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Insurers’ courtship of fintechs continues

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Insurers are increasingly partnering with fintechs to add value for customers and buy time to invest in their own innovations, according to an Australian and New Zealand Institute of Insurance and Finance (ANZIIF) expert.

IAG subsidiary CGU recently teamed up with online mortgage marketplace HashChing, which is offering a 25% rebate on home insurance, while sister company NRMA Business Insurance has entered into a pilot partnership with lender Prospa, to offer customers easier access to finance.

ANZIIF Digital Communications and Content Strategy Manager Amy Gibbs told insuranceNEWS.com.au such partnerships are increasingly common.

“It’s a good way for insurers to add value for their customers quickly without needing to provide services themselves, which can be difficult with ageing IT infrastructure and different cultural mindsets to innovation,” she said.

“Using software as a service platform or partnering with tech start-ups to provide a frictionless experience for consumers just makes sense, improving customer outcomes and buying time for insurers to invest in their own internal capability.”

Meanwhile, insurers will continue setting up their own accelerators, innovation labs and venture capital to possess innovative solutions from the start, Ms Gibbs says.

IAG’s EGM SME Amanda Whiting says NRMA Business Insurance’s partnership with Prospa adds to additional services already available to insurance customers, such as free tax and legal advice.

“Through working with Prospa, we can connect our customers to a fast and easy online lending solution,” she said.

Insurance partnerships overseas include American Family Insurance working with Internet of Things company Ring, whose “video doorbell” may help reduce burglaries.

In the UK, smart monitoring group Neos uses sensors and apps to reduce claims such as burst pipes, burglary and fire, while offering home insurance underwritten by Hiscox.

Employees pose main cyber threat, companies warned

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Australian companies facing tougher privacy laws have been warned employee actions account for two-thirds of cyber breaches worldwide.

Willis Towers Watson says many organisations focus on the technology aspect of cyber defence, but often at the expense of people-related risks, which represent the largest source of data breach claims.

External threats account for 18% of breaches, while cyber extortion represents just 2%, according to the global data.

“With the recent introduction of a mandatory notification regime for privacy breaches, combined with an increased regulatory focus on the cyber resilience of Australian business, it is vital that companies understand their cyber risks,” Willis Towers Watson Financial and Executive Risks Specialist Tanya Stevenson said.

Companies that can articulate their cyber-risk culture and management of threats beyond their IT departments are in the strongest position when negotiating cyber cover, she says.

Willis Towers Watson Asia-Pacific Head of Talent and Rewards Hamish Deery says there is a serious danger of breaches if new staff are not effectively trained to manage cyber risk.

Ongoing training, including knowledge of how to circumvent hackers’ attempts to acquire data, is also important.

“Failing to sufficiently emphasise a customer focus and appropriate incentive and training programs to support the management of cyber security are also evident in those companies that have had breaches,” Mr Deery said.

Willis says it has developed a Cyber Risk Culture Survey to assess an organisation’s internal risk culture, with a focus on vulnerability to employee-driven incidents.

SES warns of flood risk in Sydney renewal plan

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Thousands of proposed new homes under consideration in Sydney’s Bayside West Precincts urban renewal project are vulnerable to flooding, according to the NSW State Emergency Service (SES).

The Cooks Cove area, where up to 5000 homes may be built, is most exposed.

SES Assistant Director Nicole Hogan says the project’s draft land use and infrastructure strategy has not factored in flood risk up to the probable maximum flood (PMF).

Arncliffe and Banksia are also affected by flooding, she says.

PMF refers to the largest flood that could occur in a particular location.

“To truly understand the flood risk in each precinct, the flood risk in floods up to and including the PMF should be assessed,” Ms Hogan says in a submission on the plans.

“This is especially important for the Cooks Cove precinct, which is more vulnerable to flooding than Arncliffe and Banksia.”

Up to 5100 homes could be built in Arncliffe and Banksia by 2036.

The NSW Government says the project will provide more homes and jobs in accessible locations. The precincts are close to key transport nodes including Sydney Airport, the Illawarra rail line and the Princes Highway.

The insurance industry has campaigned for many years against suburbs being built in areas exposed to flood risks. However, an Insurance Council of Australia spokesman declined to comment on the Bayside West project when contacted by insuranceNEWS.com.au.

NSW fire conditions ‘worst on record’

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The summer’s NSW bushfire conditions were the worst on record, as temperature records also tumbled.

A series of fires last month caused at least $20 million of insured losses, with one blaze wiping out the village of Uarbry in Central West NSW.

The fire destroyed 35 homes, a church, a community and tens of thousands of hectares of farmland.

Minister for Justice Michael Keenan and NSW Minister for Emergency Services Troy Grant visited NSW Rural Fire Service Headquarters for an update on recovery efforts.

Mr Keenan says the “catastrophic fire conditions” were worse than those experienced in Victoria’s Black Saturday fires of 2009.

“Despite these gruelling conditions, this fire season has had fewer fatalities and property losses than in recent memory,” he said. “But of course we must not forget that there are still those in our community who have lost their homes and livelihoods in recent weeks.

“The fire season is not over yet and we need to remain alert.”

Victoria – usually one of the most bushfire-affected states – has escaped relatively unscathed so far. Emergency Management Victoria says there have been 3000 fires, but all of them were minor.

Kaikoura reinsurance claims estimated at $NZ694 million

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Reinsurance claims from the Kaikoura earthquake have reached $NZ694 million ($631 million), according to provisional estimates by insurance companies, Statistics New Zealand says.

The claims gave New Zealand a capital account surplus of $NZ683 million ($622 million) for the December quarter, the second surplus since the March 2005 quarter, international trade data shows.

“The value of reinsurance claims will be updated as new information is collected,” Statistics New Zealand said.

The 7.8-magnitude quake struck the Kaikoura region on November 14, causing damage on both the South and North islands.

GNS Science geologist Kate Clark told Radio New Zealand last week that 21 faults ruptured during the quake, around the record for a single event.

“Most of them were known and had been previously mapped, some of them are faults that we had not previously recognised,” she said.

“When you put all these faults together it is about 180km of surface rupture, so that distance of rupture does account for the really long duration of shaking that was felt.”

Climate models point to another El Nino

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International modelling and warm sea temperatures suggest an El Nino system will develop this year, according to the Bureau of Meteorology.

Six out of eight models surveyed by the bureau indicate El Nino thresholds may be reached by July, but the bureau cautions the models have lower accuracy when forecasting during the autumn months.

It says warming sea surface temperatures in the eastern Pacific Ocean and the downward trend of the Southern Oscillation Index are typical indicators El Nino is on its way. However, trade winds and cloudiness have shown no significant shift away from neutral.

El Nino is often associated with below average winter-spring rainfall over eastern Australia and warmer than average winter-spring temperatures in the south.

The bureau forecasts the neutral Indian Ocean Dipole is likely to remain at least until the end of winter.

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Corporate

Suncorp lifts Tower stake to key level

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Suncorp has increased its stake in Tower to a key 19.99% stake as it awaits the New Zealand insurer’s response to a proposed takeover.

Tower says it is seeking more information from Suncorp before it makes a recommendation to shareholders on the bid, which tops a rival offer from Canadian group Fairfax.

Suncorp offered $NZ1.30 ($1.19) a share for the whole company, but Tower says it has paid as much as $NZ1.40 ($1.28) in building the key stake.

“We would expect all shareholders to benefit equally from a sale and will be asking Suncorp to advise whether it intends to employ differential pricing in its proposal,” Tower Chairman Michael Stiassny said. “In addition, we will seek to clarify aspects of the highly conditional nature of its indicative scheme proposal.”

