be questioned.”

While new drugs cut mortality rates, prevention is now seen as the better option.

“Early detection of cancer has been thought to predict better outcomes, because the earlier it is found, the more likely it may be cured. There is evidence that introduction of certain screening programs, such as the pap smear and mammography, have reduced mortality.”

However, there is a problem with screening detecting benign tumours.

“The development of biochemical markers and the detection of circulating cancer cells and cancer DNA promises to allow even earlier detection of tumours,” Dr O’Brien says.

“But interpretation of these tests remains problematic.”

Lapses continue to fall: Dexx&r

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Individual lump sum life insurance lapse rates continue to fall, with research house Dexx&r reporting a 13.6% rate in the March quarter.  

The rate peaked in March 2013 at 15.9%. It is now almost back to 2008 levels.

“The continued improvement in retention rates will have a positive impact on life company profitability,” Dexx&r MD Mark Kachor said.

Income protection lapse rates also fell, to 13.6% in the March quarter.

They peaked at 13.9% in March 2013, and the latest figure is similar to that of March 2009.

“As with lump sum business, there is now a clear trend of lower levels of discontinuances in the disability income market,” Mr Kachor said.

“The continued fall in lump sum and disability discontinuance rates during both periods of growth and flat sales indicates the industry is improving retention.”

NZ names code of conduct working group

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The New Zealand Government has selected a working group to create its new code of conduct for financial advice.

Former Professional Advisers Association board member Angus Dale-Jones will chair the group. The other members are AMP GM Sales and Advice Therese Singleton; former manager of teacher education at the Education Council of New Zealand Barbara Benson; ASB Bank General Counsel Graeme Edwards; authorised financial adviser Rebecca Vanderbom; and Forsyth Barr Head of Private Client Services Shane Edmond.

Commerce and Consumer Affairs Minister Jacqui Dean says the new code will be wider in scope than the current one.

“It will set standards of competence, conduct and client care for the whole financial advice industry,” she said. “The group’s new code will reflect proposed changes in legislation aimed at creating an even playing field of regulation across the industry.”

She says the members are appointed for a three-year term and it is proposed they will become the code committee under the new regime.

The group is expected to produce a draft code by August next year.

“In developing the code, the group must consult with industry bodies, consumer representatives and any other interested parties to ensure everyone, including small adviser businesses, has a chance to give their input,” Ms Dean said.

ASIC bans ex-Guardian adviser for overselling

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A former Guardian Financial Planning adviser has been banned for seven years after persuading clients to buy multiple life insurance policies through their superannuation funds.

Robert Gunner of Brisbane failed to comply with financial services laws, according to the Australian Securities and Investments Commission.

Between January 2014 and February last year, he received commissions from insurers for the policies and passed these onto clients after covering his expenses, ASIC says.

To do this, he created insurance application forms, client file notes, client profiles and statements of advice that contained false information.

Mr Gunner worked at Guardian from February 2013 until May last year.

Canstar struggles to strike balance on funeral cover

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Financial comparison site Canstar says achieving adequate cover without paying very high premiums is a challenge when seeking funeral insurance products.

However, it says there are policies offering value for the over-50s.

“The key to funeral insurance is making sure you have enough cover for the cost of your funeral and the consumer doesn’t end up paying more in premiums over the course of their life than the policy will pay out to the estate,” Canstar GM Wealth Josh Callaghan said.

The comparator examined 18 products from 14 insurers, and asked a number of funeral insurance providers about the average sum insured.

Mr Callaghan says the average sum insured was about $7500-$8500 for people in their 50s, falling to $6500 for people in their 60s.

“The average sum insured is quite concerning, knowing that it would barely cover a budget funeral and its associated costs, let alone anything else,” he said.

According to the Australian Securities and Investments Commission, funerals can cost from about $4000 for a basic cremation to $15,000 for a burial.

But Mr Callaghan says more recent research puts the average cost of burial at $19,000.

Canstar says InsuranceLine and Let’s Insure offer outstanding value for money.

