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Rates rising for June renewals, brokers say

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Underwriters have pushed through moderate rate increases in the June 30 renewals season, according to brokers.

Arthur J Gallagher says the transition from a soft market began early this year and premiums are now hardening “across multiple classes”.

Perth-based Leed Risk Services MD Con Manetas told insuranceNEWS.com.au small rate increases, tougher underwriting criteria and restrictions on policy wordings are all in evidence this renewal.

“Those things together are usually a sure sign the market has bottomed out,” he said.

Mr Manetas says rates are up 0-5% in the SME sector and 0-10% in the middle corporate space.

More details in ANALYSIS.

Insurers back national cladding probe after UK disaster

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Australian insurers are backing a national survey of buildings using flammable cladding in the wake of the devastating blaze that killed at least 58 people in London’s Grenfell Tower.

Experts have warned the disaster could be replicated in Australia, and the Insurance Council of Australia (ICA) says a national survey is needed “before tragedy occurs”.

Witnesses say last week’s fire in the inner-London suburb of Kensington raced up the tower block’s exterior, fuelled by combustible cladding that was added to the 1970s structure last year.

The cladding is thought to be similar to that blamed for the rapid spread of a major blaze at the Lacrosse apartments in Melbourne’s Docklands in 2014.

Victorian Planning Minister Richard Wynne moved last week to reassure residents that Australia’s strong building codes mean a similar tragedy would not occur here.

But experts disagree, saying the prevalence of flammable cladding here remains a serious threat to life.

Following the Lacrosse fire, the Victorian Building Authority (VBA) audited 170 Melbourne CBD buildings and found 51% featured non-compliant cladding.

Many of these buildings were deemed safe to occupy, and even the Lacrosse building retains its original cladding as legal arguments continue over who should pay to remove it.

The number of buildings with such cladding in other cities – including Sydney – is unknown, although an audit of Adelaide buildings has been announced since the Grenfell disaster.

One of the arguments in Australia’s favour is that buildings more than 25 metres tall must have sprinkler systems installed.

The 24-storey, 70-metre Grenfell Tower, which was insured by Norwegian insurer Protector Forsikring, had no sprinklers and only one stairway exit for 120 homes.

But FM Global Australian Operations Chief Engineer Andre Mierzwa told insuranceNEWS.com.au that while sprinkler systems are a huge benefit, “they can be overtaxed”.

“I took a walk down the [Melbourne] Docklands and at least 50% of buildings have this [combustible cladding] on them,” he said.

“We still need to have a close look at these buildings, and we are not out of the woods yet for a similar sort of fire.”

FM Global, which deals only in the commercial space, carries out its own testing of materials and risk assessments.

But Mr Mierzwa believes most insurers of residential apartments would not know which type of cladding has been used on buildings.

“They would have to do a lot of digging to find out what the product is,” he said.

He also believes a claim could be denied if a building is discovered following a fire to be non-compliant with the Building Code of Australia (BCA) and it can be argued the owner “deliberately withheld information”.

He believes the pressure will now be on to remove cladding in Melbourne and across the country.

“But it will cost millions and millions of dollars,” he said.

Fire Protection Association Australia CEO Scott Williams told insuranceNEWS.com.au the London tragedy could easily be repeated here.

“The BCA is a minimum code, and when a building doesn’t reach that we have a problem,” he said.

“Any building that has this combustible cladding poses a very strong risk that what happened in London could happen here.”

He says there is a clear discipline issue within the building industry. “There is unscrupulous behaviour and substitution of product to save a few dollars.

“There needs to be greater auditing, and greater enforcement with consequences for individuals who breach the rules.”

He believes cladding could be just the tip of the iceberg.

“What about the thousands of other products going into buildings? Are we talking about widespread non-compliance, and [is] our building stock actually in a terrible condition? We just don’t know.

“We have a lot of work to do. The cladding has to come off, whatever the cost, and every building has to be compliant with the code.”

ICA spokesman Campbell Fuller says Australian insurers are “acutely aware” of the dangers of inappropriate materials and the need for strict compliance with the BCA.

“Many insurers inspect high-rise buildings prior to agreeing to underwrite them, and also rely on compliance testing carried out by certified professionals experienced in the management of fire safety codes,” he said.

“If insurers become aware of new information that alters the risk profile of a building, they may choose to reassess their premiums accordingly. Evidence that an insured building is non-compliant with building codes has the potential to complicate the claims process.

“If policyholders become aware of information that materially alters the level of risk they face, they are obliged to notify their insurer.

“Insurers would support a national approach to surveying buildings that use these products to ensure any issues can be identified and rectified by owners before tragedy occurs.”

‘Serious questions’ for insurers as brothel dispute rumbles on

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Calliden is challenging an appeal court decision that two brothel owners whose premises suffered an arson attack were not required to disclose their membership of an outlaw motorcycle gang.

On January 1 2012 The Gentleman’s Club in Canberra was burned in suspicious circumstances. Its co-owner and sole director, Baris Tukel, was a Comanchero sergeant-at-arms.

Calliden refused to pay a $500,000 claim from Mr Tukel and his brother and co-owner Fidel, on the grounds they had failed to disclose their Comanchero association.

In 2015 the NSW Supreme Court found in Calliden’s favour.

But in April this year the Tukels won an appeal on the grounds a reasonable person could not be expected to know whether it was relevant to disclose the bikie association. Calliden has now appealed the decision to the High Court.

