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A NOTE FROM THE PUBLISHER

This is the last Monday edition of insuranceNEWS.com.au for 2018. The Daily service will continue until Friday.

We will return on Monday February 4, although our Breaking News service will remain in action to report any major developments in the industry during the summer break.

Since January 1 we have published 2260 articles online, 34 of them Breaking News. This doesn’t include 251 live blog posts from the royal commission during September.

Up to noon today the insuranceNEWS.com.au website has hosted 961,280 visits this year from 404,386 individuals. The number of total page views for the year is currently 2,754,958.

Please remember that we wouldn’t be able to provide this service without our advertisers, who are our sole source of revenue. They deserve your support. Thank you also to all our readers, especially those whose feedback, news tips and comments are greatly appreciated.

The team at insuranceNEWS.com.au join me in wishing our readers everywhere a safe and happy festive season.

Terry McMullan

Publisher

Deep thinking required post Hayne, actuaries say

The Actuaries Institute has urged companies to think “beyond the immediate solution” when addressing issues identified by the Hayne royal commission and the Australian Prudential Regulation Authority’s (APRA) report on Commonwealth Bank.

The inquiries have flagged individual and collective greed that puts self-interest above shareholders and clients, and a reliance on regulation and process to enforce good conduct.

The institute says companies need to view issues from more than one perspective and maintain ethical standards, find ways to solve complex challenges and implement systems that reinforce best behaviour.

“The challenges articulated in the APRA report and Hayne interim report require thinking beyond the immediate solution to a much deeper understanding of the longer-term consequences of actions,” the institute’s specialist consulting actuary Andrew Brown says in a paper. “It requires greater adaptive capacity in individuals, teams and systems.

“The implications are not only for organisations but also for their shareholders, regulatory bodies and community.

“This requires a significant uplift in investment in building adaptive capacity.”

Fels yet to respond to ICA complaint

NSW Emergency Services Levy Insurance Monitor Allan Fels says he has not seen the official complaint made against him by the Insurance Council of Australia (ICA).

insuranceNEWS.com.au reported last week that ICA has written to NSW Treasurer Dominic Perrottet to protest against Professor Fels’ latest demand for data.

ICA accuses him of stepping outside his remit and failing to listen to industry concerns.

“The monitor won’t be commenting without actually seeing a complaint,” a spokeswoman for Professor Fels told insuranceNEWS.com.au.

Professor Fels was engaged by the NSW Government to monitor insurance pricing after the removal of the emergency services levy on policies – something that never happened following a last-minute deferral.

Despite the reform’s delay, he has remained in the post. Relations with insurers have soured after he used data to attack them on a range of issues, most recently a so-called “loyalty tax”.

Now he has widened his demand for data from insurers, drawing an official complaint from ICA.

A previous order issued by Professor Fels focused only on home and contents policies, but a new order requires additional comparative pricing data for motor and commercial policies, plus disclosure of fees to intermediaries. He has given insurers eight months to comply.

In a letter seen by insuranceNEWS.com.au, ICA calls on Mr Perrottet to force Professor Fels to withdraw the demand.

“The Insurance Council is concerned that in issuing the order, the monitor has acted outside his powers,” the letter says. “Further, the order has been issued without following the appropriate consultation process and without due regard for the impact such requirements would have on the insurance industry.”

ICA argues that while Professor Fels has the right to demand data from insurers, it has to be relevant to his role as insurance monitor.

“The information the monitor can require insurance companies to provide is limited to information about emergency services levy reform,” the letter says.

“[The legislation under which Professor Fels operates] does not provide the monitor with unlimited power to issue a notice to require an insurer to provide any information he specifies.

“As the emergency services levy reform has been indefinitely deferred, the Insurance Council considers that the monitor has no basis… to require insurers to provide comparative pricing information.”

ICA says the industry was not properly consulted about the new order, and Professor Fels did not act on any of its concerns.

“The Insurance Council requests that the minister issue a general direction in writing to the monitor that the monitor withdraw the order.”

In Insurance News magazine this month

Allan Fels, the monitor of NSW’s non-existent emergency services levy change and primary foe of the insurance industry, is stirring up insurers again. Believing in the principle of knowing your enemy, Insurance News magazine interviewed the industry’s most strident critic for its December edition. He might just surprise you.

Insurance News has also interviewed QBE’s Vivek Bhatia about his drive for “everyday brilliance”, we’ve asked industry leaders about the five issues that keep them awake at night and we report on growing support for tackling global warming.

The edition also features our annual favourites – the 20 most influential people and organisations in the insurance industry, and our picks for the best insurance TV ads of the past year.

You’ll find all that and lots more in this month’s issue of Insurance News magazine, the industry’s most popular and widely read publication.

It will be thumping through letterboxes across Australia over the next few days, after which we’ll alert subscribers when we publish it online.

Bank class action ‘shows coverage gap’

A NSW Supreme Court ruling on a Bank of Queensland class action defence claim has highlighted a potential gap in cover under civil liability policies, law firm Allens says.

The bank sought indemnity for payments resulting from a class action brought by 192 investors who lost money in a Ponzi scheme run by Sherwin Financial Planners.

The investors took action against the bank because they said it allowed certain account transactions to be made at Sherwin’s direction. The claim was settled for $6 million.

An Allens report says the key issue in the Supreme Court case is whether costs and losses incurred amounted to one or several claims under the bank’s civil liability policy.

Justice James Stevenson found there were multiple claims, and even if that wasn’t the case an aggregation and disaggregation clause in the policy delivered the same result.

“As a result of the decision, each of the claims under the policy attracted a $2 million deductible and the bank was left without effective cover for its claim,” Allens says.

Partner Louise Jenkins says policy wordings can vary quite significantly and it is difficult to generalise about the impact of the Bank of Queensland case, but there is nothing particularly unusual about the underlying claim to differentiate it from similar ones arising from class actions.

“We consider there is a real likelihood that the same result would arise if an insured made a claim arising from a class action under a similarly worded policy,” Ms Jenkins told insuranceNEWS.com.au.

“From our perspective, the most important takeaway for all insureds is they should take care to review their policy wording and ascertain precisely what is, and is not, likely to be covered in the event of a similar claim.”

AIG was the lead insurer under the policy. The case details can be viewed here.

Customer, climate change top industry concerns

Insurances bosses have listed climate change and customer engagement among key challenges for next year in a KPMG survey.

More than 10% of responses in the study of 220 C-suite executives come from the insurance industry.

Climate change does not figure in the overall top 10, but within the industry concerns about the business impact of global warming weigh heavily.

“Climate change is number 13 on the CEO list, but for insurers it is certainly much higher because they are directly impacted,” KPMG Insurance Partner Scott Guse told insuranceNEWS.com.au.

“I think the view coming from the CEO survey is that they see a lot of inactivity from the Government and that the onus has been placed more on the individual organisations to make their own choices and decisions about climate change at this point.”

Customer engagement is another critical challenge for the industry.

The issue places fifth in the survey ranking, but Mr Guse says insurance leaders view it as a task that “permeates across a lot of the things they are doing” such as digital transformation and innovation.

“The customer is at the heart of all these things. How do we make digital transformation work for the customer? It comes back to customer centricity. Every action that you do around digital innovation needs to have the customer at the heart.