The former has won a five-star rating, for the third consecutive year, for its Funeral Insurance Advantage Cover, underwritten by TAL.

Let’s Insure has won the rating for the first time. Its products are underwritten by St Andrew’s Life Insurance.

FPA names latest Gwen Fletcher Award winner

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Bronnie Abraham from Brisbane advice business Dolfinwise has won the Financial Planning Association’s Gwen Fletcher Memorial Award.

Ms Abraham was the best-performing student in the final unit of the Certified Financial Planner program.

She says the award is important because the late Ms Fletcher was such a pioneer in the advice industry.

“I know the high level of people completing this program, so to be one of the few who has received this award has given me so much confidence in my abilities and it’s a huge achievement,” Ms Abraham said.

“I was told I am the fifth woman out of a total of seven winners of this award… I think women naturally have abilities to be great financial advisers and I think we will see a lot more women excelling in the industry.”

The next Gwen Fletcher award winner will be announced in November at the FPA Professionals Congress in Hobart.

MLC names new claims chief

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MLC Life Insurance has appointed former AIA New Zealand head Natalie Cameron as Chief Claims Officer.

Ms Cameron worked at law firm Clayton Utz and the Australian Securities and Investments Commission before joining AIA in 2005.

Her roles with the insurer included general counsel, company secretary and chief group insurance officer. 

MLC Life Insurance CEO David Hackett says Ms Cameron “will be leading MLC’s 350-strong claims team and accelerating the company’s claims transformation program. Her experience in the industry is broad and deep.”

Scor announces senior appointments

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Scor has appointed two key staff members to its Australian life reinsurance business.

Debra Pitcher becomes Chief Underwriter, joining the Sydney-based reinsurer from AMP, where she held a similar role.

She was also chief underwriter at Axa Australia from 2004 until AMP took it over.

Ms Pitcher will be responsible for Scor’s life underwriting strategy in Australia, and will focus on developing its offering to clients.

John Cummins has been appointed Chief Medical Officer, based in Sydney on a part-time basis as a consultant.

He has held similar consultant roles at Gen Re and ClearView.

AFA manager appointed to international standards board

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Association of Financial Advisers GM Member Services, Partnerships and Campus Nick Hakes has been appointed Vice-Chairman of the Asia-Pacific Financial Services Association’s International Certifications & Standards Board.

It comes as the Asia-Pacific association signs a memorandum of understanding with the European Financial Planning Association (EFPA).

This starts a process for the EFPA to formally recognise the Asia-Pacific association’s Fellow Chartered Financial Practitioner (FChFP) designation.

“The agreement will effectively extend the global footprint of the FChFP designation,” Mr Hakes said. “With its focus on balancing academic studies with applied practice development, the FChFP is a very highly recognised and respected designation across the world.”

The agreement also involves recognition of the EFPA’s professional designation by the Asia-Pacific association.

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The Professional

CGU cyber expert joins Emergence

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Cyber underwriting agency Emergence has appointed Gerry Power as National Head of Sales.

Mr Power has more than 18 years’ underwriting experience and was most recently part of CGU’s professional risks team, developing and rolling out its cyber offering.

He will be responsible for sales of Emergence’s Cyber Event Protection and educating brokers on cyber risk.

Emergence’s MD Troy Filipcevic says Mr Power’s experience and reputation make this an exciting appointment. “Gerry is well equipped to help the company grow its presence in the cyber market and provide brokers with expert advice on cyber risks, and support brokers in providing the right solution for their clients,” he said.

Emergence was founded in 2015 and focuses on cyber risks to SMEs.

New directors join Prasidium

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Prasidium Trade Credit Insurance, an authorised representative of Insurance House, has appointed Mark Browning and Paul Daniele as directors.

They will join Prasidium’s Brisbane and Melbourne offices respectively from July 1.

Insurance House Executive Chairman Gary Gribbin says the new directors bring “a diverse range of knowledge, skills and industry expertise” to the brokerage.

They will “further strengthen the Prasidium offering to clients, providing enhanced service, support and expertise”, he says.