Suncorp’s proposal compares with $NZ1.17 ($1.07) per share offered by Fairfax, valuing Tower at $NZ197 million ($180 million).

New Zealand’s Commerce Commission last week released a statement of preliminary competition issues on the Suncorp deal.

“The main focus of our investigation is likely to be on the underwriting level,” it says.

“We will also consider the impact of the proposal on the distribution of insurance to consumers through intermediaries such as brokers and banks.”

Submissions are due by close of business on April 6. The regulator is scheduled to make a decision by May 5.

IAG rebrands Berkshire business

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IAG’s Berkshire Hathaway Insurance Australia (BHIA) business has rebranded as IAL.

IAL is part of IAG’s Satellite division, and distributes its home, motor and landlord insurance products through the Steadfast broker network,

The IAL business was transferred to IAG from Berkshire Hathaway in June 2015 as part of the pair’s strategic relationship. Its products previously used the BHIA name under licence from Berkshire Hathaway.

Chief Underwriting Officer Stephen Jeffery says IAL uses technology to reinforce the role brokers play in personal lines.

“We’ve already had great success in giving [brokers] efficient ways to retain and acquire customers who want strong broker advice and broad product coverage,” he said.

Satellite Division CEO Stuart Blake says IAL will continue developing technology to provide more value and choice for brokers and their customers.

“The change of name will not impact the product coverage, service level or relationship with our broker network,” Mr Blake said.

“In fact, this further strengthens the relationship IAG has established with Steadfast since acquiring the business in June 2015.”

The rebrand does not affect Berkshire Hathaway Specialty Insurance in Australia, or any other business of the Berkshire Hathaway group of insurance companies.

Marsh wins Defence Department contract

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Marsh has been appointed the Defence Department’s “exclusive insurance broker” for maritime acquisition and sustainment programs.

The Maritime Insurable Risk Program covers the continuous shipbuilding operation, involving the next generation of ships, and the maintenance and repair program for vessels owned, operated and chartered by the Commonwealth.

“This represents a game-changing new direction for the Department of Defence’s overall approach to insurance,” Marsh says. The broker will work with the new Maritime Integrated Risk and Insurance Services (MIRIS) unit as part of its appointment.

MIRIS and Marsh will jointly oversee and consolidate insurance for all the Defence Department’s maritime acquisition and sustainment programs, encompassing more than $50 billion in asset values.

JLT moves to new Sydney HQ

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After 20 years JLT has moved its Sydney office from Clarence Street to Grosvenor Place at 225 George Street.

“While we say goodbye to more than 20 years of business and history at 66 Clarence Street, we enter an exciting age of innovation, collaboration and new possibilities,” the company says in a statement.

“We’ll soon be collaborating in fresh and exciting ways, and experiencing new spaces surrounded by harbour views and a reinvigoration of restaurants, cafes and bars.”

Coverforce switch ‘a coup for IBNA’

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The Insurance Brokers Network of Australia (IBNA) has confirmed market rumours that major brokerage Coverforce has taken up membership.

As reported in a Breaking News bulletin last week, the Sydney-based company will formally join IBNA on March 31 after quitting the Steadfast network.

IBNA Chairman Gary Gribbin says it is “a most welcome development”.

“Attracting a business with the size and reputation of Coverforce to IBNA membership is a wonderful validation of our value proposition,” he told insuranceNEWS.com.au.

“Our business model is uncluttered and features a completely unconflicted relationship with members.

“The addition of a quality, well-established and highly respected business such as Coverforce is a coup for us. It adds to our strength and enhances our credibility.”

The move follows last month’s controversial addition to the IBNA ranks of comparator iSelect.

Coverforce was founded by Jim Angelis in 1994 as a specialist provider of insurance to the construction industry. Mr Angelis remains in control, and the company has expanded to service industries including manufacturing, retail, property and hospitality, plus the non-profit sector.

IBNA brokers place more than $1.3 billion in gross written premium, according to the group’s website.

Allianz marine unit sails into NZ

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Allianz Marine & Transit (AM&T) is expanding into New Zealand, building on growth in Australia since its launch in 2012.

The new Auckland-based operation will provide cargo, carriers’, commercial hull and marine liability cover through brokers across New Zealand.

Marine specialists Henry Wallace and Korey Pese have been brought in to work alongside Allianz New Zealand Marine Manager Darren Pattle.

AM&T has also taken on responsibility for underwriting and claims management for the Pacific marine portfolio of Allianz Global Corporate & Specialty (AGCS).

“While we will continue to maintain the strong focus that AGCS marine has historically had on project cargoes, we will also look to do more in the hull, liability and annual cargo segments with corporate customers,” AM&T CEO Stephen Ford said.

Steadfast Re opens London base

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Steadfast Re, a licensed Lloyd’s broker, has opened a London office to support Steadfast brokers and managers from Steadfast Underwriting Agencies and the Steadfast Group when they are in the global financial hub on business.

Former Beach & Associates VP David Saxton heads the office, which has three employees.

Steadfast CEO Robert Kelly, COO Samantha Hollman and Steadfast Underwriting Agencies CEO Simon Lightbody attended the opening last month.

Youi plans expansion as earnings rise

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Youi Australia aims to add commercial insurance and compulsory third party cover to its product line-up following another encouraging set of earnings results.

The Australian operation’s headline earnings grew 30% to $26 million in the half-year to December 31, and net earned premium increased 10.3% to $310 million.

The combined operating ratio improved to 89.4% from 91.3%, but the claims ratio worsened to 59.2% from 58.4% because of higher natural peril claims, according to South African parent Outsurance Holdings.

Efforts to improve efficiencies and scale strengthened the cost-to-income ratio to 30.1% from 32.9% in the corresponding period of 2015.

“Favourable weather and a lack of natural catastrophe events have resulted in a soft pricing environment and an absence of consumers shopping around for lower premiums,” Outsurance Holdings says. “Youi’s disciplined underwriting and sophisticated claims management capabilities position the business favourably to take advantage of a price-hardening cycle.”

The brand’s image has taken a hit in Australia and New Zealand over its sales tactics, including billing customers for unsolicited policies, but it remains committed to growing the business in the two markets.

“As part of our drive to accelerate Youi’s growth rate, we [are] exploring opportunities in the compulsory third party… and commercial insurance markets,” Outsurance says.

Youi’s New Zealand operation, established in August 2014, narrowed its loss to 35 million rand ($3.6 million) from 70 million rand ($7.1 million).

Its net earned premium surged 65% to 33 million rand ($3.4 million).

Youi Group, comprising the Australia and New Zealand business, grew its headline earnings by 81.8% to $20 million, and net earned premium increased 15.9% to $313 million.

Youi accounted for 46% of Outsurance’s revenue in the half-year to December 31.

Ansvar posts loss after year of catastrophes

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Church and heritage insurer Ansvar posted an underwriting loss of $2.2 million last year after earnings were hit by a relatively high level of catastrophes.

The result compares with a profit of $200,000 in 2015, according to results posted by UK-based parent company Ecclesiastical.

Ansvar’s combined operating ratio deteriorated to 106.7% from 99.4%.

“The business was affected for a second consecutive year by a higher than average number of catastrophe events, which was an issue for the whole Australian market,” the company said.

“However, the reinsurance arrangements in place reduced the impact of these at the net level.”

Gross written premium (GWP) grew 0.3% to $76.4 million.

“Retention rates remained very strong, and new business was 21% ahead of the prior year,” the company said.

Ecclesiastical’s underwriting profit grew to £20.1 million ($32.3 million) from £13.5 million ($21.7 million) as benign weather in the UK and Ireland offset catastrophes in Canada and Australia.