NSW Court of Appeal judges said the Tukel brothers could reasonably understand that a company that insured brothels would expect people with criminal connections to be involved in using the premises. Further, a reasonable person might expect that – if it were concerned – the insurer would have asked a question about such associations in its proposal form.

Calliden’s appeal to the High Court proposes a “reasonable person” in its position would not assume those operating a legal brothel would be criminals or associated with criminals.

One important question the case has raised is whether Calliden should have asked upfront whether the brothel owners had any criminal associations.

Andrew Sharpe, Principal at law firm McCabes, says that in this regard the case has far-reaching implications for insurers.

“In the event that Calliden’s appeal is not successful, insurers will be asking serious questions as to whether they need to put more into their proposal form,” he said. “Insurers have been going in a different direction [recently], with more concise proposals for ease of transacting business.”

He says insurers may have to weigh up the costs of asking extra questions and potentially shrinking their pool of insureds.

Cyclone Debbie flooding disputes head to FOS

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The NSW Small Business Commissioner will pass bundles of disputes to the Financial Ombudsman Service (FOS) after flooding in the state’s north prompted complaints about insurers.

Lead Ombudsman General Insurance John Price says the commissioner is compiling information from about 100 affected small businesses before delivering complaints to FOS.

“They are going to try to provide the disputes in batches by insurer, which will make it easier to expedite those matters and deal with them quickly and efficiently,” Mr Price told insuranceNEWS.com.au.

The flooding in Lismore and surrounding regions following Cyclone Debbie has again raised issues over whether damage is caused by flooding or storms.

Debbie crossed the coast on March 28, bringing torrential rain to Queensland and northern NSW. Wet weather has continued to hit parts of the region.

FOS has already received more than 40 complaints related to the cyclone.

Mr Price says the disputes concern denial of claims, delays and the scope or quality of work, but it is still early days, with some complaints about insurers emerging later in the process.

“For those claims that have been accepted, there are no doubt going to be some issues that arise going forward,” he said. “That will take a bit of time to filter through to FOS.”

Mr Price says the level of complaints is much lower than after flooding in 2011, but recent events again raise affordability and mitigation issues.

NZ insurers warn on tax rises as cyclone losses mount

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Insured losses caused by cyclones Debbie and Cook in New Zealand have reached $NZ84 million ($110 million), putting the country on course for a costly year for flood damage claims.

The tail end of Debbie – which had devastated areas of Queensland and NSW – crossed the country from April 3-7, causing losses of $NZ66.4 million ($87 million).

Cyclone Cook, from April 13-16, cost $NZ18 million ($23.6 million), the Insurance Council of New Zealand (ICNZ) says.

“We’re not even halfway through [the year] and well on the way to one of the most damaging in recent years for extreme weather events,” ICNZ CEO Tim Grafton said.

Flood losses from significant events have reached $NZ135.5 million ($177.6 million) this year, including a March storm dubbed the Tasman Tempest.

ICNZ says the damage highlights the folly of increasing insurance costs through rises in government taxes and levies, raising the risk low-income households will not be able to protect themselves.

Flooding in April caused residents of Edgecumbe to be evacuated after a river burst a levee.

“In towns such as Edgecumbe, where there are significant numbers of residents not insured, the Government is sending all the wrong signals by increasing the cost of insurance,” Mr Grafton said.

“The weather bombs we’ve had this year highlight the importance insurance plays when disaster strikes.”

Rises in the earthquake and fire services levies would mean people with house and contents insurance would be taxed more than $NZ450 million ($589.8 million) annually without including the 15% GST applied to the premium, Mr Grafton says.

Provisional data for Debbie and Cook shows insurers received 6400 house and contents claims costing $NZ61.6 million ($80.7 million), 1016 commercial material damage and business interruption claims worth $NZ16.8 million ($22 million) and 549 motor vehicle claims costing $NZ4.8 million ($6.3 million).

Auckland housing taskforce floats builders’ warranty cover

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A taskforce report on Auckland’s housing supply shortfall has recommended investigating a builders’ warranty insurance scheme similar to those operating in Australia.

It says the move could speed the consent process by reducing risks for local governments, removing a barrier to housing supply keeping up with population growth.

New Zealand has no builders’ warranty schemes, with local governments often holding ultimate liability for defects as the “last person standing” with deep pockets.

This means councils can be reluctant to approve new building materials and techniques without significant testing and assurance.

“Transferring liability away from councils could enable more innovation, reduce costs for councils and builders and improve the certainty of consenting processes,” the Mayoral Housing Taskforce Report says.

“An alternative to the current approach would be to use warranty and insurance schemes, backed by appropriate quality assurance by builders and insurers, to address liability issues.”

Examples highlighted include the schemes operating in NSW, Queensland and the UK.

Legislative change or other market arrangements may be needed to move ahead with a proposal, it says.

The report recommends Auckland Council invite the Government to lead on the issue, with engagement across the construction, industry, insurance and banking sectors.

Mayor Phil Goff established the taskforce early this year, asking it to identify barriers to building new homes in Auckland at a speed and scale needed to meet demand.

Auckland’s population is expected to increase by up to 1 million people over the next 30 years, and Mr Goff says housing in the city has become unaffordable for first home buyers and renters.