“What works well for the customer, what works best for the customer… those are the decisions you make.”

Digital transformation is the top challenge overall, followed by innovation and disruption, regulation, political paralysis and customer centricity.

Rounding up the top 10 are cost competitiveness, public trust, cyber security and data privacy, Big Data, and infrastructure and liveable cities.

Transport sector warned on automation dangers

Transport and logistics businesses must address risks that come with increased use of robotics, artificial intelligence and other new technologies, Aon says.

While their adoption brings business efficiencies, there are downsides such as exposure to cyber attacks.

Global shipping giant Maersk lost about $US300 million ($417 million) in last year’s NotPetya cyber attack.

“The opportunities from both a financial and operational perspective are clear,” Transport and Logistics Practice Leader Mark McNab said. “However, enterprises need to keep a close eye on the impact of automation on risk.

“Incorporating technology vastly changes the risk profile of the business, and traditional insurances such as property, liability and marine, for example, simply do not respond to these new risks.

“In many instances we see organisations incorporating newer technologies without adequately assessing the risk, inadvertently creating an uninsured balance sheet exposure.

“Risk advisers and insurers must keep pace and cater to the needs of our clients who continue to invest in technologies.”

Aon has set up the Transport and Logistics Industry Practice Group to help clients tackle such evolving risks.

Vehicle crime: WA leads fall, Victoria makes headway

The number of motor vehicle thefts fell 4% in the year to September, national figures show.

For heavy vehicles, short-term and profit-motivated thefts dropped 12% and 17% respectively, according to the National Motor Vehicle Theft Reduction Council.

Short-term thefts of passenger and light commercial (PLC) vehicles fell 4%, with the biggest reduction in WA at 14%. Queensland recorded a 12% increase in PLC theft. While thefts in Victoria dropped by 8%, it still had the largest number, at 12,778.

Profit-motivated PLC thefts grew 5% but were still below the 2014 peak.

Motorcycle theft has continued to rise, up another 4% on the previous year, with an adjusted recovery rate of 46%.

Overall, 53,016 vehicles were stolen in the year. Holden Commodore VE’s were the most popular cars among crooks: 951 were stolen in the year, followed by the Nissan Pulsar at 748.

Queensland held the top three local government areas for theft numbers: Brisbane (2151), Gold Coast (1578) and Logan (1065).

Hundreds of supermarkets to face climate risk

Nearly 200 supermarkets face the risk of flooding, bushfires or sea level rise, undermining their insurability, climate change modelling shows.

The Cross Dependency Initiative (XDI) says its findings raise questions about food security during extreme weather.

The modeller assessed climate risk for all Coles, Woolworths and Aldi stores nationwide over their assumed 80-year life span. They were assessed based on pre-1990 extreme weather data, and then climate change modelling was applied.

It found 6% of supermarkets already suffer damage and disruption risk at such high levels they are not typically insurable. This rises to 9% on future modelling.

XDI says 56 supermarkets will be severely affected by sea level rise within 80 years.

At present, 87 outlets are at risk of flooding, 18 face bushfire risks and only four face coastal inundation.

By 2100 9.7% of Woolworths stores will be at risk from climate change, with Coles at 8.8% and Aldi at 7.3%, XDI says.

“Asset owners should be concerned and it’s also relevant to customers,” XDI Director of Science Karl Mallon says. “Food supply is critical and needs climate planning.”

Residents accuse Christchurch council over flood threat

Christchurch residents have protested over a council planning change they say will increase flood risk in a large part of the city’s lowest-lying coastal suburbs.

The South Brighton Residents’ Association (SBRA) says the change will remove a section from the district plan relating to an area governed by high flood hazard management rules. The area has subsided by up to one metre because of the Christchurch earthquake.

SBRA secretary Hugo Kristinsson has accused the council of providing inaccurate maps to insurer FM Global, which shows a break in the flood risk in South Brighton.

The council has also allowed houses to be rebuilt based on future assumptions about flood protection measures, he says.

Christchurch City Council has strongly refuted the accusations, with a spokesman telling insuranceNEWS.com.au it has explained to the SBRA several times that the flood maps used for planning purposes are not inaccurate.

FM Global’s flood map identifies moderate to high flood hazard in areas where flood data is insufficient. It uses hydrology and hydraulic science, and accounts for ground elevation and surface texture.

The proposed changes extend the application of a rule allowing for the replacement of houses at recommended minimum floor levels. No sections are being removed from the district plan, and minimum floor levels are required in all instances, the spokesman says.

The rule change would allow residents to repair and replace houses with properties of a similar size without needing a resource consent from the council.

However, the SBRA says Brighton peninsula needs engineered protection against flooding and erosion and, failing that, the council should implement a policy of adaptive management or managed retreat.

Mr Kristinsson says if there is no protection, insurance and mortgages will become unaffordable.

People are already living in tiny houses, buses and containers, and the standard of housing in coastal areas will continue to degrade if Christchurch City Council retreats from the suburbs, he says.

FM Global was contacted for comment but did not respond before deadline.

ICA warns on Airbnb cover gap as holidays loom

People who rent their homes via short-stay websites such as Airbnb may not be covered for damage, the Insurance Council of Australia (ICA) warns.

More than 140,000 properties will be listed for short-term rental during the holidays, and most insurers regard this as commercial use of the property, because the likelihood of damage increases.

Claims incurred while a property is rented may be declined, ICA says.

Host protection insurance offered by rental platforms does not cover personal property or public liability in shared areas.

Irreplaceable items should be removed and owners should check if short stays are allowed under strata and council rules and tenancy agreements, ICA says.

A short-term landlord insurance policy can cover the property if it is professionally managed.

Distraction a leading cause of crashes: AAMI

Most types of road accident are increasing, with driver distraction largely to blame, according to AAMI’s annual crash index.

People taking their eyes off the road or trying to “multi-task” are the most common causes of accidents, the insurer says.

The NT had the dubious distinction of recording the highest proportion of collisions with a stationary object last financial year, at 31% of accidents.

Tasmania was next on 29%, with SA at 24%. Nationally, 18% of all crashes involved a stationary object, down on previous years. Collisions with animals also declined.

Nose-to-tail collisions were the most common accidents, accounting for 31% of the total.

Victoria had the highest percentage at 33%. Rear-ending commonly occurs in highly congested areas in peak-hour traffic. The national average was 31%.

AAMI analysed more than 360,000 accidents last financial year.

About 26% of car accidents in NSW were caused by drivers failing to give way to other road users, the highest in the country. Victoria was second at 25% and the national average was 23%. The index links this behaviour to impatient driving and lapses in judgment.

About 12% of collisions happened while reversing, 8% of crashes involved a parked car and 6% an animal.

Some 16% of all accidents were on Fridays, the most common day of the week for crashes.

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Corporate

Lawyers invite more councils to join JLT class action

Law firm Quinn Emanuel Urquhart & Sullivan has invited more councils to join a class action it filed last week against JLT.

The NSW Supreme Court action, supported by litigation funder Harbour, is led by Richmond Valley Council, while the law firm says six other local governments have also expressed interest.