GWP gained slightly to £310.1 million ($498.5 million), supported by currency moves.

CEO Mark Hews says the company won and retained a range of significant real estate, education, heritage and charity accounts across its territories last year.

Ecclesiastical is owned by registered charity Allchurches Trust, and says its ethical positioning gives it a competitive edge amid public mistrust in financial services companies.

Reinsurance payouts reach Western Pacific policyholders

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The liquidators of Western Pacific Insurance have paid Canterbury policyholders $NZ18.7 million ($17 million) from money received from the failed insurer’s reinsurers.

A distribution by liquidator Grant Thornton relating to the September 2010 earthquake totalled $NZ9.1 million ($8.3 million), representing 35% of total quake losses.

For the February 2011 quake, policyholders shared $NZ9.5 million ($8.6 million), representing 20% of the total loss.

The liquidator estimates policyholders hit by the September 2010 event will receive payments covering a further 20-40% of their losses if more reinsurance funds are recovered.

Policyholders affected by the February 2011 event could receive a further 15-20%.

Grant Thornton had recovered $NZ25.8 million ($23.5 million) from reinsurers at the end of last month, with a further $NZ12.4 million to come ($11.3 million).

Total claims from the two earthquakes stand at $NZ65.2 million ($59.4 million), from 215 claims.

Only one assessed claim – for $NZ57,544 ($52,483) – from the February 2011 event is still waiting to be formally agreed by the insured. The rest have been settled.

Grant Thornton hopes to recover the outstanding reinsurance money by the middle of this year, closing the six-year liquidation process.       

Chubb to back Solution Underwriting

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Chubb will underwrite Solution Underwriting’s professional indemnity, general liability and management liability products from April 1.

The deal replaces Solution Underwriting’s agreement with Great Lakes Australia.

Solution Underwriting MD Rhys Mills says he is pleased to have backing from a company with Chubb’s financial strength.

Chubb Country President for Australia and New Zealand John French says the partnership provides a “terrific opportunity” for brokers.

Former iSelect chief leaves board

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iSelect co-founder Damien Waller will step down as a non-executive board director at the end of this month.

After starting the company with David Urpani in 2000, Mr Waller has been heavily involved in the comparator’s day-to-day running in the past 17 years, as CEO, MD and chairman.

“iSelect has a strong board and management team in place, and the company is well positioned to deliver on its growth strategy across a wide range of attractive markets,” Mr Waller said last week.

“In light of this, I am comfortable in leaving the board, so I can focus on my other business interests that are at an earlier stage of development.

“I plan to retain a significant interest in the business and remain a major shareholder.”

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Regulatory & Government

Artificial intelligence is here, says ASIC chief

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Artificial intelligence is becoming mainstream, creating challenges and opportunities for regulators, according to the Australian Securities and Investments Commission (ASIC).

“As we see the potential of automated financial services, and artificial intelligence playing a role, we need to look to the algorithms behind these services,” Chairman Greg Medcraft told the regulator’s annual forum today.

“These algorithms will need to be transparent so their decisions can be challenged, and not just be considered opaque ‘black boxes’.”

Mr Medcraft says ASIC is increasingly using machine learning software in surveillance, investigation and enforcement.

“We are expanding our capabilities in this area, including machine learning from fuzzy logic, and piloting the machine learning functionality of [software producer] Nuix to make the identification of relevant evidentiary materials more efficient,” he said.

Efficiency gains from regtech may mean staff dedicated to compliance will have an expanded education focus, he says.

ASIC will soon publish an information sheet for industry participants that are introducing and testing distributed ledger technology, or blockchain.

Mr Medcraft says the sheet will be relevant for licensees and start-ups, and will examine technology and risk management requirements.

“We think it will help to fast-track our discussions with stakeholders and we will use the framework as a conversation starter as the technology continues to evolve.”

Government response to premiums report still missing

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More than a year after the final report of the Northern Australia Insurance Premiums Taskforce was published, the Federal Government has still not responded to it.

Revenue and Financial Services Minister Kelly O’Dwyer launched the report at the Insurance Council of Australia (ICA) forum in March last year, saying the Government would respond “in the coming months”.

But there is still no sign of the response, leaving campaigners “incredibly disappointed”.

The taskforce was set up to investigate possible solutions for spiralling insurance premiums in northern Australia.

Its report came out strongly against government intervention, recommending cyclone mitigation as the only way to reduce insurance premiums on a sustainable basis.

“People up here think they’ve been forgotten again,” campaigner and taskforce advisory panel member Margaret Shaw told insuranceNEWS.com.au.

“The delay is disappointing but not surprising.

“Look how long the Government took to respond to the Productivity Commission report on disaster funding. It came out in March 2014 and they only responded at the end of last year.

“We are still getting some ridiculous insurance premium quotes, including increases of up to 40%.”

A spokesman for Ms O’Dwyer says the Government is “carefully considering” the complex issues within the report.

ICA says it does not know when the Government will publish a response to the report.

That “is in the hands of Ms O’Dwyer”, a spokesman said.

ACCC warns of technology trials

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Technology does not just bring benefits but also presents challenges, the Australian Competition and Consumer Commission has warned.

In a speech to the National Consumer Congress, Chairman Rod Sims reflected on issues of consumer protection in a changing world.

“Technology brings access to more products, services or information than at any previous time in history, but with it come new challenges,” he said.

He also warned about privacy and accessibility issues relating to personal data.

“The amount of data people share day to day is enormous, yet much of it is inaccessible to the people who created it,” he said.

“It’s in this sort of situation that advocacy can make a significant impact.

“By fighting for the rights of the consumer in a changing digital landscape, you can help ensure consumer protection moves with the times, and that consumers are not caused detriment by fast-moving, disruptive technologies or by anti-competitive responses to those technologies by incumbent businesses.”

See ANALYSIS.

NIBA urges ‘fair’ levy allocation for ASIC funding

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The National Insurance Brokers Association (NIBA) wants levies to be allocated fairly when the Australian Securities and Investments Commission (ASIC) moves to a new funding model on July 1.

Last April the Government announced a $127 million reform package for ASIC, to be primarily financed by the banks, to pay for the cost of its regulatory activities.

“The key focus for NIBA in the proposed regime, given the limited regulatory issues affecting its members when compared with other sectors, is on achieving a fair allocation of levies to reflect this,” association CEO Dallas Booth says in a submission.

NIBA is also focused on securing a “a cost and time-effective reporting regime to assist ASIC in allocating levies, and to assist members in meeting their reporting obligations”.

NIBA and the Insurance Council of Australia have voiced concerns that the insurance industry will end up paying more than its fair share, potentially subsidising more troubled industries.

The insurance sector takes up about 2% of ASIC’s budget for regulatory work, according to Treasury figures.

“NIBA is pleased to see… that it is not within the objectives to recover regulatory costs from entities that did not drive the cost of that regulation,” Mr Booth says.

“The reality does, however, appear to be that ASIC, by allocating resources to certain areas at its discretion, can then justify the allocation of levies to that area even where the allocation of resources to that area may not have been justified.

“We would like to discuss how the Government believes this risk will be managed.”

ICA rejects mandatory home replacement cover

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The Insurance Council of Australia (ICA) has warned against moves to require total replacement policies for home cover as part of wider reforms to protect consumers.

“Mandating total replacement policies could have serious implications for insurance affordability,” it says in a submission to Treasury. “Further, it could significantly undermine the economic viability of individual insurers, as well has having broader economic impacts if a large-scale natural disaster were to occur in Australia.”

The Federal Government has released a discussion paper on proposed measures to reduce the risk of consumers buying unsuitable financial products.