Mr Browning has more than 20 years’ broking experience, while Mr Daniele has previously worked for global insurers Atradius and QBE.

Aon Benfield scholar begins London trip

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Jack Hunt of insurance law firm Clyde & Co has won this year’s Aon Benfield Scholarship.

He is in London today for the start of the 52nd annual Aon Benfield Global Clients Reinsurance Seminar, which runs until July 6.

The scholarship, presented in conjunction with the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), promises insurance and reinsurance professionals an industry insight on a global scale.

This year’s applicants had to submit an essay addressing the topic “lifetime insurance: a revolution, or a step too far?”

ANZIIF CEO Prue Willsford says Mr Hunt produced an “outstanding essay” and will be exposed to invaluable insights and best practices in London.

Cyber, climate threats on RIMS forum agenda

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Program topics for the Risk and Insurance Management Society’s (RIMS) Risk Forum Australasia will include cyber insurance and climate change.

Speakers will discuss achieving sustainability through social responsibility, and using data to make better decisions and provide insurance market insights.

RIMS will release the speaker details in coming weeks.

The annual forum is in Sydney from August 29-30 at the International Convention Centre.

For more details, click here.

NSW workers’ comp partners explain transition plan

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JLT held a panel discussion earlier this month to help clients navigate claims under the NSW workers’ compensation scheme.

From next year, workers’ compensation mutual EML will manage all new Insurance & Care NSW (icare) claims.

At the session, icare Group Executive John Nagle, EML CEO Mark Coyne and JLT National Manager Workers’ Compensation Georgie Ahern discussed their collaborative, consultative approach and the “co-design” process for the new model.

“We wanted to ensure clients understand the upcoming industry changes and any impacts to their workforce,” Ms Ahern said. “JLT will be the glue between icare and EML, supporting clients every step of the way through this transition.”

Mr Nagle says the new claims service model focuses on providing choices and empowering employers and workers. “We are shifting the power from processes back to people, creating a simplified, consistent and empathetic system alongside our main claims partner.”

He says the transition process is open to feedback and consultation, encouraging organisations to challenge processes and create an effective system.

As a result, organisations should expect a few more “tweaks”.

Mr Coyne says EML has a strong transition team in place. “We are measured on our customer service – complacency just won’t happen,” he said.

Actuary award nominations open

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Nominations have opened for the Actuary of the Year award.

The recipient must promote the role under the Actuary of the Year banner and have made a key contribution to business, the community, government or the profession.

“Recognition and celebration of the achievements and contributions of one of our members is an ideal opportunity to promote the value actuaries can bring,” organiser the Actuaries Institute says.

Last year’s winner was Sarah Johnson, foundation scheme actuary for the National Disability Insurance Scheme.

To nominate, click here.

Claims seminar tackles Internet of Things

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Risks from connected devices, the Internet of Things and rapid technological change will be discussed at a Vic Claims Discussion Group (VCDG) seminar next month.

The event will examine “what new risks may emerge when we virtually connect our fridge to our car, what traditional industries will be disrupted and who or what will flourish”.

Zurich Head of Risk Engineering for Australia and New Zealand Mervyn Rea will deliver the seminar, addressing potential new crimes and threats, and the challenges for insurance in offering remedies.

The session is at the Jasper Hotel in Elizabeth Street, Melbourne, on July 13 at 5pm.

VCDG, a non-profit educational and networking organisation, says its seminars are open to professionals from all spheres of insurance. For more information, click here.

Insurance law experts to hold Asia-Pacific conference

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The International Insurance Law Association will hold its first Asia-Pacific Insurance Conference in Singapore from October 18-20.

Catastrophe modelling in Asia, the duty of utmost good faith, cyber simulation and business interruption, and regional initiatives for regulatory integration are among the topics.

The Australian Insurance Law Association (AILA) says the conference provides a timely opportunity to discuss issues relevant to the region.

National President Angus Kench says the international association can “harness and crystallise legal thought and opinion that everyone in the insurance community can use in their daily activities”.