But JLT says it will “vigorously defend” the action, which is open to councils provided with broking services from January 1 2009 to December 3 this year and which obtained cover through membership of the NSW mutual liability scheme.

Leo Demer, JLT’s Global Head Public Sector, says claims in the Quinn Emanuel action are “utter and absolute nonsense”.

“It has absolutely no merit and we will be vigorously defending the action,” he told insuranceNEWS.com.au.

JLT provides insurance services to more than 500 councils across Australia and has highlighted its strong track record in providing cover through mutual schemes.

“Every scheme produces an audited set of accounts that clearly define the significant surpluses sitting in those schemes for the benefit of members,” Mr Demer said earlier this year.

“Mutual schemes were created because councils in Australia could not buy any cover in the open market. The suggestion that councils have paid excessive premiums is not supported by the facts.”

The class action alleges JLT breached general law and contractual obligations, plus fiduciary duties, in its provision of insurance broking and advisory services.

“We believe a vast majority of NSW councils have used JLT’s services and, as a result, may have overpaid on their insurance premiums, some for a number of years,” Quinn Emanuel Managing Partner Michael Mills said.

Mr Mills alleges many councils have made substantial premium savings since leaving JLT, often about 30-50%, indicating the company may not have acted in councils and ratepayers’ best interests.

The law firm has flagged the potential for similar class actions in other states.

Richmond Valley GM Vaughan Macdonald says the council last year put its insurance out to tender and obtained a saving of 53% on the premium it had been paying.

“For that year alone, the saving was $300,000, and this has been going on for many years,” he said.

Townsend steps out of retirement to run Allianz Worldwide Partners

Allianz Worldwide Partners has installed Garry Townsend as Acting CEO following the departure of Craig Dalzell, who left after a leadership structure review.

Mr Townsend, who retired as Allianz Australia’s COO in December 2013, brings “deep knowledge of the Australian insurance industry and vast experience of the Allianz business”, a spokesman told insuranceNEWS.com.au.

“With a strong commercial background within the organisation, Allianz Worldwide Partners is well positioned to move forward in a new strategic direction under the new CEO.”

The spokesman says Mr Dalzell resigned to pursue new opportunities. He took the role in May 2016 when the business operated under the Allianz Global Assistance brand.

He was Allianz Global Assistance CFO from 2014 and, before that, a director of advisory services financial management for KPMG.

Allianz Worldwide Partners has also confirmed the departure of General Counsel Gavin Byrnes. Richard Ollier will take over his portfolio as Chief Compliance and Legal Officer, a role he assumed last month, according to his LinkedIn profile.

Mr Ollier was previously Americas regional chief compliance officer and VP compliance and legal Canada.

AIG aims for regional growth with new appointment

AIG says it will target growth in the Asia-Pacific region following the creation of a new high-level role.

Chairman, President and CEO of MetLife Japan Sachin Shah will start as AIG’s new CEO Asia-Pacific at the end of this month, subject to regulatory approval.

He will report to CEO General Insurance International Chris Townsend and be based in Singapore.

CEO Australia Noel Condon and CEO New Zealand Elliot Hill will report to Mr Shah.

“I look forward to working closely with Sachin to deliver innovation and value to our customers and distribution partners in this dynamic region,” Mr Townsend said.

Mr Shah, who spent 20 years with MetLife in various roles, says he looks forward to growing AIG’s business in the region’s “fast-moving economies”.

QBE to review model on fossil fuels

QBE will rethink its underwriting strategy as it again faces pressure to stop covering coal-related business.

An annual ranking shows Australia’s only global insurer, along with its US peers, still has strong business ties with the coal sector compared with leading European rivals.

QBE scores zero for withdrawing coverage and reducing investments in coal businesses, according to the Greenpeace-backed Unfriend Coal campaign.

The insurer says it is working on the matter and is in the final stages of a detailed investment portfolio review.

But local activist group Market Forces, a member of the global campaign, is having none of it.

“QBE is in a hole and it’s still digging,” campaigner Pablo Brait told insuranceNEWS.com.au. “The scorecard clearly shows QBE is falling behind its international competitors on climate action.

“Major insurers such as Axa, Allianz and Zurich have dumped their coal company shares and are restricting their underwriting of coal. QBE continues to do nothing in this area despite climate change-fuelled natural disasters threatening its profits and entire business model.”

However, a QBE spokesman told insuranceNEWS.com.au the insurer takes climate change seriously, as demonstrated by its support for recommendations made by the Taskforce on Climate-related Financial Disclosures (TCFD).

“Climate change is a significant risk for the industry and QBE is acting to address climate-related risks and opportunities for our business,” the spokesman said. “[This year] we published an action plan in our half-year report that describes how we will implement the TCFDs recommendations.

“[Next year] we will also review our underwriting strategy in line with detailed analysis of climate-related risks and opportunities.”

Gallagher acquisition opens up aviation

Gallagher has entered the local aviation market with the acquisition of key parts of the Boston Marks Insurance Group.

Boston Marks has a diverse client portfolio ranging from regional airlines and corporate jet operators to aero-medical operators, tourism, flying training, aerial agriculture, firefighting, mustering, private aircraft, maintenance and ground handling liability, and drones.

Its Australian network under Australia CEO Damian Hooper also covers southeast Asia and the Pacific.

The acquisition comprises a retail brokerage in Australia and New Zealand, and wholesale operations in the UK and US.

A Gallagher spokesman declined to disclose the acquisition value, but told insuranceNEWS.com.au the transaction involves nine employees in Australia and 14 in New Zealand.

Gallagher MD Australia and New Zealand Steve Lockwood says Boston Marks has “fantastic people and is a strong global player in the specialist aviation insurance market”.

Established in 1987 in Auckland, Boston Marks moved into the Australian market in 2010 after the amalgamation of two independent aviation specialists in Queensland and WA.

Gallagher MD Specialisms Paul Harvey says the acquisition “positions us well to support the growth of corporate and private aviation operators in the region, and the industries that support aviation through our broader specialism offering”.

AUB completes $116 million raising

AUB Group has completed a $116 million capital raising to fund its purchase of a majority stake in Adroit Insurance & Risk, and provide flexibility for further acquisitions

The entitlement offer, underwritten by Credit Suisse, was for about 9.5 million shares at a price of $12.30.

The institutional component raised about $98 million, with a 66% take-up rate by institutions. Shares not purchased under the offer were allocated to existing and new investors.

About $18 million was raised from the retail shareholder component, with AUB receiving applications for about 100,000 shares and the remainder allocated to sub-underwriters.

CEO Mark Searles says AUB Group is continuing its strategy of “supplementing organic growth with relevant acquisitions”.

The new shares started trading on the Australian Securities Exchange today.

Judge condemns CBL conduct

CBL Insurance was ordered into liquidation because management displayed “a lack of commercial probity”, according to a judge.

The High Court in Auckland last month approved the Reserve Bank of New Zealand’s application to wind up the insurer, which has been in court-imposed interim liquidation since February.

Justice Patricia Courtney says a few transactions the insurer made suggested a “preparedness to manipulate records” that the bank and other third parties rely upon to make decisions.