The issue was raised by the 2015 Financial System Inquiry, which recommended new accountability obligations for groups that issue or distribute financial products.

It also proposed product intervention powers for the regulator.

ICA says commentary around the reforms has included suggestions that insurers provide replacement cost cover for homes, rather than sum-insured policies. The suggestion is “an example of how the product design obligation could be applied inappropriately”, it says in its submission.

It says any legislative product design and distribution obligation must not interfere with insurers’ ability to prudently underwrite risks.

“Undermining underwriting integrity could have devastating and destabilising impacts on the insurance industry, the costs of which will ultimately be borne by consumers.”

ICA calls for transparency around the reasons for product intervention by the regulator and a “sufficiently high” threshold for action, while also urging the Government to facilitate innovative forms of disclosure, as recommended by the Financial System Inquiry.

“Focusing efforts on ensuring effective disclosure and clear consumer understanding will lead to far better outcomes for all stakeholders than will be achieved through complex and overlapping regulatory burdens,” it says.

ICNZ renews attack on FENZ levy

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The Insurance Council of New Zealand (ICNZ) has again criticised plans to pay for a new national emergency service through insurance levies.

Internal Affairs Minister Peter Dunne has released a discussion paper seeking public feedback on the calculation of surcharges on insurance contracts and a transitional “levy relief” for Fire and Emergency New Zealand (FENZ).

“The very fact the Government has to consult to understand how you should apply the tax on insurance shows just how complicated and costly it is to administer, and demonstrates why it would be far better to fund FENZ from direct taxation,” ICNZ CEO Tim Grafton told local media. “This just highlights the complexity of the whole situation.”

The discussion paper says the levy base will be broadened from fire insurance contracts to those insuring properties against physical loss or damage, to reflect FENZ’s bigger statutory mandate and wider scope of services.

Levies will be calculated on the amount insured in an insurance policy, rather than the property’s indemnity value.

“Everyone benefits from the fire services’ response to earthquakes, floods and storms and hazardous substances emergencies, but currently only those with fire insurance pay for this activity,” the paper says.

“The shift away from applying the levy to indemnity value will improve the clarity of the calculation.”

The closing date for submissions is April 19. FENZ begins operations on July 1.

ARPC sheds light on premium calculations

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The Australian Reinsurance Pool Corporation has published details of how reinsurance premiums are calculated.

It says premiums are determined according to a risk’s physical location, and not its post office box address. Premiums due are calculated as a percentage of a cedant’s gross base premium, and the terrorism pool covers only eligible insurance contracts.

For more details, click here.

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Life Insurance

National claim rejection rate drops below 10%, study shows

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Australia has a declined claims rate of 9.8%, which is a similar rate to China, according to research by Gen Re.

The figure comes from the reinsurer’s Dread Disease Survey between 2008 and 2012, based on data submitted by 84 life insurers relating to more than 100 million inforce policies.

Gen Re examined about 1.2 million claims in the study period.

In Australia there were 4311 claims accepted and 468 declined. In China the number of accepted claims was 968,305, with 78,677 declined, giving a rate of 9.4%.

The lowest declined claims rate was in Malaysia at 5.6%, followed by Singapore on 6.6%.

Australia’s decline rate has fallen from 14% in Gen Re’s 2004-08 survey.

Cancer featured in 62% of all Australian claims, slightly less than in Hong Kong. In Indonesia cancer accounted for only 28% of claims.

Heart disease featured in 16% of Australian claims, with brain tumours next at 5.6%. In women, cancer was the leading cause of claims (88%), followed by stroke (4.2%).

Gen Re says with most life books in Asia and Australia still showing an average inforce age below 40, some conditions associated with old age are not showing in the figures.

Diseases such as Parkinson’s or Alzheimer’s may prompt more claims in future.

In Australia, prostate cancer is the leading cause of cancer claim for males, probably due to the high rate of screening. Breast cancer accounts for 60% of all cancer claims from Australian females.

MLC walks MPs through pricing decisions

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MLC Life Insurance has not raised premiums on its income protection products since 2015, despite the business losing money, CEO David Hackett says.

“Our income protection book had moved into loss recognition, which is actually quite a serious situation for a life insurance company,” he told the parliamentary joint committee inquiry into the life insurance industry. “That essentially says that line of business, that product, is expected to make losses for the rest of the life of the book.”

Mr Hackett says life insurers must maintain profitability, and the business it writes today means it must be around for the next 30-40 years to handle claims.

“Moving into loss recognition on a product is a very serious thing. We took advisers aside and I said, ‘We don’t have to make a lot of profit, but we can’t be in loss.’ ”

Mr Hackett says in addition to rises in the calculated premium, CPI and age-based increases are a factor. “When people are on step premiums, it can serve as a triple whammy and be a very serious increase.”

Committee member Bert van Manen expressed concern that advisers may lose out when a client says they cannot afford premiums.

He says if this occurs in the first two years of the policy, under new legislation the adviser will have to pay back two years of commission, through no fault of their own.

“The adviser, to meet his best-interests duty, is put in a situation where he has two choices,” Mr van Manen said.

“Either he lets the client cancel the policy and not replace it, or he rewrites that policy and has to do the same amount of work as he would when he first wrote that piece of business.

“Yet all the financial consequences for that rest with the adviser, in terms of having had his commission now reduced and the initial commission he got paid for doing the initial work gets clawed back by 100%.”

Mr van Manen says insurers can do what they like with premiums, but the adviser wears the cost.

Mr Hackett says some life insurers have already raised premiums in advance of the Life Insurance Framework legislation, but he admits this is a competitive disadvantage.

“We are considering at the moment how long we can hold our current pricing,” he said.

“I would like to hold it for as long as we can because that makes me more competitive. I want to write more business with more customers and I want to retain more business with more customers. And I will do that by being competitive on pricing.”

NAB funds adviser education and research

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NAB Financial Planning will support an annual university scholarship and academic research that aids advisers.

The dealer group’s GM Tim Steele says the NAB Future Planners Scholarship aims to promote financial planning as a career path, increase diversity and support professionalism.

“We believe these scholarships and research will not only attract great emerging talent into the industry but ensure more Australians can benefit from advice,” he said.

“By championing research in collaboration with our academic partners, we also hope the insights will be used to improve the work the industry does as a whole and help more Australians access advice.”

The scholarship has been established with four partner universities, and Mr Steele says more are looking to join.

Awarded to students undertaking business-related bachelor degrees majoring in financial planning, the scholarship offers 10 $5000 awards, an invitation to the dealer group’s professional development day and a mentorship with a senior NAB adviser.

In partnership with the Financial Planning Association and the Financial Planning Education Council, NAB Financial Planning will also contribute $10,000 towards academic research that aids the industry.

The research will focus on customer experiences and barriers to seeking advice.

Scholarship recipients will be announced in May.

Super industry moves to improve group life data

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A guidance note from the Australian Institute of Superannuation Trustees (AIST), the Financial Services Council, the Industry Funds Forum (IFF) and Industry Super Australia aims to improve the quality and availability of group life insurance data.

Better membership and claims data would be used in the tendering process, renewal pricing and ongoing reserving.

“The key benefits of this are more accurate and fairer pricing, improved industry sustainability and increased regulator confidence in the industry,” the guidance note says.

The note aims to encourage superannuation funds and insurers that are not members of industry associations to adopt the proposals.

It was developed to comply with the Australian Prudential Regulatory Authority’s prudential standard SPS 250 – Insurance in Superannuation.

AIST EM Policy and Research David Haynes says the note “recognises improving the quality of data is a key step towards ensuring best practice in complaints handling”.

IFF Chairman Sandy Grant says group life has been successful for Australia.