QBE backs Swans academy for girls

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QBE and AFL club Sydney will establish an academy next year to nurture 140 promising female players aged 12-13.

QBE Australia and New Zealand EGM Marketing Bettina Pidcock says the QBE Sydney Swans Youth Girls Academy will provide an elite talent pathway.

“Fostering female talent is something very important to us at QBE, and we know the incredibly positive impact sport can have on young girls, so we couldn’t be more proud to be part of the establishment of the… academy,” she said.

“QBE has been behind the [club’s male] academy since its inception in 2010 and our partnership with the Swans spans more than 30 years – so this is yet another great achievement we can celebrate together.”

The academy will grow each year by tailoring the program to additional age groups.

“We’re really proud of the impact our… academy has already had not only on talent outcomes for NSW, but also on increasing participation and interest in our game,” Sydney CEO and MD Andrew Ireland said.

“We’re confident our youth girls academy will deliver similar outcomes and help increase the local talent pool of female footballers.”

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International

Residents evacuated as 60 UK buildings fail cladding test

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Cladding on 60 high-rise properties across the UK has failed fire safety tests, with 540 buildings still to be tested.

The probe follows the devastating Grenfell Tower blaze in North Kensington, London, which has so far claimed the lives of 79 people.

The death toll from the fire – which was started by a faulty refrigerator in a fourth-floor apartment and spread up the exterior via flammable cladding – is expected to rise.

Four tower blocks on the Chalcots Estate in Camden have been evacuated, although some residents have refused to leave.

The Association of British Insurers says it had been calling since 2009 for a government review into building fire safety regulations and warned in May that combustible external cladding on tower blocks could cause fire to spread.

Reports suggest the Grenfell disaster could prompt the biggest single building insurance payout in European history, with Norwegian insurer Protector Forsikring facing a bill of more than $1 billion.

The Grenfell disaster will be the subject of a full public inquiry, and police are considering manslaughter charges.

See OTHER STORY.

See ANALYSIS.

British regulator examines travel cover for cancer victims

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The UK’s Financial Conduct Authority (FCA) is consulting on ways to improve cancer sufferers’ access to the travel insurance market.

It also wants feedback on the challenges of providing travel insurance to such customers, difficulties faced by them and the reasons for differences in premiums quoted.

“Being able to access financial services is critical for people to fully participate in society,” FCA Executive Director of Strategy and Competition Christopher Woolard said.

“We hope this will encourage discussion on access issues to examine the challenges for businesses and consumers.”

The FCA also welcomes examples of innovative practices and barriers to innovation.

Submissions close on September 15 and the FCA expects to respond in the fourth quarter.

Bright spots exist amid gloomy reinsurance scene: S&P

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Growth opportunities remain in the reinsurance market, which has been depressed in recent years by an influx of cheap alternative capital, S&P Global Market Intelligence says.

It says the US mortgage reinsurance sector, growing demand for cyber and terrorism covers and emerging economies’ fast-growing insurance markets are areas reinsurers may consider.

“Despite the soft market’s shadow over the reinsurance industry, there are still opportunities for disciplined growth,” the ratings agency says in a new report.

“Reinsurers have done a good job adjusting their business tactics to adapt to persistently soft market conditions by building large capital bases while maintaining disciplined underwriting anchored around their enterprise risk management strength.”

The US National Flood Insurance Program, which is due to expire in September, is another area of potential growth – if Washington approves its renewal.

“We expect reinsurance to play an increased role [in the scheme], because it has described the 2017 reinsurance transaction as ‘setting the foundation for a multiyear reinsurance program’.”

The report says reinsurers have generally demonstrated remarkable resilience amid adverse conditions, through initiatives including expanding primary insurance operations, offering tailor-made solutions and pursuing mergers and acquisitions.

“The common initial response is to revert to underwriting discipline.

“However, beyond this, strategies vary as each management team is taking a different approach that plays to its business’ individual strengths.”

Bid to renew US flood scheme makes progress

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A US Congress committee has passed seven bills to reform and reauthorise the debt-ridden National Flood Insurance Program (NFIP), which is due to expire on September 30.