One involved a €12.5 million ($19.5 million) deposit with the National Bank of Samoa. Interim liquidator McGrathNicol’s attempt to have these funds returned led to the discovery the deposit was part of a complex lending transaction.

“I was satisfied that there had been aspects of CBL [Insurance’s] management that indicated a lack of commercial probity,” Justice Courtney says in her judgement.

“They suggested a lack of candour in dealing with the company’s auditors and the regulator. The bank asserted that, in these circumstances, it was justified in expressing a lack of confidence in the conduct and management of the company’s affairs, and I agree.

“I was satisfied that it was just and equitable that CBL Insurance be wound up.”

The Reserve Bank application asserts the insurer was in breach of its required solvency margin and failed to comply with direction laid down by the regulator.

It also asserts it was just and equitable to wind up CBL Insurance because it was balance sheet insolvent and because of directors’ impropriety.

Former MD Peter Harris, who has been working on an alternative solution, has criticised the liquidation.

“We are currently working with the CBL liquidator to try to bring about a better outcome for all New Zealand policyholders,” Mr Harris says in a statement obtained by insuranceNEWS.com.au.

“Under our proposal the residual creditors and New Zealand policyholders would have been fully paid. Under the [bank’s] liquidation proposal they will make a substantial loss.”

NTI backs livestock blockchain trial

National Transport Insurance (NTI) is participating in a blockchain trial involving the beef industry, which aims to improve safety and animal welfare and monitor export security.

Platform developer BeefLedger is running the pilot to track the paddock-to-plate journey of Australian beef.

The trial run will see premium live cattle transported from SA’s Limestone Coast to a processing facility in NSW, before shipment to Shanghai.

“While it’s early stages, we’re optimistic of the outcomes and learning, and what it potentially means for Australian suppliers, exporters and consumers,” NTI CEO Tony Clark said.

Johns Lyng secures repair deal with WA insurer

Building services provider Johns Lyng Group has entered an agreement with a major WA-based insurer to provide domestic repair work on up to 100 properties a quarter.

The agreement is for an initial 12-month term, with provision for a further five years, and covers both business-as-usual claims and those made during peak events such a storms and floods.

The company says the name of the WA insurer will not be disclosed until the agreement takes effect on February 1.

“We’re committed to robust national growth and so this is another milestone in our strategy,” CEO Scott Didier said. “Johns Lyng Group has been operating in WA for less than four years and in that time we’ve seen strong organic growth in local job volumes.”

Mr Didier says the company is positive about the pipeline of work in its other business units, and recent wins give it “great momentum” going into the second half of the financial year.

Claim Central takes on 360 motor workload

Claim Central Consolidated has started to manage 360 Underwriting Solutions’ commercial motor claims under a three-year partnership that started last month.

Payouts will be handled via the digital claims management specialist’s ClaimLogik and Hello Claims platforms.

“Claim Central’s innovative technology solutions will supplement our focus on improving the service experience for our customers in a digitally enabled way,” 360 Underwriting Solutions GM Denis Morrissey said.

Agile partners with wholesale broker

Insurtech Agile Underwriting Services has announced a strategic partnership with Fando Group, an independent wholesale broking business.

“The appointment of Fando is an opportunity for us to take a strategic look at the placement process of all our products,” Agile CEO Robin Barham said.

“We see huge benefits in the Fando Group being part of our outward strategy, and Fando’s independence and sole focus on wholesale business works well for our retail brokers.”

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NSW Treasurer hits back after workers' comp criticism

NSW Treasurer Dominic Perrottet has defended the state’s reformed workers’ compensation scheme following criticism from businesses.

The NSW Business Chamber last week called on Mr Perrottet to commission an urgent review of the system following employer complaints about poor practices since the reforms were introduced.

But today a spokesman for Mr Perrottet told insuranceNEWS.com.au the changes had brought huge improvements.

The old scheme “was failing injured workers, was predicted to be at least $4.1 billion in deficit, and businesses were facing premium rises of 28%”, the spokesman said.

“Today the most injured workers are receiving more support, business premiums have been reduced, and the scheme is back in the black .

“We have made significant reforms in the past three years but are always looking at ways to improve the system, so are happy to hear of suggestions.”

Under reforms enacted in 2015, roles in the workers’ compensation system are split between the State Insurance Regulatory Authority (SIRA), Insurance and Care NSW (icare) and SafeWork NSW.

NSW Finance, Services and Property Minister Victor Dominello told insuranceNEWS.com.au NSW Business Chamber's concerns would be discussed.

“We all have an interest in maintaining a fair, efficient and financially sustainable workers’ compensation scheme,” Mr Dominello said.

“NSW businesses play a crucial role in the scheme and I know that both icare and SIRA intend to work closely with the NSW Business Chamber to address the issues identified.”

The business chamber says inefficiencies in the system are inflating insurance expenses and negatively impacting both employers and employees.

“We’re hearing from employers across the state about poor claims management practices, causing lengthy delays in workers receiving necessary medical and rehabilitation services,” CEO Stephen Cartwright said.

“Premiums are calculated on the time it takes to return an injured employee to the workplace, so these delays are unfairly inflating insurance costs.”

Mr Cartwright says the group has received reports of claims being approved without appropriate checks or investigations, lengthy delays, poor advice and low levels of support for both employers and employees.

“The promised efficiencies and professionalism from the split of functions simply haven’t eventuated. Some would argue they have declined and this is why we have requested a post-implementation review,” he said.

The business chamber has meetings scheduled for later this week with a number of workers’ compensation stakeholders.

icare insures more than 310,000 NSW businesses and 193 government agencies, covering about 90% of public and private sector workers in the state.

Building report calls for mandatory recall insurance

A Senate inquiry report has called for mandatory product recall insurance for high-risk building products to be considered.

The Economics References Committee published its final report on non-conforming building products last week.

It says dodgy building products are increasingly putting lives at risk and forcing up insurance premiums.

The committee had already released interim reports focusing on two of the most serious issues – imported materials containing asbestos and flammable building cladding.

The final report also addresses concerns with non-conforming electrical products, lighting, windows and glazing, plumbing, engineered wood products and steel.

“The committee is extremely concerned by evidence to this inquiry that illustrates the growing prevalence of non-conforming building products,” the report says.

“Non-conforming building products pose serious risks to the construction industry, workers and the broader community.”

One possible measure would be the introduction of mandatory recall insurance for high-risk building products, because manufacturers or suppliers often go into liquidation after a product is identified as unsafe.

“The committee believes that where building products are deemed to be high-risk, consideration should be given to requiring importers and suppliers to hold mandatory recall insurance,” the report says.

Insurance Council of Australia GM Risk Karl Sullivan told insuranceNEWS.com.au he supports the intent, but there are complications.

“I can support the spirit of what they are trying to do, but there would need to be dialogue to make sure there were no adverse outcomes.

“Product recall insurance is available on a voluntary basis. If it became mandatory, who decides what is a high-risk building product and what is not? Is it retrospective? You could see a dampening down of building innovation.”

The report says the committee received evidence of products across a range of industry sectors that: are not fit for purpose; do not conform with the required Australian building regulations and technical standards; are counterfeit copies of legitimate conforming products; and are supplied with fraudulent certification or documents.

