Allianz first up as Hayne turns to general insurance
Allianz this afternoon became the first general insurer to face the Hayne royal commission as Chief GM Retail Distribution Michael Winter was questioned about “incorrect and misleading statements” regarding travel insurance on its website.
Mr Winter agreed the website should have been properly reviewed in the form it would be seen by consumers and the company had failed to quickly rectify disclosure issues raised shortly before a revised version went live.
The royal commission will later turn to add-on insurance sold through car dealerships, with IAG EGM Business Distribution and Group Executive Ben Bessell scheduled to take the stand.
The remainder of the case studies relate to natural disasters. Suncorp CEO Insurance Gary Dransfield will be questioned on AAMI’s handling of claims from the Wye River bushfires of Christmas 2015 and on the insurer’s response to floods in the Hunter Valley in 2015.
Youi will face scrutiny on claims-handling after Cyclone Debbie last year and the Broken Hill hailstorms of 2016.
The royal commission has also sought witness statements from QBE, Commonwealth Bank, ANZ and Westpac.
Counsel Assisting, Rowena Orr, said of 8977 public submissions to the commission, 620 were related to general insurance. The three most common areas were home and contents, motor and travel.
Ms Orr emphasised that prohibitions on conflicted remuneration contained in the Corporations Act don’t apply to general insurance.
“This means that there is no limit on the amount that general insurance companies can pay in commissions in relation to the sale of general insurance products,” she said.
In the financial years from 2013-15 ASIC found insurers paid more than $600 million in upfront commissions to car yard intermediaries for add-on products, while insurers collected $1.6 billion in premiums and paid out only $144 million in claims, she told the hearing.
On claim denials, Ms Orr said more than one in every 10 travel claims is denied, compared to a rate of 0.27% for motor claims declined in full and 5.77 for home and contents.
Motor claims average about 64 days to be closed, while for home and contents it is about 65 days. Travel claims average about 41.18 days.
PDS and key facts sheets? Useless, say researchers
Product disclosure statements and key fact sheets are not helping consumers choose the best insurance cover, according to a study commissioned by the Financial Rights Legal Centre.
Calling for a new approach, the centre says up to 42% of the 406 survey participants selected the worst home contents cover when given a choice between an “okay” and a “bad” product.
This was despite the participants being given time to review the disclosure information.
When the choice was expanded to include a “good” product, 34.9% still picked one of the inferior offerings.
The study was undertaken by Monash University law professors Justin Malbon and Harmen Oppewal.
Professor Malbon says the shipping industry has simplified cargo insurance to a choice between three standard term policies, and it may be time for a set of gold, silver and bronze standard coverages to be introduced in the consumer home insurance sector.
“That way the market can compete on price, and not confound consumers about what is covered and not covered when they make claims under their policy,” he said.
“The Government has standardised the terminology for flood cover. It should go further and standardise all terms such as for robbery, fire, earthquakes and so on.”
The Financial Rights Legal Centre says further efforts to improve disclosure in insurance contracts are misplaced if the policy goal is for people to buy cover that best suits their needs.
“Instead, policy-makers should look to minimum standards for policies, or star rating systems that people actually understand,” Co-ordinator Karen Cox said.
The research was funded through Victorian fire services levy over-collections, which were required to be distributed to projects benefiting insurance consumers.
Insurers hit back at brokers over claims criticism
Insurers have labelled as “scattergun” and “extremely disappointing” brokers’ allegations that poor claims experience is becoming more common in the industry.
As reported in insuranceNEWS.com.au last week, National Insurance Brokers Association (NIBA) CEO Dallas Booth says he has had “regular complaints” from brokers of claims going unpaid “for no apparent reason”, and alleging that obtaining explanations from insurers as to why claims are being mishandled is difficult.
(See earlier story).
He suggested this may be caused by “turmoil within the industry” that has seen insurers remove entire layers of management.
Insurers have fired back over the past week, with high-level executives telling insuranceNEWS.com.au the “generalised statements” from NIBA have caused them huge concern because the Hayne royal commission will turn its attention to general insurance this week.
“The timing could not have been worse,” according to one source who spoke on the understanding that his name would not be used.
“Presumably there is something behind the comments, but this scattergun approach seeks to tar the whole industry and could exacerbate unfounded stereotypes.
“When that sort of commentary comes from within the industry it is very disappointing. These are people with a responsibility to enhance the community perception of insurance, not undermine it.”