The bills will be combined into a single measure, to be presented to the House of Representatives next month for consideration.

“While we have a responsibility to provide certainty to the homeowners and small business owners who rely on the NFIP… we must also ensure the program protects the interests of hard-working taxpayers,” Financial Services Committee chairman Jeb Hensarling said.

“These reform bills will benefit all Americans because they will invite private-sector competition and lead to a sustainable flood insurance program – sustainable for homeowners, small business owners, residential and commercial real estate markets, and sustainable for hard-working taxpayers.”

Proposed measures include protecting NFIP policyholders from unreasonable premium rates, increasing the role of private insurers in management of flood risks and using replacement cost value to determine premium rates.

“These bills put the [NFIP] on a path towards actuarial soundness where all will be protected, no one will be denied a policy, all will benefit from competition, the NFIP will be sustainable and the national debt clock will spin a little less rapidly,” Mr Hensarling said.

The NFIP carries about $US25 billion ($33.04 billion) in debt and runs a $US1.4 billion ($1.85 billion) annual actuarial deficit.

Queen’s Speech flags whiplash crackdown

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The UK Government has indicated it will move ahead with a crackdown on whiplash fraud, the Association of British Insurers (ABI) says.

The Queen’s Speech, delivered last week to set out the Government’s agenda, says laws will be introduced to modernise the court system and to help reduce motor insurance premiums.

“Millions of motorists will welcome the Government’s commitment to further tackle the compensation culture that is contributing to rising motor insurance premiums,” ABI General Insurance Policy Director James Dalton said.

“We have been pushing for further reforms to ensure proportionate compensation for lower-value whiplash claims, and it will be important to strike the right balance between the interests of claimants and those of premium-paying motorists.”

Mr Dalton says confirmation of tougher regulation of claims management companies is welcome, with disreputable companies fuelling a compensation culture that leads to higher insurance costs.

The ABI says the Government has also affirmed it intends to put the UK “at the forefront” of developing autonomous vehicles.

“The insurance sector supports this wholeheartedly and is helping with the practicalities of getting autonomous vehicles onto our roads,” Mr Dalton said.

Captive cyber coverage surges

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The number of Marsh-managed captive insurers writing cyber cover surged 19% last year as companies sought innovative ways to manage risk, according to the global broker.

Since 2012, cyber-liability programs in captives have growth by 210%, and the expansion is likely to continue, Marsh says in its 10th annual in-depth report on captives.

The number of captives globally grew to more than 7000 last year, up from 5000 in 2006.

Increasing numbers are based in Europe and Asia, with Sweden, Guernsey, Singapore, Malta and Cayman among the top growth areas outside the US.

The use of Marsh-managed captives for employee benefits also recorded a double-digit increase last year, as the insurance vehicles gained traction outside traditional property and casualty programs.

Marsh says technological disruption and global economic and political uncertainty are exposing companies to unfamiliar and sometimes unquantifiable risks.

“In parallel with these macro-trends, more companies than ever see captive utilisation as being at the core of innovative risk management strategies,” Marsh Captive Solutions President Nick Durant says.

“As captives are used to address a growing range of risks, they are also helping clients break down operational silos between risk management, human resources and business development.”

Potential advantages for cyber include filling gaps in standard policy language, securing coverage for emerging and unique risks, and consolidating programs across operating companies, the report says.

Financial services, healthcare and manufacturing continue to dominate captive use, but they are also found in sectors including agriculture and fisheries, automotive, education, communications, media, and technology and the life sciences.

Marsh says companies began forming their own insurance company subsidiaries in the 1960s, paving the way for steady growth in captive numbers regardless of catastrophic events or insurance market conditions.

Insurers urged to tackle cyber risk from top down

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Cyber risk must be addressed by insurers at the boardroom level, according to an EY report.

Increasing digitisation of the industry’s ecosystem, from front-end to back-end operations, requires a change in mindset, because about 59% of insurers lack executive support and view budget constraints as the main hurdle to handling cyber risks, it warns.