ICA sets out to ‘bust myths’ on disaster coverage

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The Insurance Council of Australia (ICA) will hold community forums in cyclone and flood-exposed parts of north Queensland next month to improve understanding of premiums and policies amid criticism of the industry.

“Though insurers are working hard to help families and businesses rebuild and recover, the industry often hears common questions and misconceptions about insurance, especially as it relates to natural disasters,” CEO Rob Whelan said.

“The forums are being held in seven key communities to provide information on insurance and risks, bust some myths and hear from policyholders.”

Topics will include how insurance works, its availability, the impact of cyclones and floods on premiums, and what can be done to lower premiums.

“Insurers know the region well, having paid more than $4.4 billion in flood and cyclone claims in north Queensland in the past decade, including more than $800 million following Cyclone Debbie,” Mr Whelan said.

The first forum is in Cairns on Monday July 3 from 6.15-9pm. Sessions starting at 6pm will be held that week from Tuesday to Friday at Innisfail, Ingham, Townsville and Proserpine.

Forums will be held at Mackay on July 10 and Rockhampton on July 11.

Experts will provide a briefing on the issues and risks at each location and how they affect insurance, and attendees will gain individual advice.

ICA has invited councillors and politicians to the forums, and is encouraging local brokers and other insurance professionals to attend.

In this issue of Insurance News (the magazine)

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Why did the NSW Government execute an embarrassing backflip on the transfer of its emergency services funding levy from insurance customers to all property owners on May 30? And perhaps more importantly, what are the chances of the reform ever seeing the light of day?

You’ll find the answers in the June issue of Insurance News (the magazine), which is being mailed out to subscribers this week.

The industry’s most popular and widely read print publication also lifts the lid on Australia’s largest authorised representative organisation, which is undergoing a transformation that includes a new brand and a revised culture.

Insurance News also examines the leading local insurers’ progress on the fintech front, how drones played a major role for the first time in the aftermath of Cyclone Debbie, and why Australian insurers are getting to know much more about crystal meth, better known as ice – the most far-reaching drugs crisis in our history.

Meet innovators, pioneers, leaders and thinkers in this latest issue of Insurance News (the magazine) – the one the professionals read for insights, information and intelligent journalism.

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Corporate

Steadfast considers holdings in German network’s brokers

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Steadfast says its acquisition of a minority stake in Hamburg-based unisonBrokers may pave the way for equity holdings in suitable brokers in the network.

The global group will be renamed unisonsteadfast after the deal, with the acquisition facilitating access to international markets for Steadfast Network brokers and underwriting agencies.

The medium-term strategy includes developing new revenue streams by providing additional products and services, while Steadfast would also consider acquiring stakes in suitable brokers, according to a presentation delivered to analysts in Sydney and Melbourne last week.

unisonBrokers, which earns membership fees, has a similar structure and management culture to Steadfast Network.

The German group, one of the world’s largest general insurance broker networks, assists with transactions, compliance and reporting across borders, and it provides some products and services to brokers.

Its 200 brokers operate in 130 countries and handle about $US17 billion ($22.4 billion) of gross written premium.

Steadfast says in a statement that the strategic acquisition involves an “immaterial consideration paid” and will have a minimal impact on short-term revenue and earnings.

The group also says it is continuing to roll out its network model in New Zealand and Asia, where it is targeting Singapore, and is pursuing growth strategies for its underwriting agencies.

The Underwriting Agencies of Australia (UAA) business, acquired from QBE in 2015, has operations in Australia, New Zealand and Singapore, with Canada next for international expansion.

“Expansion opportunities also include Indonesia, Malaysia and Philippines, all UAA-branded,” Steadfast says.

Latevo lines up overseas insurer for 2018 crop season

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Latevo is finalising a deal with an overseas insurer to underwrite its multi-peril crop insurance for next year’s growing season, CEO Andrew Trotter has told insuranceNEWS.com.au exclusively.

However, it will not offer cover for this year’s growing season.

“We haven’t pulled out of the market, as some reports have suggested,” he said.

“We have been looking overseas because no insurer in Australia has the expertise for this type of product.”

Latevo previously worked with Allianz, but in 2015 the insurer introduced its own crop product.

“We have been looking for a like-minded insurer that will enable us to launch a sustainable and transparent product for the Australian market,” Mr Trotter said.

“Insurers either underinsure or overinsure crop insurance, so it is a delicate balance between what the farmer can afford and adequately covering the risks.

“Australian insurers don’t have the agri-DNA to understand the market.”

He says Latevo has engineered its crop insurance down to providing cover at $15 a hectare.

“We have recalibrated the model and the assessment process to remove all paper forms, make it more affordable and easier for farmers,” Mr Trotter said. “Our aim is to get more farmers to apply so we can refine the program as much as possible for 2018.”

At a presentation to the fifth International Agricultural Risk, Finance and Insurance Conference in Paris earlier this month, Mr Trotter said Australian farmers are unfamiliar with insurance and do not embrace paperwork.

“Australian farmers have farmed for 40 years without multi-peril crop insurance, and croppers are real gamblers,” he told the conference. “They are creatures of habit and slow to change.”

Mr Trotter says grain farmers in NSW, Victoria and SA face drought conditions this planting season, but most are uninsured.

“Currently, there is not even 0.5% of grain growers… insured against crop failure. This is the drought we had to have, to wake up farmers and their advisers about taking out cover.”

There has been slow take-up of the Federal Government’s grant scheme to encourage farmers to buy crop insurance.