However, Insurance Brokers Network of Australia Chairman Gary Gribbin has joined the debate, supporting Mr Booth’s comments.
“Dallas is simply reflecting the sentiment of the vast majority of the general insurance broking community,” he told insuranceNEWS.com.au.
“It is undoubtedly the case that insurers are palpably mismanaging claims.
“There is a clear pattern of spurious, very technical denial, on top of which their administration of claims is nowadays abysmal.”
The Insurance Council of Australia (ICA) declined to discuss the allegations with insuranceNEWS.com.au, saying NIBA has not formally raised the issue with it.
Australian cyber market growth to outpace global expansion
Growth in Australia’s cyber insurance market is expected to surge over the next few years, outpacing the expected trajectory for almost all developed countries, Aon says in a quarterly update.
The local cyber insurance market grew nearly 100% last year compared to 2016 and is estimated at about $60 million.
“Whilst the market is still relatively small, similar growth is expected in Australia for the coming two to three years,” the global broker says.
The US market grew 37% last year, while worldwide cyber premiums are forecast to be worth $7 billion by 2022, representing a compound annual growth rate of 15%.
Ransomeware attacks such as WannaCry and NotPetya have driven a “noticeable move” by companies to take out cyber cover, while organisations are also looking to protect traditional insurance lines from cyber impacts.
Australia introduced a notifiable data breaches scheme in February, requiring organisations and agencies to alert individuals and the Office of the Australian Information Commissioner of incidents likely to cause serious harm.
Europe’s General Data Protection Regulation took effect in May and Canada is set to implement information protection laws in November.
In the US, every state has its own data breach legislation, operating independently of each other and without a federal equivalent.
Industry ‘not ready’ for new accounting standards
Australian insurers and their overseas peers are running out of time to prepare for the transition to two new global accounting standards that will come into effect in 2021, KMPG says.
The accounting giant says in a new global report that only 7% of 160 insurance executives surveyed, including 16 from Australia, expect to be ready in time for two years of parallel running before International Financial Reporting Standard (IFRS) 17 and 9 come into operation.
IFRS 9 is an extensive review of accounting for financial instruments,with major changes involving recognition and measurement, impairment and hedge accounting.
IFRS 17 was launched in May 2017 by the International Accounting Standards Board, and will have major implications for insurers. It makes extensive changes to the ways insurance contract liabilities are calculated, introduces a revised definition of revenue and imposes additional disclosure requirements.
IFRS 9 came into effect this year but insurers have the option to implement it in tandem with IFRS 17 in three years.
About 90% of the executives interviewed by KPMG foresee difficulties in hiring enough skilled staff to carry out the implementation, and 45% are concerned about budget funding.
“As the full scale of the operational challenge becomes more apparent, many insurers are focusing on parallel running before IFRS 17 and IFRS 9 go live,” KPMG says.
“Many insurers are between a rock and hard place. They want to maximise the opportunities to dry-run the new bases of reporting, but are finding it challenging to have designed, configured and tested the systems that they need in order to achieve this.”
Major agencies involved in tsunami exercise
A massive exercise simulating a tsunami hitting the coasts of Queensland, NSW, Victoria and Tasmania has illustrated the potential damage that low-lying areas could suffer.
The Joint Australian Tsunami Warning Centre co-ordinated a major tsunami preparedness exercise last week that involved federal and state agencies and emergency responders.
The exercise simulated a tsunami hitting the three states’ coasts following a theoretical earthquake off the Solomon Islands.
The Joint Australian Tsunami Warning Centre uses the resources of the Bureau of Meteorology and Geoscience Australia to monitor for tsunami threats.
Fifty potential tsunami-generating earthquakes are detected every year, and Geoscience Australia senior seismologist Dr Jonathan Bathgate says the impact of a tsunami hitting the low-lying areas on the Australian coast “could be significant”.
The agencies involved in the exercise included the Australian Defence Force, Airservices Australia, Airservices Australia, Australian Antarctic Division, Australian Maritime Safety Authority, Bureau of Meteorology, Department of Home Affairs, Emergency Management Norfolk Island, Geoscience Australia, NSW State Emergency Service, Queensland Fire and Emergency Services, Surf Life Saving New South Wales, Surf Life Saving Queensland, Surf Life Saving Tasmania, Tasmania State Emergency Service, and Victoria State Emergency Service.