“As cyber risk is abundant within the digital age, it is essential for the board to have cyber security as a priority on its agenda and embed major discussions and decisions on cyber risk continually at board meetings,” the report, Cyber Strategy For Insurers, says.

“The board is responsible for understanding the risks to the organisation, defining cyber-security governance and setting the expectations for management.

“Cyber security is an organisation-wide risk that should be managed by the board on an ongoing basis through assessments of current cyber-security practices.”

The CEO and C-suite team should be fully embedded within the organisation and operating model, with clearly defined roles and responsibilities. This will produce leadership with the ability to address important cyber-security questions should a breach occur.

“A real corporate culture of awareness and leading practice will set the organisation apart and enable an adequate level of preparedness and responsiveness.

“Insurers need to implement processes to drive the adoption of leading practices and enterprise-wide acceptance of cyber-risk culture. Insurers need to minimise the silo approach, to increase interaction between functions and improve the flow of information.”

Insurers shift to standalone cyber products

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Top cyber underwriters are shifting away from packaged towards standalone policies due to expensive litigation, according to AM Best.

The ratings agency expects the trend to continue, which may lead to better pricing and modelling.

Until now, most claims have been covered under traditional products such as commercial general liability, business interruption or directors and officers’. 

However, due to the general language of these policies, many insurers have decided tailored cyber coverage is more efficient and effective.

Last year 67.9% of the top cyber underwriters’ $US1.3 billion ($1.72 billion) direct premium written (DPW) was on a standalone basis, with the remainder packaged.

The top 20 underwriters wrote $US1.2 billion ($1.59 billion), of which 73.7% was standalone. 

Among the top five, 81% of the $US699 million ($926.1 million) written was standalone.

“This transition to standalone cyber policies may contribute to better pricing and reserving methods, which may ultimately lead to refinements in modelling tools and contribute to more accurate understanding of risk aggregation,” AM Best says.

DPW for both standalone and packaged policies increased 34.7% from 2015 to last year.

AM Best says while cyber coverage, estimated to range from $US7.5 billion ($9.93 billion) to $US20 billion ($26.49 billion) by 2020, presents a huge opportunity, companies should be prudent due to the risk’s uncertainty.

It also questions the current growth trajectory’s longevity and whether increased demand is sustainable beyond “the typical bump” that occurs after every major breach.

It expects most products will be offered by a limited number of companies due to the intricacies of cyber coverage.

AIR Worldwide enhances US quake model

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Catastrophe modeller AIR Worldwide has released a significantly updated earthquake model for the US.

Changes include enhanced event generation, local intensity calculation and damage estimation modules.

“As science and technology advance, new research provides an up-to-date view of earthquakes and related sub-perils, and how those hazards interact with our world,” Chief Research Officer Jayanta Guin said.

“By incorporating these latest scientific findings into the updated earthquake model for the US, AIR is offering the most comprehensive and innovative solution for managing seismic risk.”

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Analysis

Flammable cladding: ignoring the alarms

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London’s Grenfell Tower disaster, which has so far claimed 79 lives, looks to have kicked Australian authorities into action on flammable cladding.

Other states have now joined Victoria in probing the true scale of the problem, and politicians are talking tough.

The Insurance Council of Australia has also upped the rhetoric, calling for a national audit of buildings and casting doubt over whether insurers will pay claims for buildings featuring non-compliant cladding.

But the question remains: why did it take so long when the warnings had been so very clear for years?

Since the fire at the Lacrosse apartments in Melbourne’s Docklands in November 2014, which was spread by non-compliant cladding, insuranceNEWS.com.au has published more than 30 articles on the issue.

Experts were lining up to stress how fortunate it was that nobody died at Lacrosse, and that other buildings posed a similar risk.

Had the weather been different, had the sprinkler system not performed to capacity, Lacrosse could so easily have been Grenfell.

“We potentially have a lot of very dangerous buildings and we have just been waiting for these fires to start occurring” FM Global Australian Operations Chief Engineer Andre Mierzwa told insuranceNEWS.com.au in May 2015.