It is understood the program will be offered again next financial year. To encourage more farmers to apply, Latevo is offering to match the grants dollar for dollar.

“Growers who apply [to Latevo] before July 28 will get their assessment fully rebated,” Mr Trotter said. “We ask that brokers, bankers, accountants and key industry influencers take advantage of this opportunity and introduce this offer to their farming clients.”

Dual enhances cyber offering

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Underwriting agency Dual has introduced a $250,000 sub-limit for social engineering, phishing and cyber fraud under its cyber product.

“The cyber risks society faces are constantly evolving, where an exposure such as this was not even identified two years ago,” Dual says. “This cover will now be excluded under a [management liability] policy because we believe this exposure is more appropriately dealt with via a cyber policy to ensure a seamless cyber cover.”

Dual has also reduced minimum premiums on its standalone cyber offering for businesses with less than $3 million annual turnover.

“These changes have been made to ensure we continue to improve new business take-up of cyber policies for this particularly price-sensitive section of the market,” Dual says.

Broker commissions on Dual’s management liability product have been cut by 2.5%.

CBL holds onto financial strength rating

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AM Best has affirmed the A- (excellent) financial strength rating of New Zealand-based CBL Insurance and says the company’s outlook is stable.

CBL’s underwriting performance over the past five years has remained very strong, with an average combined operating ratio of about 80%. Net premium revenue increased at an average annual rate of more than 30%, according to the ratings agency.

“The favourable underwriting experience largely reflects the company’s growing access to a book of less volatile builders’ warranty business,” AM Best says.

CBL, which also retains its “a-” long-term issuer credit rating, has a favourable liquidity position and is not considered highly dependent on reinsurance.

AM Best says the insurer’s geographic concentration is an “offsetting factor”, with a large majority of its premiums derived from Europe, particularly France.

CBL Insurance is the main operating subsidiary of listed company CBL Corporation.

Chubb appoints non-executive chairman

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Chubb Insurance Australia has appointed Rod McGeoch as Non-Executive Chairman and independent director.

Mr McGeoch ­– best known as the CEO of Sydney’s successful 2000 Olympic Games bid – is currently a director of Ramsay Health Care and Destination NSW.

“Our clients will benefit from [his] extensive knowledge, particularly of the legal and financial industries, and we are delighted to welcome him to the Chubb team,” Chubb’s Country President for Australia and New Zealand John French said.

ATL, Hello Claims agree taxi tie-up

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NSW-based digital claims management business Hello Claims will manage the claims of ATL Insurance Group’s taxi business nationwide under a three-year partnership announced today.

The motor claims specialist will deploy its smart assessing and electronic claims management platform to handle the taxi claims.

Assessments can be completed within 48 hours and repairs finished within an average of five days.

Mitsui backs more Community Underwriting lines

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Community Underwriting will continue expanding its offerings to non-profit clients and their brokers after entering a binding authority agreement with Mitsui Sumitomo Insurance Company.

The Japanese insurer will be the security for Community Underwriting’s business package, accident and health, and industrial special risks products from July 1.

Mitsui Sumitomo has been providing security for motor products since May 23.

Berkley Insurance Australia remains the security provider for Community Underwriting’s specialist non-profit association liability and general liability products.

Community Underwriting is an underwriting agency owned by its non-profit clients. About 70% of its surplus is returned to shareholders as donations.

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Regulatory & Government

ACCC to begin its new northern Australia pricing probe

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The Australian Competition and Consumer Commission (ACCC) will monitor the home insurance market in northern Australia for three years under an inquiry requested by Treasurer Scott Morrison.

Issues to be considered include:

  • Pricing and availability of insurance
  • Key cost components of pricing and how they have changed over time, particularly catastrophe risk
  • Competitiveness of insurance markets
  • Impediments to consumer choice
  • Profitability of insurers and the extent to which profits are expected to change commensurate with risk.

The ACCC will begin monitoring the market from July 1 and provide interim reports by November 30 next year and November 30 2019.

A final report is due by November 30 2020.

“This inquiry will support transparency and the efficient operation of the residential insurance market in northern Australia,” Mr Morrison said.

The Federal Government announced in its latest budget that the ACCC will be allocated $7.9 million over four years to monitor prices, but there was no mention of establishing an inquiry.

The Insurance Council of Australia (ICA) says mitigation is the appropriate solution to pricing risk in the north, which is highly prone to natural catastrophes.

Previous reports by the independent Australian Government Actuary have concluded insurers are pricing risks appropriately in the region, and other reports have called for increased mitigation spending.

“[ICA] is pleased to have clarification on the scope of the ACCC inquiry into the insurance market in northern Australia,” spokesman Campbell Fuller told insuranceNEWS.com.au. “However, this investigation will not address the real problem – the impact of extreme weather on vulnerable communities.

“When mitigation is undertaken and lowers the risks to properties, insurers respond through reductions in premiums.”

National Insurance Brokers Association CEO Dallas Booth has also urged the Government to direct its efforts towards mitigation.

“It’s been our very strong view that Australia has to accept the environment in which we live, particularly the susceptibility to weather and natural disaster, and we have to mange our exposures far more effectively than we currently do,” he told insuranceNEWS.com.au.

“We are talking about resilience and mitigation.”

Canberra has yet to issue its response to Northern Australia Insurance Premiums Taskforce final report, presented to Treasury in November 2015.