“This has resulted in better risk protection for Australians from all walks of life and providing a safety net to millions of people who would have otherwise not had life and disability insurance individually,” he said. “This guidance note will only strengthen the system further.”

AIA chief leaves for HSBC

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Group CEO Mark Tucker will leave AIA to become non-executive Group Chairman of HSBC Holdings.

Mr Tucker joined AIA in 2010 – the time of the life insurer’s float – having previously led Prudential. He will leave on September 1 and start his new role the following month.

AIA Regional CEO Ng Keng Hooi will take over Mr Tucker’s position. Mr Hooi has more than 37 years’ experience in the Asian life insurance industry.

AIA Group Chairman Edmund Tse says Mr Hooi has “an impressive track record”.

“This appointment follows a rigorous and extensive succession process, which included consideration of internal and external candidates,” Mr Tse said.

“Mr Hooi has displayed first-class leadership and strategic vision while consistently delivering strong results.”

Mr Tucker says AIA “is very well positioned to continue its strong growth. I believe now is the right time to make way for a new leader and for me personally to transition to a non-executive career. I have worked closely with Mr Hooi for more than 20 years and admire him as an executive with an exceptional track record of strong execution and commercial experience in the Asian region.”

FPA calls for clarity on ASIC funding proposal

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The Financial Planning Association (FPA) has attacked a “lack of transparency” in proposed legislation covering funding for the Australian Securities and Investments Commission (ASIC).

In a submission to Treasury, it says the draft bills need more detail.

“These create shell legislation, where the content of the obligations to be imposed on industry is made by delegated powers,” the submission says.

“This creates enormous uncertainty for industry when there is the potential for significant cost to be levied from businesses based on presently unknown metrics.

“The FPA has grave concerns at the lack of transparency being created with the consultation process Treasury is undertaking.”

It is unhappy at a lack of information on cost-recovery methodology, how businesses can determine which levies will apply to them, and who is required to pay for ASIC activities.

“It is important to remember many entities may be forced to pass on the increasing regulatory costs posed by the new ASIC funding levy and other government charges to consumers,” the submission says. “Including more detail in the legislation to put the structure of the funding model in place will provide certainty and stability for industry.”

The FPA wants the legislation to include criteria “for the funding model based on the measurable risks the regulated entities pose to consumers”.

It is also concerned that no ASIC accountability measures have been released with the draft bills. It notes the proposed legislation requires the commission to produce only an annual dashboard report about its regulatory costs.

AIA researches workplace health

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Australia will feature in an AIA Vitality survey on healthy workplaces in Asia, to be conducted by Rand Europe and academic institutions around the region.

The Healthiest Workplace study will question a broad range of organisations and their workforces from industries across Australia, Hong Kong, Malaysia and Singapore.

It aims to analyse health trends, and AIA will provide each participating organisation with a comprehensive assessment including recommendations on promoting and improving workplace health and productivity.

The research will identify each country’s healthiest employer, employees and workplace across a range of organisation categories. Country winners will be judged against peers from other nations to find the overall survey winners.

AIA Group Corporate Solutions CEO Peter Crewe says the recommendations to companies will aid productivity.

“This will also serve our ultimate goal of helping people live longer, healthier, better lives by bringing about improvement in employee health and wellbeing across companies, industries, countries and the entire region,” he said.

Meanwhile, AIA Australia has joined digital financial advice provider SuperEd to develop an online tool to help superannuation fund members manage their life insurance.

The module will be integrated with the insurer’s LIFEapp online application tool.

Members can learn about insurance, get personalised assistance and manage or apply for cover using the module.

AIA Australia CEO Damien Mu says the low level of engagement and understanding of group life is a concern for the industry.

“We want to support our partnering super funds to help their members better understand the cover they have,” he said.

“Members will be able to simply access the portal from their super fund and make use of all the tools provided.”

Institutions failing on adviser checks, breach reports: ASIC

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An Australian Securities and Investments Commission (ASIC) review of institutional advisers has found poor reference-checking and failure to inform the regulator of breaches.

Failure to conduct comprehensive background checks means advisers with poor compliance records have circulated undetected within the financial services industry, the review says.

This increases the risk of customers receiving non-compliant advice, and the institutions’ inadequate auditing of advice has failed to pick this up.

“The audit process failed to properly assess whether the adviser had demonstrated compliance with the best-interests duty and other related obligations,” the review says. “Affected customers were not always identified or properly remediated where necessary, and advisers providing non-compliant advice remained undetected.”

ASIC is also critical of the big four banks and AMP – the review’s subjects – for failing to inform it of breaches that put customers at risk.

“Our concern is many of the institutions we reviewed did not ensure their internal processes consistently supported the value of ‘doing what is right’ for the customer. Many of the failings we identified led, or had the potential to lead, to poor outcomes for customers.”

ASIC says the institutions are now examining corporate culture, and technology may help overcome some of their deficiencies.

It says they are tackling reference-checking, but more improvement is needed.

“We recognise there is no single measure or action that will raise standards and improve culture across the financial advice industry.

“We encourage the institutions to consider how improvements in areas such as remuneration structures, professional standards, reference-checking and record-keeping can be used in practical ways to improve and strengthen a customer-focused culture.”

ASIC Deputy Chairman Peter Kell says the review shows more work is needed to build consumer confidence, including more compliance action on advisers.

“'Failure or delay in notifying ASIC of suspected serious non-compliant conduct significantly affects our ability to take appropriate enforcement or other regulatory action,” he said.

“It might also result in an increased risk of customer detriment, as so-called ‘bad apple’ advisers continue to work in the industry.

“Strengthening breach-reporting requirements will be an important issue in the current review of ASIC’s enforcement powers, announced by Federal Government in October last year.”

Long-serving AMP director to step down

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AMP non-executive director Peter Shergold will retire at the group’s AGM on May 11.

He has been a board member since 2008 and has chaired the risk committee, while also serving on the AMP Life board.

Chairman Catherine Brenner says Professor Shergold has made a “significant contribution to our boards, bringing considerable insight and acumen”.

Meanwhile, in an address to shareholders, CEO Craig Meller says the life insurance business has been “stabilised”.

His says the company will become more customer-centric, delivering services through a variety of platforms.

“We are giving our customers more options for how they interact with us, developing technology that supports a range of channels, and rolling out new approaches and platforms for financial advice,” he said.

“This is effectively the operating system that will support growth in our advice business, whether that’s face to face, online or over the phone.”

Mr Meller says financial advisers still play a major role.

“We continue to invest in our adviser network so we can help more people more often to achieve their goals. Through the new AMP Advice process we began rolling out last year, we are gaining deeper insights and developing stronger relationships with our customers.”

AMP’s annual report for last year shows the former head of AMP Life Pauline Blight-Johnston received a termination payment of $271,000 when she left last year. This pushed her total remuneration to $2.2 million for the year.

The former head of AMP’s financial advice business, Rob Caprioli, received a termination payment of $436,000 when the company’s management was restructured. His final remuneration for the year was $2.3 million.

Life insurers must rebuild businesses to survive: PWC

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Australian life insurers must focus more on market segments than being all things to all people, according to a PricewaterhouseCoopers (PWC) industry report.

If they do not change their business models, they will become unsustainable, it warns.

The report says insurers must differentiate to survive in an increasingly competitive marketplace.

“This is also essential to addressing the affordability challenge that must be met in tackling underinsurance and low penetration,” PWC says.

“Insurers will take advantage of the new opportunities that arise from the blurring of traditional geographic boundaries, as well as the capabilities that can be imported from other markets.”

PWC says this is already happening in Asia through the use of technology and innovations by companies such as Alibaba, with direct-to-customer models and customer engagement platforms.