The committee makes a series of recommendations including that the Building Ministers’ Forum speeds consideration of a mandatory third-party certification scheme for high-risk building products and a national register for these products.

The forum should also examine international approaches for testing high-risk products, and government should develop a “confidential reporting mechanism” to enable industry and other stakeholders to report non-conforming products.

“The costs of non-conforming products are being passed on to consumers through costs of remediation, devaluation of properties, increased insurance premiums and costs associated with reduced energy and water efficiency,” the report says.

“Further, importers, suppliers and manufacturers of products that conform to Australian building regulations and technical standards are being forced to compete on an uneven playing field with cheaper, inferior non-conforming building products.

“The committee is particularly concerned about the potential safety risks to consumers and construction industry workers including risks of fire, electrocution, exposure to toxic chemicals and water contamination.

“Without urgent and effective action the risk to Australian lives will only increase.”

Read the full report here.

Berkshire Hathaway to manage SA CTP claims book

Berkshire Hathaway will take over management of the SA Motor Accident Commission (MAC) claims back book after making an unsolicited offer to the Government.

“We are thrilled to have agreed terms with SA to reinsure its auto liabilities, and we would love to find more opportunities to do business there,” Chairman and CEO Warren Buffett said.

SA said in October it would wind down the MAC as a “natural consequence” of the former Labor government’s decision in 2014 to privatise compulsory third party cover in the state.

Berkshire Hathaway submitted its proposal before the state election in March.

“Put simply, assets and liabilities from MAC will be transferred to Berkshire Hathaway’s National Indemnity Company, so that all the risks of managing MAC’s liabilities will be transferred to Berkshire Hathaway,” Treasurer Rob Lucas said.

“Part of the arrangement will see $300 million of the reinsurance premium retained in SA, with at least $100 million retained for five years, for local funds management.”

The Allianz claims management contract will remain in place at least until its expiry on June 30 next year. Berkshire Hathaway will explore long-term arrangements with Allianz.

After the deal is concluded, returns from MAC to the SA budget will reduce by up to about $68 million over three years from this financial year.

Mr Lucas says Berkshire Hathaway will establish operations in Adelaide under the new arrangements, which take effect next month.

Canberra revises flood risk mapping

A Canberra flood mapping overhaul has updated the risk assessment for a one-in-100 year event, reducing uncertainty and allowing insurers to fine-tune premiums.

It follows an ACT review and reassessment of flood levels for eight catchments, using latest technology to improve accuracy and predictions for a major event.

“The ACT flood data has allowed the Insurance Council of Australia (ICA) to quantify the flood exposure to Canberra residents with greater precision, which will allow for more finely tuned premiums,” ICA spokesman Campbell Fuller told insuranceNEWS.com.au.

“The release of this initial data has done much to reduce uncertainty in the ACT, lowering the potential number of flood-exposed land parcels by 39%.”

The latest information will be incorporated into the National Flood Information Database.

Canberra suffered flooding in February when the overflowing Sullivan’s Creek affected Lyneham, but previously its only major flood was in Woden in 1971.

The city’s artificial lake system was designed to create settling ponds for stormwater from the suburbs, minimising the risk of major incidents.

“While the likelihood of riverine flooding in the ACT is low, the maps will be important in helping plan the city and potential mitigation actions, and helping the community better prepare for potential riverine flood conditions,” Planning and Land Management Minister Mick Gentleman said.

Fewer than 200 buildings across Canberra and some public infrastructure such as roads are at risk of damage from the type of flood that has a 1% chance of happening in any given year. The ACT Government has sent letters to residents and business owners on blocks that have some risk, and there is a phone line for inquiries.

Community information sessions will be held in Mawson, Weetangera and Ainslie, with representatives attending from ICA, the Emergency Services Agency and the Environment, Planning and Sustainable Development Directorate.

The mapping was funded through the Natural Disaster Resilience Program, with matching contributions from the ACT Government.

EML secures ACT workers’ comp deal

EML will provide workers’ compensation services for the ACT Government’s self-insurance program under a four-year deal signed last week.

The agreement creates 30 full-time positions in Canberra. More than 1500 claims will be managed by EML as part of the ACT’s self-insurance licence under Comcare.

“The move to self-insurance with EML providing claims administration services will support our employees and ensure they have the best possible experience,” ACT Workplace Safety and Industrial Relations ED Michael Young said.

“EML has a great deal of history managing complex public sector work injuries across the country.”

Exclusions, conditions drive early AFCA complaints

Claim denials due to exclusions and conditions topped the list of general insurance matters reported to the Australian Financial Complaints Authority (AFCA) in its first month of operation.

AFCA says it received 209 complaints on those issues, followed by 181 on claim amounts, 179 on delays and 159 on other claim denial disputes. Service quality dissatisfaction led to 53 complaints.

General insurance was the second-biggest complaint area, representing 21% of cases, behind credit issues on 45%.

By provider type, banks prompted 2367 complaints, followed by general insurers with 1159 and credit providers with 1040.

AFCA launched at the start of last month, taking over from the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

Complaints to the authority across all sectors soared 47% after an information campaign to alert consumers to the new one-stop shop, but general insurance bucked the trend.

“The number of complaints made to AFCA [last month] against general insurers has decreased slightly, by 5%, when compared to complaints made to FOS in October,” a spokesman told insuranceNEWS.com.au.

“This is consistent with the decrease in the overall numbers of complaints received by AFCA about general insurance products and follows the trend FOS saw in general insurance over the last six months of operation.”

AFCA received more than 13,000 phone inquiries last month, with 6522 complaints from consumers and small businesses.

CEO and Chief Ombudsman David Locke says streamlined processes and systems performed well: 80% of complaints were lodged online and 15% of those received last month have been finalised.

“AFCA provides quick and easy access to fair resolutions,” he said. “This is part of our role in rebuilding trust in the financial services sector,” he said.

Fewer than 6% of licensee members had a complaint lodged against them last month.

icare funds wheelchair tech

State insurer icare is funding an innovative sensor-app platform to improve life for NSW wheelchair users.

The icare Foundation will give $500,000 to loop+ to develop a prototype seat mat that monitors a user’s position, pressure and general activity.

It aims to prevent common health risks such as pressure sores, which will affect about 85% of wheelchair users.

The sensor mat also promotes healthy wheelchair habits and slows development of scoliosis and respiratory issues.

icare supports nearly 390 people with spinal injuries through its Lifetime Care Scheme.

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Life Insurance

Consumers unwilling to share burden under DNA regime

About 61% of people are against subsidising life insurance premiums for insureds at higher risk of illness based on genetic testing, according to Financial Services Council (FSC) consumer research.

The FSC is using the research to design its moratorium on the use of genetic testing.

Under its proposal, all Australians can obtain up to $500,000 of life or total and permanent disability cover without having to disclose an adverse test result. There are also limits of $200,000 for trauma and $4000 a month for income protection.

The moratorium will take effect in July next year and continue for five years.

Most survey respondents are unwilling to pay any extra premiums to subsidise those who have had an adverse genetic test. A small minority would be willing to pay up to $5.

About 51% are in favour of setting premiums based on the likelihood of making a claim, and only 22% oppose individually set premiums.

About 63% of Australians would be prepared to take a genetic test.