ASIC funding bill passes as industry works on regulations

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Legislation making the insurance sector contribute to Australian Securities and Investments Commission (ASIC) funding passed the Senate last week, but related regulations are still being fine-tuned.

ASIC will be funded by the industries it oversees, including banking and general insurance, under changes to take effect next month.

“Regulations that provide additional detail on the operation of the industry funding model will be made shortly, ahead of the commencement of the model,” Revenue and Financial Services Minister Kelly O’Dwyer said.

Insurers and brokers say they are still working with the Government on regulations that will set out the methods and sums to be paid by various sectors through annual levies.

“The passage of legislation introducing an industry-funded model for ASIC gives insurers certainty as the July 1 commencement date for the system approaches,” Insurance Council of Australia spokesman Campbell Fuller told insuranceNEWS.com.au.

“The Insurance Council of Australia looks forward to working with Treasury and ASIC to fine-tune the regulations governing how the new funding model will be implemented.”

National Insurance Brokers Association CEO Dallas Booth says his organisation is liaising with Treasury to clarify some definition and classification issues.

Debbie to cost Queensland more than $1 billion

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Cyclone Debbie is expected to cost the Queensland Government about $1.1 billion in recovery work, according to the state’s budget papers.

The total includes grants to local councils and spending on road infrastructure over four years to 2019/20. The state will receive partial federal reimbursement through the Natural Disaster Relief and Recovery Arrangements (NDRRA).

The state has also proposed a $220 million exceptional circumstances package, jointly funded under the NDRRA.

“The funding package is contingent on the approval of the Commonwealth and includes a request for a matching contribution for the South Rockhampton Flood Levee,” the papers say.

Treasurer Curtis Pitt says Debbie, which hit Queensland at the end of March, will shave about $2 billion, or three-quarters of a percentage point, from the state’s economic growth across this financial year and next.

“For the 2017/18 year the budget will remain in surplus, albeit dramatically reduced due to the impact of natural disasters,” he said.

The budget includes $5.6 million for the Community Resilience Fund, to help local governments deliver infrastructure that will develop and improve resilience.

Insurance taxation revenues, which include duty on compulsory third party premiums, are forecast to increase 4.7% to $892 million next financial year.

Surveyor fined over faulty townhouses

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A building surveyor faces disciplinary action and must pay a $25,500 fine over the construction of 69 substandard townhouses in Diamond Creek, Victoria.

The Victorian Building Authority (VBA) has imposed a stringent condition on Peter Eyers’ licence.

He must obtain a graduate certificate in performance-based building and fire codes – or equivalent – before he can issue new building permits for attached buildings.

He must also provide updated checklists and processes to the VBA for future work across all classes of buildings particularly townhouses or apartments.

The VBA action relates to the Rangeview Estate in Diamond Creek, northeast Melbourne.

In February last year the builder David Brayer was banned from operating as a registered builder for a minimum of three years over breaches in fire separation standards and failing to carry out work in a “competent manner” to a “professional standard”.

Earlier this month insuranceNEWS.com.au reported that dozens of aggrieved Rangeview Estate residents are bringing a class action against the VBA, claiming it failed in its duty as a regulator.

Along with substandard fire separation walls, the townhouses showed water ingress, substandard painting, lack of soundproofing, no awnings on balconies and buckled and warped external timber cladding.

APRA crunches numbers on reinsurance exposure

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Reinsurance recoverables made up 12%, or $14.3 billion, of general insurers’ total assets at June 30 last year, according to the Australian Prudential Regulation Authority (APRA).

It was the industry’s second-biggest asset class after interest-bearing investments of $50.6 billion.

Reinsurance recoverables arise from claims under reinsurance contracts, and may be due to attritional claims or from large catastrophe losses.

APRA has released the figures under an overview of industry reinsurance exposures, which analyses the key dimensions of reinsurer counterparty risk, including concentration and collateralisation of reinsurance recoverables.

The regulator started the reinsurance counterparty data collection in 2013.

“In particular, the data collection was to allow APRA to assess the impact of a reinsurer downgrade or failure on the prescribed capital amount, capital base and capital coverage on an individual insurer and the general insurance industry,” the regulator says.

“The amount general insurers are owed from reinsurers represents a significant proportion of the general insurance industry’s assets.

“Although reinsurance can reduce the insurance risk that general insurers face, it creates counterparty risk because insurers are reliant on payment from reinsurers.”

Reinsurer groups domiciled in Europe account for 58% – or $7.2 billion – of reinsurance recoverables, which could be a “source of contagion risk”, APRA says.

“Most reinsurance recoverables were related to European reinsurers, with just over half related to reinsurers based in Germany and Switzerland.

“An adverse economic event impacting Europe may have a negative impact on the financial strength of reinsurers operating in the region. Over the past 12 months, though, there has been a shift in concentration from Europe toward the Americas.”

WA injury insurer praises claims automation

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The Insurance Commission of WA (ICWA) says it has become more efficient since automating its claims process using optical character recognition (OCR) technology two years ago.

Claims documents received by the motor injury insurer are automatically scanned and stored in the OCR system, sparing staff the task of keying in data.

Automating the claims process has saved ICWA about $1.6 million, and the figure is expected to rise to $1.8 million annually in future.

The cost of indexing a document has been cut to 80 cents from $1.30 two years ago.

“The technology has enabled us to handle increased volumes of documents while reducing administration costs and staff time spent on data entry,” ICWA CEO Rod Whithear said.