Insurers must be willing to work with innovative third parties to develop changes to distribution and pricing models, better placing themselves in customers’ eyes and creating competitive advantages.

PWC says life insurers must focus on the customer by consistently capturing and disseminating their insights, while delivering a different value proposition to engage them. This can be used to improve lapse rates.

Insurers need to embrace customer, operational and financial data from a range of sources, including third parties, transactions and wearables.

They must employ analytically minded staff that can collaborate with analytics teams and derive insights to make business decisions.

PWC Insurance Leader Scott Fergusson says the challenges facing the industry are unprecedented.

“Life insurers need to make the hard calls to be sustainable and successful during the long-term; simply tinkering at the edges will lead to an orderly but inevitable decline,” he said.

He says the industry’s current return on capital of about 13% is likely to become about 10% due to competitive dynamics alone.

“I’m convinced there is a bright future for incumbents that challenge long-held beliefs and focus on their best way to deliver on their ‘noble purpose’ for customers,” he said.

ASIC takes advice group to court over alleged best-interests breaches

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The Australian Securities and Investments Commission (ASIC) has taken a Melbourne financial advice business to court for failing to act in consumers’ best interests.

The Federal Court action is against Wealth & Risk Management (WRM), Yes FP and Yes FS.

ASIC is seeking a declaration of contraventions, and financial penalties.

WRM advises on life insurance and superannuation. Its advisers are employed by Yes FP, whose clients are referred by Yes FS.

The company offered fast loans, but to be eligible customers had to replace their super fund with a retail product recommended by WRM, and either buy or switch their life insurance policies to one recommended by the adviser.

None of this was disclosed on the Yes FS website, ASIC alleges.

Life insurance commissions paid to WRM were then paid to the parent of Yes – JECA – as part of a referral agreement.

ASIC argues WRM did not act in clients’ best interests, dating back to December 2015. The advice was also inappropriate and conflicted, it says.

Court documentation says WRM did not provide training on Future of Financial Advice requirements that include the best-interests duty.

ASIC claims Yes FS has operated without an Australian financial services licence and engaged in misleading and deceptive conduct.

The first court hearing will be on March 31.

NZ life insurer gains first rating

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Fitch has given New Zealand-based Manchester Unity Friendly Society a BB- rating and a stable outlook.

It is the first time the ratings agency has given Manchester Unity a rating.

Fitch says the life insurer’s limited franchise, mutual status and declining membership are reflected in the rating.

“Offsetting the constraining factors is the support of its loyal membership base, low-risk insurance exposures and conservative investment portfolio,” it says.

Manchester Unity has a market share below 1% in New Zealand.

It underwrites simple medical and funeral plans that provide low-cost cover to members.

Fitch expects premium volume to fall due to the insurer’s declining membership, which stands at about 14,000.

The average duration of policyholder liabilities is about 11 years.

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The Professional

Employer hiring plans slow in Q2

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The pace of hiring in the finance, insurance and real estate sector is expected to slow in the second quarter, according to an employment outlook survey by workforce group Manpower.

The survey shows 12% of employers in the sector intend to increase hiring in the quarter, 83% expect to make no change and 4% flag a decrease.

The resulting net employment outlook score of 7% is down four percentage points from the first quarter and is six points lower than the corresponding period last year.

It is the weakest level since the 2009 third quarter.

Manpower says the outlook is still cautiously optimistic, despite digital disruption and a candidate shortage.

Neil McDonald, a director at Manpower Group company Marks Sattin, says there is a shift from permanent recruitment to part-time and project-based roles in the finance industry.

“The reason for this is three-fold: broader economic uncertainty, large transformation projects and a lack of skilled candidates in this field,” he said.

“The trend will likely continue in the short-medium term.”

Services has a net employment outlook of 15%, the strongest by sector, followed in equal second place by transport and utilities, and mining and construction.

Wholesale and retail trade has the lowest score, at 5%.

The national survey asked 1511 employers how they anticipate total employment to change in the three months to the end of June, compared with the current quarter.

ANZIIF awards open for nominations

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Submissions are now open for the 14th Australian Insurance Industry Awards, hosted by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).

A learning program category has been added to this year’s program.

The categories are:

  • Small broking company of the year
  • Medium broking company
  • Large broking company
  • Underwriting agency
  • Direct general insurance company
  • Small-medium general insurance company
  • Large general insurance company
  • Life insurance company
  • Innovation of the year
  • Professional services firm
  • Service provider to the insurance industry
  • Women’s employer of the year
  • Young insurance professionals employer
  • Young insurance professional
  • Insurance learning program
  • Insurance leader of the year
  • ANZIIF lifetime achievement award.

“As an increased spotlight shines on insurance practices, it is important to celebrate the ways in which we are already exceeding expectations and cement that level of excellence as the standard we should always aspire to,” ANZIIF CEO Prue Willsford said.

Submissions close on May 2. To apply, click here.

New ICA President relishes challenge

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Suncorp’s CEO Insurance Anthony Day has been appointed President and board Chairman of the Insurance Council of Australia (ICA).

As reported in a Breaking News bulletin on Friday, Hollard Australia CEO Richard Enthoven has been appointed Deputy President and QBE Group CFO and Australia and New Zealand CEO Pat Regan was made a director.

The appointments were made at a special board meeting after former president Colin Fagen left last month following his departure from QBE.

Allianz Australia MD Niran Peiris, who was previously deputy president and was made acting president after Mr Fagen’s departure, stepped down because he is relocating to Germany to take up a position on Allianz’s global board. He remains an ICA director.

Mr Day, who has been a director of the ICA board since February last year, says he is delighted to be given the role “at a time when the industry is under increased political and regulatory scrutiny”.

“The industry plays a critical role in both the Australian economy and our society,” he said. “I’m committed to being a strong advocate for the industry as we navigate the opportunities and challenges ahead.”

ICA CEO Rob Whelan says Mr Day and Mr Enthoven bring “strong industry experience” to their two-year terms.

“Anthony and Richard represent companies with diversified insurance portfolios and different business models,” he said.

“Their industry expertise, and their keen interest in influencing how the general insurance industry adjusts and responds to Australia’s rapidly changing political landscape and financial services sector, will be put to great use in these key positions.”

New leader sets out Actuaries Institute vision

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New Actuaries Institute President Jenny Lyon wants to grow the profession’s contribution to public policy discussion and advise governments and regulators on issues including climate change and risks in finance.

Actuaries have the experience and knowledge to provide important inputs, she says.

“They apply a holistic view, consider a wide range of parameters but can also dive into the detail and understand what drives outcomes,” Ms Lyon said. “A key strength of the profession is that it offers an independent voice that government and regulators can trust.”

Institute members have been appointed to advise Federal Treasury on the development of retirement income products, and the institute has produced issues papers about climate change, among other matters.

Members are working on a paper examining the complexities of insurance and mental health.

Ms Lyon also intends to increase engagement with younger members.

“People are the strength of our profession,” she said. “Our young members are our future, they represent the majority in our profession.”

Ms Lyon is a director of SKL Executive, a specialist actuarial recruitment consulting business.

CGU kicks on with Collingwood sponsorship

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CGU has extended its sponsorship of AFL team Collingwood for another five years, taking its involvement through to 2022.

The insurer has partnered with the Magpies since 2011 and recently became a foundation sponsor of the club’s women’s team.

Collingwood says the multimillion-dollar extension is the biggest commercial deal in its history.

CGU also supports several of the club’s community initiatives, including the Magpie Nest program, which assists the homeless, and the Barrawarn scheme providing support and opportunities for Indigenous people.