The FSC warns the moratorium cannot be open-ended because the cost burden on other customers would be too great.

Senior Policy Manager Nick Kirwan says the science is advancing rapidly and no one knows the long-term cost.

But caps and regular reviews will ensure the long-term costs are manageable, he says.

The FSC will consult with geneticists, mental health advocates, consumer groups, the Australian Financial Complaints Authority and the industry’s Code Compliance Committee next week.

Consumers demand ‘fair, fast payouts’

Life insurance policyholders want faster payouts and better innovation and communication, according to an analysis of hundreds of consumer reviews on comparator Insurance Watch.

Even reviewers with successful claims are critical of long payment delays and voluminous documentation, Insurance Watch says.

Other issues include large premium rises, long wait times on the phone and being passed between consultants.

Consumers rate ClearView, AIA and OnePath as the top three life insurers this year.

“Insurers shouldn’t take policyholders for granted,” Insurance Watch MD Wally Ripper said.

“Today’s consumers expect more than just a renewal notice each year, and at claim time they want fair and fast payment.”

Freedom creates compensation pot, weighs future

Freedom Insurance Group will set aside an initial $3-4 million for a customer compensation program after completing its strategic review.

The insurer’s board has also determined there is “no immediate commercially viable option to recommence sales of its life products”.

Freedom, which halted new sales during the review, will “continue to assess alternative business models”.

The company may face a liquidity shortfall in the next year in the absence of commissions from new sales and is considering options to address this, while reducing costs. Freedom recently cut its staff to 90.

Meanwhile, the Australian Securities and Investments Commission (ASIC) has started an investigation into misconduct highlighted during the Hayne royal commission.

And the Bank of Queensland has terminated its agreement to sell St Andrews Insurance to Freedom. It says the decision was taken when it became clear conditions of the sale would not be met within the stipulated time limit.

Freedom opened a strategic review of its business model, undertaken by Deloitte, following a discussion with ASIC. The company was attacked at the royal commission for phone sales of life and funeral covers. It later dumped phone sales for term life and trauma.

CEO Craig Orton has quit the company, citing personal reasons, after being appointed in October. Former CEO Keith Cohen, CFO Jenny Andrews and non-executive directors Katrina Glendinning and David Hancock have also left.

Soft skills key to client relationships: MetLife

Clients still prioritise advisers’ soft skills even as the industry is focusing on education and technical competency, MetLife says.

The top three attributes clients want in an adviser all relate to soft skills, according to the life insurer’s latest report on adviser-client relationships.

They are: “genuinely cares about me”, “speaks in an easy-to-understand language” and “is honest and trustworthy”.

About 60% of respondents rate their adviser as “very good” or “excellent”, driven by a high rating on soft skills.

MetLife says advisers must change their choice of communication for the younger generation: 84% of consumers aged 18-39 prefer email or texting (18%), while those over 60 prefer face-to-face communication (52%) or phone calls (47%). However, 53% of young small business owners prefer phone calls, while 80% of older clients prefer email.

The insurer says clients won’t hesitate to change advisers if soft skills are lacking, particularly small business owners.

“[New education] standards will raise the level of formal education across the industry, but we mustn’t lose sight of how much consumers and small businesses value advisers’ interpersonal skills,” Head of Retail Sales Matt Lippiatt said. Consumer expectations are rising and it’s no longer enough to be technically competent, he says.

Integrity bulks up for retail expansion

Integrity Life has appointed Julie James as Regional Manager of Retail and Cornell Hoffman Head of Finance, as it strengthens its team before a move into the retail market.

It already offers group insurance and is piloting retail products as it prepares for the expansion early next year.

Ms James, who has three decades’ experience in the life industry, is responsible for building the retail business in NSW, ACT and Queensland. She previously worked for CommInsure and spent 11 years at Zurich, where she was regional manager for NSW and ACT.

In October Integrity hired William Rogers, also formerly of CommInsure, as Head of Retail Product.

Mr Hoffman, who will report to CFO Lesley Mamelok, joins from TAL, where he was head of change (finance). He previously worked at Commonwealth Bank, Westpac and Zurich.

“Importantly, both Julie and Cornell share our commitment to transparency, simplicity and innovation in life insurance,” MD Chris Powell said.

Integrity Life’s investors include Leadenhall Capital Partners and Daido Life Insurance.

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The Professional

Chubb recruits former QBE NSW manager

Chubb has confirmed the appointment of Christine Bell as NSW State Manager, following her departure from QBE last month.

Ms Bell held the position of regional manager for NSW and ACT at QBE for almost six years, and spent almost 11 years with the insurer. Before that she was head of broker relationship management at Vero.

She left QBE following a restructure that resulted in the departure of about 50 managers.

Ms Bell will start with Chubb on February 25, replacing Jon Longmore, who has been promoted to Head of Digital Asia-Pacific.

Bright Light winner named

Queenscorp Insurance Services MD Michael Parker has won the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) TurksLegal Bright Light Award.

The award provides an opportunity to showcase an idea or view on insurance claims.

Mr Parker’s submission, titled The Insurance Industry Needs CPR, highlighted opportunities to revive the sector through a simple application that could assist consumers.

The prize is $5000 cash, up to $1500 to spend on professional development and the opportunity to showcase the idea across the industry. Mr Parker will also sit on next year’s judging panel.

The runner-up was Suncorp Risk Adviser Cissy Huang for her ideas around “an end-to-end claims prevention approach”.

The winners were announced at the ANZIIF General Insurance Breakfast in Sydney last Wednesday, attended by more than 400 people.

Evari CEO and ANZIIF board member Daniel Fogarty moderated a panel discussion on issues including implications from the Australian Securities and Investments Commission’s call for a blanket ban on commissions.

The Hayne royal commission was also discussed, as were issues around affordability and access. The panellists were Suncorp Group EM Accessibility Annabelle Butler, Hollard Insurance CEO and Insurance Council of Australia Chairman Richard Enthoven, AUB CEO Mark Searles and Taylor Fry Principal Win-Li Toh.

Sportscover strengthens Sydney office

Sportscover Australia today announced two new recruits to its Sydney team.

John Tarcasio takes the role of Sydney Branch Manager and Senior Underwriter, and Tim Smith is appointed Underwriting Assistant.

Mr Tarcasio, currently based in the US, will start in the new year. He has extensive industry experience, including 13 years working for Lumley. Mr Smith has previously held a similar role with ProRisk. They will report to Underwriting Manager Jarrod Bell.

Collaboration key to harm prevention, VMIA says

The state-owned Victorian Managed Insurance Authority (VMIA) says an international medical indemnity conference in Melbourne last week reflected the importance of collaboration between healthcare services and insurers on a global scale.

“Harm prevention is on the agenda because, ultimately, both healthcare services and insurers have a vested interest in better patient outcomes and reducing the human cost of error,” CEO Colin Radford said.

“We are seeing insurers use incentive schemes to drive safety practices and give back to hospitals investing in tackling specific areas of risk.”

Mr Radford says VMIA’s Incentivising Better Patient Safety program – which encourages health services to take up evidence-based maternity training in return for a partial refund on obstetrics premiums – is expected to channel up to $16 million back into the health sector over five years.