“This is a tangible productivity improvement.”

The ICWA, which manages more than 30,000 insurance claims every year, now plans to implement the second phase of its OCR project.

“This phase will take most of the fields not currently identified in the documents and automatically populate them into our claims and financial systems,” Business Improvement Manager Neil Morfitt said. “This means the ICWA will be able to automatically process payments for most claims invoices.”

The ICWA estimates it will lower the administration cost of processing each invoice to less than $3 from $7.50.

State insurance commission collars fraudster

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A motorist caught submitting false information in his claims form to the Insurance Commission of WA (ICWA) has been fined $1500 and ordered to pay $742 in legal costs.

A criminal conviction was also recorded.

The motorist, whose identity has been withheld, reported neck, shoulder and knee injuries sustained in a crash in September 2015.

Payslips and claim forms submitted to support an economic loss claim triggered the insurer’s suspicions and subsequent investigations confirmed the information to be false.

“People making false statements, or exaggerating their injuries, make motor injury insurance premiums higher for everyone,” ICWA Deputy CEO Rick Howe said.

“The commission uses data analytic tools and takes a serious approach to fraudulent activities, and aims to identify all those attempting to provide false and misleading information as part of their claim.”

ASIC’s Hong Kong deal opens door for fintechs

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Fintechs will find it easier to access Hong Kong’s lucrative financial services market thanks to an Australian Securities and Investments Commission (ASIC) deal with the Chinese territory’s Securities and Futures Commission (SFC).

The co-operation agreement enables the two regulators to refer fintech businesses to one another for advice and support via ASIC’s Innovation Hub and its Hong Kong equivalent, the SFC’s Fintech Contact Point.

The Innovation Hub and Fintech Contact Point will also help businesses understand regulatory regimes in each jurisdiction.

Last year Hong Kong was Australia’s seventh-largest destination for service exports, valued at $2.4 billion, and the sixth-largest source of service imports, at $3 billion.

The agreement will also help ASIC keep abreast of regulatory and economic or commercial developments in Hong Kong, which can inform its own regulatory approach.

“Financial services are a major contributor to Hong Kong’s $US316 billion ($416.66 billion) economy,” ASIC Commissioner Cathie Armour said.

“The co-operation agreement is a significant boost for Australia’s burgeoning fintech sector and will ease entry into this important market for innovative Australian businesses.”

This is the fourth fintech referral agreement ASIC has made, following deals with the UK, Singapore and the Canadian province of Ontario.

ARPC names new chairman

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The Federal Government has appointed Ian Carson as part-time Chairman of the Australian Reinsurance Pool Corporation, and Karen Payne as part-time board member.

Mr Carson, a business advisory expert and entrepreneur, will begin his three-year term on July 1. He replaces Joan Fitzpatrick, whose term expires this month.

He is a partner and Chairman of professional advisory firm PPB advisory.

Ms Payne will start her three-year term on October 5. She is CEO and an executive member of the Board of Taxation.

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Life Insurance

RGA warns industry on disability protection losses

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Life insurers have lost $1.1 billion on disability income products over the past five years, based on data from the regulator, according to RGA Australia Head of Underwriting and Technical Services Meredith Barnes.

“How many businesses in Australia today can sustain a billion-dollar loss over any five-year period and not see that as a call to action to remediate the underlying issue?” she said.

“Masking the individual disability income losses are offsetting profits made from other product groups.”

Based on Australian Prudential Regulation Authority data, the life industry generated a $4.8 billion profit on individual lump sum insurance during the five years, Ms Barnes told insuranceNEWS.com.au exclusively.

She says combining the lump sum business results with disability income gives a more acceptable overall profit margin of about 7% over the period.

“How realistic is the cross-subsidisation, and how sustainable is the practice of offsetting material losses from one product group against more profitable business?” Ms Barnes said.

“And how sustainable is the very real prospect of ongoing premium increases?”

Recent analysis by Rice Warner for RGA Australia shows the average retail disability income premium increased by 9% between 2013 and 2014, while the average group premium increased 19%.

“Change is clearly necessary to contain the prices of premiums, rein in losses and ultimately assist with the conversation our industry needs to have with its customers,” Ms Barnes said.

“I see encouraging signs the life industry has begun taking meaningful steps to embrace consumer ‘wellness’ as a realistic goal.”

Ms Barnes says “wellness” will mean insurers finding new products and approaches to help customers meet their financial needs and return to work.

“This is getting disability income insurance back to where it needs to be, with realistic premiums and claims payments, while generating sustainable, long-term outcomes for the consumer,” she said. “Ultimately, claims must be funded out of premiums.”

While insurers may cross-subsidise segments to smooth premiums, this means customers may not pay the “correct” amount for their cover.

“Consumers want a disability product that is priced fairly and will be there to support them in times of need,” Ms Barnes said. “We know the current disability income product is underpriced and needs significant increases to break even, let alone generate profits.

“I wonder whether our market has focused on product ‘bells and whistles’ to the detriment of designing simple and affordable policies to meet the expectations of our customers.”

Annuities ‘mis-sold under FOFA rules’

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Annuities are being sold to clients with minimal advice, the Financial Planning Association (FPA) warns.

It says members report annuities being sold to consumers for 90-100% of their portfolio that was otherwise to be held in term deposit-style investments.