“The sponsorship has helped to strengthen the CGU brand in the marketplace and regularly provided some fantastic opportunities for our broker partners to take part in a range of business networking activities,” a CGU spokesman said.

AFA recruits ex-AHI chief in advisory role

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AFA Insurance has appointed industry veteran Kevin Kinsella as an advisory board member.

Mr Kinsella was previously GM at Accident and Health International (AHI), steering the company’s growth across Australia. He joined AHI in 2004 and retired last June after about 50 years in the industry.

“The appointment of [Mr Kinsella] is part of our strategy to strengthen our management team and grow the business,” AFA Executive Chairman Ross Porter said.

“It’s a challenge to stand out in a crowded space. Accident and sickness insurance is not the niche market it once was.

“We have grown organically for more than 20 years with great success, we have a strong brand and broking relationships, dedicated and talented staff who love what they do – we want brokers to know we are a great underwriting company.”

Formed in 1991, AFA initially offered accident and sickness insurance and has since expanded to include corporate travel, voluntary workers, journey, expatriate medical, and public liability and general property, distributed electronically on its eBIND platform.

Its complete accident and sickness product range has been backed by Allianz Australia since July 2014.

BOQ Finance raises charity cash

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The Bank of Queensland (BOQ) Cashflow Finance team – previously Centrepoint Alliance Premium Funding – has raised more than $11,000 for charity.

Between September and January a $10 donation was made for every completed eligible online loan application.

A total of $6440 was given to healthcare charity the Mater Foundation, and $5150 to the PSC Foundation, which supports the PSC Group’s charity and community endeavours.

Head of Cashflow Finance Bob Dodd says the campaign represents the company’s core values of helping others and supporting communities.

Mater Foundation CEO Nigel Harris says the money will help many people through the Mater Mission Fund.

“The fund provides assistance to patients and their families who are experiencing financial hardship due to medical treatment costs, and while individual support is often small in monetary terms, it makes a significant difference to patients when they need it most,” he said.

BOQ Finance agreed to acquire Centrepoint Alliance’s premium funding business for $21.4 million at the end of last year.

Ron Shorter award goes national

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Young insurance professionals in Tasmania, SA and WA can enter this year’s Ron Shorter Memorial Award for Professionalism in Public Speaking.

The Australian Insurance Law Association (AILA) program began in NSW in 2012 and expanded to Victoria in 2015 and Queensland in 2016.

Twenty of the best entrants from each state will take part in one of three public speaking workshops and then complete a two-minute presentation, on which they will be judged.

The top three in each state will enter state finals, and the winners will attend the Asia-Pacific Insurance Conference in Singapore on October 18-20.

To find out how to nominate for the Colin Biggers & Paisley and Unisearch-sponsored event, click here. Applications close on May 3.

Meanwhile, the AILA Queensland branch and Barry.Nilsson Lawyers have created the inaugural Barry.Nilsson AILA Rising Star Award.

Nominees must work in the insurance industry – excluding law firms – and be aged under 30 or have fewer than five years’ industry experience. They need not be AILA members.

Successful nominees will be asked to provide a written statement describing what they see as the biggest opportunity for insurers and why.

Nominations close on April 24 and should be sent to office@aila.com.au.

The winner will be notified by May 19 and announced at the AILA Queensland Insurance Law Intensive Connecting the Dots event.

Aon recruits surety, trade credit and political risk specialist

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Dan Chapman has been appointed Client Director Head of Surety, Trade Credit and Political Risk at Aon Australia.

He previously worked in trade credit and surety at Lockton, Origin Insurance Brokers and Australian Reliance, and also spent three years as a credit risk analyst and underwriter for credit insurer Euler Hermes in the UK.

Aon MD Specialties Jennifer Richards says Mr Chapman “brings with him a wealth of experience, having held senior positions in both Australia and London at pre-eminent credit brokers and underwriters”.

He will be responsible for increasing Aon’s market presence across the three market segments.

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International

Insurance the ‘new frontier’ for tech innovators

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Innovators and investors are shifting focus from banking to insurance, according to the International Association of Insurance Supervisors (IAIS).

In a new report on insurtech, it says as banking becomes more competitive, insurance is seen as the “new frontier”.

“The level of investment in technology within the insurance sector has historically lagged behind the banking sector,” it says.

“However, as the banking sector matures, innovators are seeking to disrupt other financial services – insurance is viewed by many as the next great opportunity for investment.”

The IAIS warns the growth of insurtech is inevitable, and implications for established insurers could be significant.

“These start-ups are targeting all areas of the insurance value chain – from marketing and distribution through to underwriting and pricing of risks, and ultimately to settlement of claims,” it says.

“In most cases individual start-ups are focusing on improving specific aspects of the value chain and collaborating with incumbents, but there have also been limited examples where start-ups are looking at ways to remove the need for an insurer – using peer-to-peer type business models.”

See ANALYSIS.

Disruptors ‘open new doors’ for insurers

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A quartet of disruptive forces upending the global economy have created growth opportunities for insurers, according to reinsurance broker Guy Carpenter.

Insurers that accept and innovate will have a better chance of flourishing in the new economic order, shaped by growing urbanisation, technological advances, rising connectivity and an ageing population.

“Fundamental disruptive forces are driving monumental changes in the global economy at an unprecedented rate,” Vice-Chairman Global Strategic Advisory Victoria Carter said.

“These forces compel the (re)insurance industry to adjust to the new reality and capitalise on the opportunities created.

“The (re)insurance industry, faced with a rapidly changing world, must re-evaluate its role and recognise that the traditional business model is not designed to meet the demands of this new environment, even though it may continue to generate revenue.”

An estimated $US43 trillion ($57 trillion) will be invested in urban infrastructure between 2013 and 2030, meaning there is a huge market for insurance services, she says.

Growing connectivity and technological advances have opened a new phase of globalisation, creating new demand for insurance-related services and products.

“The rate of technological change is accelerating in scope, scale and economic impact,” Ms Carter said. “Concomitant with technological change is the world’s increasing hyper-connectivity, from trade and capital to the movement of people and transfer of data.

“These changes can be unsettling, but as new risks emerge, opportunities to transfer risk follow. As the insurance industry harnesses the data and new technology, its ability to understand, measure, monitor and price risk significantly improves.”

US and China lead insurers to $3.7 trillion by 2020

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The global non-life insurance market will exceed $US2.7 trillion ($3.79 trillion) by 2020, buoyed by strong growth in the US and China, according to research group MarketLine.

The market grew 5.4% a year from 2011-15 to $US2.03 trillion ($2.64 trillion), it says.

Severe weather events in the US, which accounts for almost 40% of global insurance revenue, have lifted property cover, particularly in Florida, where 14% of insured catastrophe losses occur.

China’s motor insurance market has grown rapidly since the nation introduced compulsory third party cover in 2006. Motor cover now accounts for 57% of the non-life market.

More cars on China’s roads and drivers choosing expensive, comprehensive cover is fuelling the boom.

The global non-life market is forecast to grow at 5.9% a year from 2015-20.

MarketLine analyst Nicholas Wyatt says there is scope for growth beyond that.

“Motor insurance is comfortably the market’s largest segment, and there are still a number of sizeable, largely untapped markets,” he said.

“In countries such as Indonesia and South Africa, car insurance is not a legal requirement and there is a chance such jurisdictions could bring their legislation into line with that of other nations. This could serve as a catalyst for further market growth.”

Lloyd’s devises new approach to assess risks

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Lloyd’s and modelling company Arium have developed a data-driven methodology that improves insurers and reinsurers’ ability to assess risk exposures.

The tool uses building blocks, or “shapes”, to map loss scenarios and categorise casualty events based on a company’s activities that may be affected by all classes of risk.