VMIA is responsible for providing medical indemnity insurance and risk advice to the public healthcare sector and rural doctors across Victoria.

Organisations represented at the conference included the Accident Compensation Corporation (New Zealand), Allied World Assurance Company (Europe), CRICO (US), Hempsons (UK) and National Treasury Management Agency (Ireland).

QBE sponsors Indigenous scholar

QBE will sponsor a University of Newcastle student under an Indigenous scholarship provided through the New Colombo Plan, which promotes greater understanding of the Indo-Pacific region.

Odette Brown has accepted an internship offer with QBE and also plans to undertake an internship with the United Nations Development Program. She will travel and study in Japan under the undergraduate scholarship.

QBE Chief Human Resources Officer Eleanor Debelle says the insurer has a strong Indo-Pacific presence and supports the New Colombo Plan’s mission to help build deeper connections in the region.

“We recognise the importance of providing students with opportunities to learn new skills within a professional environment, and appreciate interns are a valuable source of talent and fresh thinking,” she said.

The New Colombo Plan, which the Federal Government started in 2014, will help 125 scholars live, study, learn a language and gain work experience in 24 locations throughout the region next year.

Allianz brings cricket to the bush

Allianz Australia is to sponsor cricketers making a tour of regional communities to raise awareness of mental health.

Cricket and mental health seminars will be held across NSW as part of the Baggy Blues tour, featuring former state players.

“Allianz Australia is sponsoring the teams’ uniforms and supporting logistics on match day, and we are honoured to be involved in this great initiative,” Head of Regional and Rural Brett Williams said.

“There is a strong correlation between physical activity and positive mental health outcomes, so there is no better way to bring attention to this important topic than with a cricket match.”

The tour has already visited Lismore and Dubbo.

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International

Insurers at risk of comparators ‘dependency’

The Geneva Association has warned the growth of comparators and online platforms such as Google and Amazon has implications for insurers and consumers.

These tech-driven channels may have brought convenience and other benefits, but there are trade-offs, the think-tank says in a report.

For insurers, it could mean they may cede control over the way products are sold.

“[Online platforms] provide a way for insurers to differentiate themselves… on the other hand, the ability of online platforms to observe all transactions effectuated on the platform may create an information advantage of platforms over [insurers],” the association says.

“As a consequence, insurers may become dependent on large platforms that are able to extract an increasing share of the added value.

“Furthermore, online platforms may promote an overemphasised focus on price competition, making it difficult for insurers to promote features that could add value to individuals and society, such as loss prevention services.”

Information accuracy and privacy are key issues for consumers in the digital economy, where more than 60% of buyers worldwide rely on Google, comparators and other websites when they shop for insurance products.

In the UK alone, at least half of all motor policies are sold via comparators.

“Oversimplification and biased information imply that search results, rankings or other information may not necessarily reflect individual user preferences.

“The use of large amounts of personal data gives rise to a trade-off between the benefits of Big Data analytics and individuals’ privacy.”

California fire losses may hit $18 billion

Claims arising from last month’s California wildfires could reach $US13 billion ($18 billion), according to various industry calculations.

Catastrophe modeller AIR Worldwide puts the combined bill from the Camp and Woolsey blazes at $US9-$US13 billion ($12.4-$18 billion), describing the former as the “deadliest and the most destructive single wildfire” in the state’s history.

Damage inspections are continuing after the Camp fire, which burned more than 62,000 hectares and destroyed at least 18,700 structures.

Impact Forecasting’s monthly recap says the two fires and other blazes will take US wildfire payouts past the $US10 billion ($13.8 billion) mark for the second year running.

The Aon-owned modeller predicts the severe storm that hit Sydney and parts of NSW last month will cost insurers at least $13.5 million.

Other notable disasters last month included a magnitude-seven quake in Alaska, which is likely to have caused economic losses of more than $US100 million ($138.3 million).

Severe weather in Italy and Spain will push overall economic losses to more than $US3.5 billion ($4.8 billion), Impact says.

Liberty, Chubb count cost of California fires

Chubb and Liberty Mutual have flagged expected catastrophe losses from the recent wildfires in California.

The losses are likely to have a $US195 million ($264.7 million) after-tax impact on Chubb in the fourth quarter. Pre-tax losses are estimated at about $US225 million ($305.5 million), including reinsurance.

Estimated losses from Hurricane Michael are likely to be at the upper end of a $US150-$US250 million ($203.6-$339.4 million) range previously disclosed, the insurer says.

Liberty Mutual estimates insured losses of about $US300 million ($407 million) from the wildfires and about $US230 million ($312 million) from Hurricane Michael.

The wildfires last month were the most destructive in Californian history, with the Camp fire alone estimated to bring insured losses of $US7.5-$US10 billion ($10.2-$13.6 billion), according to risk modeller RMS.

AM Best upgrades as reinsurance rates settle

The non-life reinsurance pricing environment has stabilised, but rates are still below long-term adequacy levels, AM Best warns.

The ratings agency has upgraded its outlook for the global reinsurance sector from negative to stable.

It says much of the improvement is due to the growing role of third-party capital.

Capital consumption and earnings volatility declined partly due to using third-party capital in retro programs. There is a growing alignment between traditional and third-party capital. The industry believes third-party capital will “hold the line” on future return expectations following catastrophe losses incurred this year and last year.

Non-life reinsurance pricing has settled at the bottom of its cycle for the near future, AM Best says.

And the glory days of a robust pricing environment may be gone.

Property catastrophe pricing is still driven by the availability of alternative third-party capital, and is not as heavily influenced by traditional reinsurers. Traditional capacity is even more closely aligned with alternative capital.

Alternative third-party capital is expected to grow, albeit more slowly following the frequency of loss events last year and this year.

Demand for non-life reinsurance is expected to increase along with economic growth in the US, AM Best says.

Lloyd’s Lab seeks insurtech contenders

Innovation hub Lloyd’s Lab has started searching for insurtech entrepreneurs and start-ups.

It wants ideas that focus on data-driven underwriting, enhanced customer experience, back-office efficiencies and next-generation insurance products or services.

Submissions will end on February 3, with the most compelling ideas pitched on March 20.

Ten chosen start-ups will have 10 weeks to develop their ideas, with access to Lloyd’s co-working space in London and expert advice from the market.

Lloyd’s first insurtech search produced nearly 220 applications from 36 countries.

RIMS warns on intellectual property risk

Developing an insurance program is one way of protecting intellectual property assets, according to a Risk and Insurance Management Society white paper.

The program must include sufficient coverage against potential damages from intellectual liability infringement claims and theft.

Intellectual property risk is among the largest risks to companies, yet many have no handle on the challenge, the Aon-sponsored paper says.

“Due to the complexity of managing intangible property, many organisations have yet to create an adequate structure supported by a multi-disciplinary staff. 

“Frequently, intangible property is evaluated only through the lens of a narrow legal framework, which can leave businesses exposed.

“A considerably stronger approach is to include a dedicated team to direct the development of intellectual property from conception through launch through risk assessment and mitigation.”

The paper says intellectual property assets such as patents, trademarks, copyrights and trade secrets drive success in today’s ultra-competitive business landscape.