In a submission to Treasury on the Future of Financial Advice (FOFA) reforms, the FPA says rules on the limited carve-out for basic banking products are being misused.

“This measure is only meant to apply with regard to the provision of factual information and not ‘advice’,” the submission says. “Sometimes this can be a very fine line and there are probably many cases when the factual information given is definitely trying to influence the client to take action on a product.”

The FPA says case studies have shown more than $1 million of annuities being sold to elderly clients. Commissions on these were almost 1%, the association says.

“Clients were not ever met – this was constructed through a phone meeting.

“Advice was given that the basis for the advice was that funds were capital guaranteed – which is not the case with these products.”

The FPA says clients were advised 3% is a very good return – better than the term deposit.

“The clients did not understand the product at all. It appears these products are being sold as a basic product with commissions still being paid.”

The FPA says annuities are not simple financial products and should be recommended through personal financial advice only if they are in clients’ best interests.

“They should not be ‘sold’ to consumers. We question whether the carve-out for basic banking products from the best-interests obligations and conflicted remuneration provisions is exacerbating the risk of mis-selling for consumers.”

The FPA wants a ban on annuity sales under the basic banking product carve-out, and wants the Federal Government to examine compliance issues under the FOFA legislation.

APRA stats show life industry in profit

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Only three life insurers failed to make a profit last year, with the biggest after-tax loss of $139 million recorded by National Mutual, part of AMP.

Australian Prudential Regulation Authority figures show MetLife recorded an after-tax loss of $13 million on its Australian operations, while RGA Australia reported a $10 million deficit.

National Mutual had net policy revenue of $946 million, offset by $1.9 billion of total expenses. MetLife net policy revenue was $554 million, with expenses of $601 million. RGA Australia policy revenue was $593 million and expenses $730 million.

TAL recorded the highest net policy revenue at $1.7 billion for the calendar year.

MLC ($1.57 billion), CommInsure ($1.55 billion), OnePath ($1.35 billion), AIA $1.3 billion) and AMP ($1.1 billion) also topped the $1 billion barrier.

AMP reported the largest total expenses at $7.7 billion, followed by MLC ($4.8 billion) and OnePath ($3.5 billion).

AMP has the largest total liabilities at $88 billion, followed by OnePath ($37 billion).

The figures also reveal the profitability of life insurers that do not break out their Australian operations when reporting.

AIA made an $87 million after-tax profit and Zurich $43 million.  

Reinsurers have mostly turned around their loss-making Australian life business.

Swiss Re made a $162 million after-tax profit last year, making it the most profitable life reinsurer. Munich Re reported a $152 million profit. Hannover Re made a $2 million profit, while Gen Re reported $23 million and Scor $3 million.

Swiss Re’s net policy revenue was $1.1 billion, ahead of Munich Re on $534 million.

RGA Australia’s net policy revenue was $593 million, Hannover Re recorded $488 million and Gen Re reported $262 million. 

Pacific Re continues to grow in the Australian market, recording $120 million of net policy revenue. Scor reported policy revenue of $81 million.

Swiss Re’s total expenses were $965 million. Munich Re’s were $452 million, Gen Re’s $250 million, RGA Australia’s $730 million, Pacific Re’s $135 million and Scor’s $87 million.

FOFA changes slash super advice revenue: FPA

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Financial advisers lost 15-30% of their revenue when the ban on life insurance commissions within superannuation took effect under the Future of Financial Advice (FOFA) reform, according to the Financial Planning Association (FPA).

In a submission to a Treasury review of FOFA, the FPA says some practices stopped offering advice in this area because “the cost to implement insurance advice is too high and clients are not prepared to pay a flat fee for this advice”.

Advisers have reported increases in premiums despite the removal of commissions, which should have driven down costs.

“There has also been anecdotal evidence… [of] a reduction in the number of consumers seeking and accessing advice on life insurance needs,” the submission says.

“Existing group clients have been cancelled, leaving them with no life insurance advice service and having to deal directly with product providers.”

Advisers have also faced significant compliance costs associated with providing life insurance advice.

The FPA estimates these as $5000 on training, $5000-$10,000 for introducing a new remuneration system – although some put this cost higher – and $5000 on IT changes.

“Some large businesses hired additional staff to address specific issues related to the implementation of this measure. Businesses had to decide whether to keep clients or archive them because no revenue was coming in to support the ongoing service needed to provide life insurance advice, such as annual review of policy to ensure it meets clients’ needs.”

Breast cancer group calls for standard life definitions

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Breast Cancer Network Australia (BCNA) is the latest organisation to raise concern at a lack of standard definitions in life insurance policies in superannuation, questioning how this “may complicate the assessment of claims”.

“We believe there is far too much latitude around how the industry defines terms such as ‘terminal illness’ and ‘total and permanent disability’, which vary from fund to fund,” it says in a submission to a parliamentary inquiry into the industry.

The BCNA says definitions and how they are assessed should be published to provide greater clarity and improve dispute resolution.

It says there is evidence the lack of clarity delays payments and leads to greater stress for claimants.

Claimants are also forced to pay expensive legal fees to reach settlements.

The BCNA also wants an overhaul of the dispute process.

“We believe a prescribed set of rules needs to be implemented under a formal code, overseen by a proactive code compliance committee.”

The BCNA has not noted that advisers can provide a number of claims services for retail products, although with cuts to their revenue, they may be reluctant to do so in future.