Fire Protection Association Australia CEO Scott Williams said in February last year: “There is a crisis in relation to compliance and enforcement of the building code.”

Lacrosse was not an isolated example.

Cladding has been blamed for a number of serious high-rise fires over the past decade in the US, the Middle East and Asia. In 2012 one person died and six were injured in a fire at the Mermoz Tower in Roubaix, France, which had a composite panel facade.

After Lacrosse, Mr Williams told Insurance News (the magazine) it was in fact a “wonderful situation”, because the threat had been exposed without loss of life, and could be dealt with.

Sadly, things did not turn out that way – crucial lessons were not learned in the UK, or apparently across much of Australia.

The Victorian Building Authority (VBA) held an audit of 170 Melbourne buildings, with more than half found to feature non-compliant cladding. An audit was also carried out in Perth, finding nine buildings of potential concern.

But elsewhere in the country the silence was deafening, and only now has definitive action been pledged in SA and NSW.

“Why is it only now these other states are getting involved?” an industry expert, who wants to remain anonymous, asked insuranceNEWS.com.au.

“Why didn’t they do it when Lacrosse happened? Because it did not affect them directly? What is wrong with us? We’ve become complacent.”

He says if delays were down to fears that huge costs might follow – removing non-compliant cladding across the nation would cost many millions of dollars – then those fears were misguided.

“In the UK, the cost [of dealing with cladding] was clearly too much,” he says. “But now there are 80 or more people dead, demonstrations in the streets and a government almost overturned. That is the real cost.”

He says the issue here is not with the Building Code of Australia, but with the fact people routinely ignore it. And he calls for tougher penalties for those found guilty of breaches.

“Building surveyors found guilty are effectively told, ‘Don’t do it again,’ ” he says.

“It’s not enough.”

Concerns remain even in Victoria, with accusations that buildings of concern were not dealt with effectively or efficiently.

The VBA told insuranceNEWS.com.au that from the audit of 170 buildings, 24 building permits continue to be non-compliant.

“The VBA is working with the relevant building surveyor and builders to bring the building permits into compliance,” a spokesman says.

“These buildings have been deemed safe to occupy by the City of Melbourne’s Municipal Building Surveyor (MBS).”

Further audits are taking place, the spokesman confirms.

More than 40 buildings connected to the developer of Harvest Apartments in Clarendon Street, South Melbourne, (the only building apart from Lacrosse that required an emergency building order from the MBS) were investigated.

The VBA says 13 of these buildings are yet to demonstrate compliance.

The VBA is also auditing 64 buildings in co-operation with the City of Port Phillip, focused on buildings of less than 10 storeys that are not required to have sprinkler systems.

“Site inspections of these buildings has commenced and, if required, the VBA will use its coercive powers to require builders and building surveyors to produce evidence of external wall cladding compliance,” it says.

insuranceNEWS.com.au understands the NSW Government is putting together “a comprehensive building product safety scheme”. This package is likely to include powers to prevent the use of unsafe building products, including dangerous cladding.

NSW Planning Minister Anthony Roberts says the Government takes the issue “very seriously”.

He says following the Lacrosse blaze, councils were advised of concerns raised by the Commissioner of Fire and Rescue NSW.

“My agency will monitor the investigation into the London fire to determine whether there is any relationship with the combustible cladding matter and whether any further action should be taken on this matter in NSW and at the Commonwealth level,” he said.

“NSW has been active at the national level, working with other states and territories and the Australian Building Codes Board to develop proposals to strengthen regulation to minimise the risk of using building products that do not comply with required standards.”

In the UK, a public inquiry will examine what went wrong at Grenfell.

In the meantime, 600 high-rise buildings are being tested, and 60 have so far been found to be covered in combustible cladding.

An Australian-based international fire safety expert told Insurance News (the magazine) in 2015 that “Rome burned because of narrow streets and combustible facades. The Great Fire of London spread because of narrow streets and combustible facades.

“Will we never learn?”

Maybe after Grenfell we might have finally learned. But it was a heavy price to pay.

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