And there has been a rise in the number of lawsuits claiming intellectual property rights infringement, particularly in the US.

“Despite the significant risk these lawsuits present, many companies have struggled to properly manage this risk, potentially resulting in loss of revenue, business disruption or even bankruptcy, and damage to brand and reputation.”

Windstorm season losses double the average

Global insured losses from this year’s hurricane and typhoon season are estimated at about $US25 billion ($34.6 billion), about one-third of last year’s but still twice the average, Munich Re says.

Economic losses of about $US51 billion ($70.6 billion) are well below last year’s $US220 billion ($304 billion) but above the long-term adjusted average of $US34 billion ($47.1 billion).

In Japan five storms made landfall or came close at typhoon strength in a highly active season. The reinsurer says insured losses of $US6 billion ($8.3 billion) were reported from Typhoon Jebi.

In the North Atlantic hurricanes Michael and Florence caused insured losses of $US10 billion ($13.8 billion) and $US4 billion ($5.5 billion) respectively.

The US National Oceanic and Atmospheric Administration (NOAA) says the Atlantic hurricane season, which finished last month, featured 15 named storms, compared with the long-term average of 12, while eight became hurricanes compared with the average of six.

But Michael and Florence were the only two major hurricanes, defined as Category 3 or more in strength, compared with an annual average of three.

Accumulated cyclone energy, which measures the combined strength and duration of tropical storms and hurricanes, was above normal. Seven systems were subtropical at some point in their lifetimes this season, eclipsing the previous record of five in 1969, the NOAA says.

The Insurance Information Institute says Florence set new rainfall highs in North and South Carolina, while Michael was the first Category 4 system to make landfall in the Florida Panhandle.

“These extraordinary hurricanes highlighted for coastal residents and businesses the importance of disaster preparedness, building resilient structures and insuring properties against both flood and wind-causing damage,” institute CEO Sean Kevelighan said.

Australian catastrophe modelling start-up Reask, which in its first season correctly forecast the above-average number of named Atlantic storms, says eastern Pacific activity has been well above average, with 23 named storms.

Last year the Atlantic region endured one of its most active seasons, with 17 named storms and six major hurricanes, including the devastating Harvey, Irma and Maria.

Financial markets pose risk to Japanese: Fitch

Japanese insurers’ international search for better investment returns to offset sluggish growth at home may pose the biggest risks to their businesses, Fitch Ratings warns.

“Sustained low yields in Japan lead insurers to seek higher yield by increasing credit risk, especially outside Japan, which entails some currency risk,” the ratings agency says.

“Interest rate risk, sharemarket risk, currency risk and credit risk are the most important for Japanese insurers.”

However, Fitch is keeping its sector outlook at stable and ratings outlook at positive.

Non-life insurers are expected to generate sufficient underwriting profit as they look to maintain or raise premium rates, it says.

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Analysis

The battlefields of 2019

For the general insurance industry, 2018 has been a year of recovering revenues for insurers and growing uncertainties for brokers. While insurers in Australia have led the world in raising premiums after a long period in the doldrums, brokers are moving into 2019 with the twin threats of competition and hostile regulatory action hanging over them.

For insurers, 2018 was also about reshaping their strategies, cutting out layers of management to improve efficiency and setting up new ways of growing closer to their customers. IAG and Suncorp are already well advanced in this, and QBE and Zurich have more recently followed.

What’s that all about? Two words: insurtech and retention.

Technology has developed to the point where new systems can simplify insurance sales processes. The major insurers see that building and maintaining closer relationships with customers, in the direct and SME spaces in particular, is within their reach.

Many insurtech developers, which just a couple of years ago were seen as a threat from outside the industry, are now working with insurers on innovative products that have the potential to “personalise” policies in ways that create long-lasting mutual relationships.

We are likely to see some of these products enter the market in the next year, and the pace of change in the SME and direct markets is likely to step up as more efficient and intelligent products are introduced.

For brokers focused on the SME market, the challenges such developments will bring should be obvious. Brokers will continue to play a part in the insurers’ innovation strategies, but the established ways in which they relate to insurers – and insurers relate to them – will inevitably come under pressure.

At the top end of the broker market, consolidation will continue – where it can. The takeover of specialty broker JLT by Marsh in September to create a more flexible global brokerage is a case in point. Locally, JLT brings to Marsh a range of highly developed specialty services that will greatly expand its market opportunities.

Marsh is also a player in the SME space, which in itself reflects the intensity of broker competition at the large corporate end of the market, and increasingly in the middle market.

While smaller brokerages in the Australian market have been growing through mergers and acquisitions over the past 10 years, are they big enough yet to avoid becoming a takeover target for their larger competitors?

Scale brings with it efficiencies and the ability to adapt more readily to a rapidly changing marketplace. It also emphasises a need for more focused market strategies and investment. Many senior brokers have told insuranceNEWS.com.au that 2019 may well see a surge in the number of middle-sized brokerages merging.

What about the smaller brokerages? Most are now securely ensconced in groups such as Steadfast, Austbrokers, IBNA and PSC. While some have built their businesses on specialised lines of business, many – if not most – have also developed their own networks of authorised representatives, with participants ranging from highly experienced brokers to small operators with equally small client lists.

The pressure points for smaller brokers that play solely in the SME market are many and varied, and the greatest pressure in the next year is going to come from the fact everyone wants a slice of the SME market pie.

The SME market is now a battlefield. It’s becoming even more commoditised, and insurtech will give direct insurers the ability to offer more specialised and sophisticated products.

Consider this: the risks faced by a corner store or restaurant, for example, are pretty much the same as any other. Technology is already at the stage where machines and their algorithms are capable of making clear and concise recommendations on risk products for common small businesses – even to the extent of including variations.

So, to retain their foothold in the SME market, brokers will also have to become more sophisticated – particularly in the way they exploit the one feature where they continue to have an advantage: advice.

There’s no denying that deep and professional knowledge about risk transfer and management is going to be more important to brokers than ever, and 2019 will be the year when all insurance brokers must get serious about acquiring it.

But is the level of qualification required of brokers by the Australian Securities and Investments Commission (ASIC) enough? Senior brokers say it’s not. They also say the level of education on offer for brokers isn’t sufficient. As the insurance business becomes more complex and the SME market more demanding, brokers need more technical knowledge – and ways to continually update it.

That would particularly be the case if brokers were forced to charge their customers for the advice they provide. Because the deepest shadow cast over them as 2019 arrives is not from technology but from ASIC, which has made very clear its opposition to insurance brokers being paid commissions to sell insurers’ products.

The present system may be the most efficient – and for the buyer, painless – way to pay for services, but the regulator sees commissions and other payments from insurers to brokers as open to abuse. The debate over commissions has been raging for at least 30 years, but it nevertheless will be the second front in the brokers’ 2019 battlefield.

Brokers are well equipped through the National Insurance Brokers Association to mount a strong case in favour of commissions, and there are now several listed broker companies that may need to add their considerable muscle.

With the Hayne royal commission providing a compelling impetus for change, the issue has never been as front and centre as right now.

For brokers 2019 is going to be a challenging year and change in many forms is increasingly inevitable. In business, change is usually positive, but not necessarily if it’s only change for change’s sake.