“This is a tremendously exciting development,” Lloyd’s Performance Management Director Jon Hancock said. “It is in everybody’s interest to classify liability risks as accurately as possible, and this methodology represents a real step forward for the industry.”

Hidden risks that could disrupt operations can also be identified using stochastic modelling of liability accumulation risk.

Data from previous high-profile events was used to develop the building blocks, including the 1989 Exxon Valdez oil spill, the Takata airbag recall, the Target payment card breach and Sony PlayStation hacks.

A methodology paper says the new approach “provides a new, structured way of analysing casualty events, regardless of risk classification”.

“Many different scenarios can be modelled using a handful of shape types, where each type can be characterised according to the parameters of the loss event,” the paper says.

“Breaking liability risk modelling down into blocks, which mirrors the way in which natural catastrophe risks are divided into region-perils, makes it easier to carry out the modelling.”

Cat losses dent Munich Re’s profit

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Munich Re’s profit dipped 17% to €2.58 billion ($3.6 billion) last year due to natural disaster costs incurred in the fourth quarter.

Natural catastrophe losses for the full year were €929 million ($1.3 billion), mainly comprising Canadian forest fires at €404 million ($567.06 million), the New Zealand earthquake at €251 million ($352.3 million) and Hurricane Matthew at €232 million ($325.63 million).

Man-made major losses totalled €613 million ($860.41 million).

Gross written premium was down 3% to €48.85 billion ($68.2 billion) compared with 2015, mainly due to reduced shares in large-volume treaties, the sale of Ergo Italia and negative currency translation effects.

Investment income improved 0.4% to €7.56 billion ($10.6 billion).

The combined operating ratio for property and casualty deteriorated to 95.7% from 89.7%.

The Ergo primary insurance business reported a loss of €40 million ($56.12 million), an improvement on 2015’s loss of €227 million ($318.62 million).

Munich Re director Torsten Jeworrek says the result comes despite intense competition and further price softening.

“Munich Re was able to hold its own by means of skilful cycle management,” he said. “It withdrew from business that no longer met profit expectations, but was able to expand on or write new profitable business.”

After 12 years at the helm CEO Nikolaus von Bomhard will hand over to life reinsurance specialist Joachim Wenning from April 27. Mr Wenning has been with Munich Re since 1991 and served on the board for the past seven years.

Renata Jungo Brüngger has succeeded Wolfgang Mayrhuber on the supervisory board after he resigned on December 31.

Insurers put funding into weather forecaster

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Tokio Marine HCC and WR Berkley have invested $US17 million ($22.1 million) in Weather Analytics, a provider of weather and risk-predictive software for the insurance industry.

The capital takes the US-based software-maker’s overall funding above $US30 million ($39 million).

“This financing will accelerate scientific and technical innovation that vastly improve decision support in risk selection, pricing and policyholder services for insurance companies across the globe,” Chairman and CEO Bill Pardue said.

WR Berkley, a client of Weather Analytics, believes its investment will pay off.

“From underwriting, to actuarial sciences, to claims – the potential for better decision-making and improved services to insureds is tremendous,” President and CEO Robert Berkley said.

“As a client of Weather Analytics, we already are seeing concrete benefits by leveraging transformational technologies originally developed for the national intelligence and defence communities.”

Fairfax increases cash portion of Allied World offer

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Fairfax Financial Holdings has raised the cash portion of its $US4.9 billion ($6.4 billion) cash-and-stock offer to acquire Swiss (re)insurer Allied World.

It will now pay $US28 ($36.50) cash – including a $US5 ($6.50) special dividend – per share to Allied World shareholders, instead of $US10 ($13) announced in the original offer.

The original offer comprised $US10 cash and $US44 ($57.30) in Fairfax stock.

Increasing the cash portion of the offer means Fairfax can “minimise the dilution to Fairfax shareholders”, Chairman and CEO Prem Watsa says.

Canada-based Fairfax has been growing its global insurance portfolio through acquisitions in the past two years, including buying AIG’s business in Latin America and Turkey.

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Analysis

Facing up to insurtech

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Insurtech is on its way, and the insurance industry must brace for major change.

A new report from the International Association of Insurance Supervisors (IAIS) casts a comprehensive eye over the insurtech landscape, and its findings are a wake-up call not just for insurers, but for regulators and consumers too.

At the same time, the Australian Competition and Consumer Commission has warned that not all the consequences of fast-moving technologies and digital disruption are positive for the people it aims to protect.

The IAIS believes a range of push and pull factors make the ascendance of insurtech a virtual inevitability.

“Every process in the value chain, from product development to claims management, is being revolutionised by technological innovations – the pricing and underwriting processes being the most impacted.”

In 2014 about $US800 million ($1.05 billion) was invested in insurtech, but by 2015 this had more than tripled to $US2.5 billion ($3.29 billion).

Investment and intellectual firepower is increasingly being targeted at insurance, the report says, and changing consumer demands, particularly from “always online” Millennials, will have a fundamental impact on product development.

“As the banking industry becomes more competitive, some see insurance as the new frontier,” the report says.

“In addition, many entrepreneurs are seeking to exploit what they see as weaknesses in the incumbents’ business models – for instance, legacy IT systems and inertia in responding to changing consumer demands, such as a sharing economy.”

The report highlights a number of key innovations already affecting insurance, including the Internet of Things, telematics, Big Data, comparators and robo-advice, artificial intelligence, distributed ledger technology and peer-to-peer insurance.

“These technological innovations and new business models are likely to result in changes in the nature and type of risks covered, as well as potentially changing the relationship between insurers and policyholders,” it says.

Established insurers’ responses to insurtech can vary – it can be seen as either a threat or an opportunity.

Three out of four insurers believe some part of their business is at risk of disruption and 90% fear losing part of their business to start-ups, but many also see the benefits of collaboration.

“Given the enabling role insurtech firms are playing, as well as the challenges facing the established insurance sector and the barriers to entry for new businesses seeking to act alone, collaboration could result in mutual benefit – for the insurers and for customers.”

The IAIS says it is impossible to know the full impact of insurtech at this stage, so it has analysed three possible scenarios:

  • Incumbents successfully maintaining the customer relationship
  • Fragmentation of the insurance value chain with incumbents no longer in control
  • Big technology groups squeezing out traditional insurers.

The report concludes insurtech could reduce insurance market competitiveness over the long term, cause traditional insurers to exit the market and result in more individualised insurance products that could affect consumer choice.

It could also increase insurance sector interconnectedness through the use of a limited number of technology platforms, and lead to changes in insurer business models if profit margins come under pressure.

While it could be good news for many consumers, others may be threatened.

“Some of the innovations may disrupt the conventional risk pooling that is common to insurance,” the report says.

“The collection of data on insurer risk or policyholders may enable a more granular risk categorisation … and may lead to issues around affordability of certain insurance products, possibly even leading to exclusion.”

There may also be issues concerning the use, ownership and protection of data.

The report flags several challenges for insurance supervisors, including balancing the risks and benefits of insurtech; creating an environment that fosters innovation; evaluating and adjusting the prudential regulation framework; and considering the adequacy of current reporting requirements.

“Fintech innovations have the potential to change fundamentally the way the insurance sector serves policyholders,” Chairman of the IAIS Executive Committee Victoria Saporta says.

“Because of both the scope and pace of change, insurance supervisors must be alert to new developments and make necessary adjustments in their supervisory practices and skills.”

The report is clear that while the precise impact of insurtech is still unknown, a fundamental shift is under way, driven by unstoppable forces.

Insurtech can no longer be dumped in the “too hard” file – it’s time to face up to what’s coming or pay a heavy price.

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