Since the ban on commissions for life insurance sold in super, advisers have stopped advising clients because it is not profitable.

See other story.

“It is essential life insurance attached to super is included in the terms of reference of the code compliance committee, otherwise it will have little impact on average Australians,” the submission says.

“We believe that to increase community confidence, the code compliance committee needs to have substantial powers of audit and sanctions to enforce compliance.

“In addition, processes need to be transparent, allowing any breaches by industry to be published in full on a public website.”

The BCNA warns if a committee is not included in future industry reforms, bad publicity about claims will continue.  

Canstar picks direct life winners

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NobleOak and Ozicare have been named “outstanding value insurers” in the Canstar Direct Life Awards.

The financial comparator says NobleOak was selected for its Premium Life product.

It is the only direct life insurance provider to achieve a Canstar award two years running.

“The impressive result is due to a combination of very competitive premiums and strong features,” Canstar GM Wealth Josh Callaghan said.

“With new entrants and a number of product changes in the industry, it’s quite the achievement for NobleOak to have once again secured the award.”

Mr Callaghan says Ozicare’s product features are regarded as superior to the average market offering, and are very competitively priced.

Canstar reviewed 31 direct life products from 30 insurers.

“There are now some direct life insurance policies in the market that are highly featured products,” Mr Callaghan said.

“The coverage is getting closer and closer to what you’d get from an advised life policy.

“Some insurers have been restructuring their policies, removing some temporarily from the market and returning with new and improved products that offer more coverage.”

Liberals sink latest bid for financial services inquiry

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The financial services industry has, for now, avoided yet another inquiry, after a Greens-led bill was defeated in the House of Representatives by one vote last week.

The bill passed the Senate on Thursday, when independent Jacquie Lambie – a co-sponsor – asked why the Federal Government has refused to hold a royal commission into the sector.

“It cannot be the cost, because the Government did not think twice about spending about $46 million on the trade union royal commission.

“It cannot be politics, because a poll run by think tank the Australia Institute last year found that 68% of respondents supported a royal commission into the banks.”

Senator Lambie says changes the Coalition Government has made to the financial services industry are inadequate.

“Australia needs to see a cultural shift before the industry can restore its reputation. A commission of inquiry into the banks is not about getting even for the Government’s trade union royal commission.

“It is simply about rooting out any wrongdoing or unethical behaviour by lending organisations and other financial services.”

The bill passed the Senate with a majority of 12.

In the House of Representatives only two members spoke supporting the bill – Greens MP Adam Brandt and independent Bob Katter, placing more focus on bank lending than other parts of the industry.

The bill’s progress towards further debate was scuppered when the Speaker cast his deciding vote against it.

CBA finds its advice was mostly appropriate

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Nearly three-quarters of 8654 cases assessed under Commonwealth Bank’s Open Advice Review show appropriate advice was offered with no financial loss.

The review, conducted by Promontory Financial Group, found 542 cases of poor advice but no financial loss, while 1076 cases incurred a loss to bad advice. It has also identified 434 cases in which clients were charged incorrect fees but suffered no financial loss.

The bank received 22,797 expressions of interest for the compensation scheme, but only 10,128 registered to take part.

Of those, 8654 had an assessment outcome, with about $29 million paid in compensation.

The program reviewed advice by bank-owned dealer groups Commonwealth Financial Planning and Financial Wisdom between September 1 2003 and July 1 2012.

In its final report, Promontory notes 936 cases are to be finalised. The bank expects to achieve this by the end of the year.

Commonwealth’s EGM for the program, Leif Gamertsfelder, says the review is in its final stages.

“Reviews were completed and issued to customers early this year and the vast majority of cases – about 90% – have now been finalised,” he said. “We continue to make sure our dedicated team is available to assist customers or their independent customer advocate to answer any questions about the cases that are currently being finalised.”

Adviser banned over double-charging

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The Australian Securities and Investments Commission (ASIC) has permanently banned WA adviser Robert Hutchison from providing financial services.

Mr Hutchison was an authorised representative of RI Advice Group, owned by OnePath, from May 2007 to November 2012.

Between January 2011 and November 2012 he dishonestly put client cheques into his personal bank account, ASIC says.

He was required to inform the dealer group of these payments.

Mr Hutchison then deducted additional fees from his clients’ financial products for payment to RI Advice Group.

ASIC Deputy Chairman Peter Kell says Mr Hutchison misled or deceived his clients by failing to tell them they had been double-charged advice fees.

“ASIC will continue to protect consumers by removing people from the financial services industry who act dishonestly and breach the trust of their clients,” he said.

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The Professional

NIBA chief says critical survey is ‘rubbish’

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The National Insurance Brokers Association (NIBA) has slammed a public survey ranking brokers alongside car salespeople, advertising workers and real estate agents in lacking ethics and honesty.

The annual Roy Morgan Image of Professions Survey shows only 10% of 648 respondents believe insurance brokers to be trustworthy.

In a LinkedIn post, NIBA CEO Dallas Booth says the study is “rubbish” and has “no value”.

He told insuranceNEWS.com.au there is no indication the respondents have experience or knowledge of insurance brokers, or have even spoken to one.

“It’s a survey that is totally meaningless,” he said. “It’s clear that it’s done at night. The only qualification for a participant is that they are aged 14 and above.

“We are disappointed that a survey of this nature receives the sort of coverage it does.”

But Roy Morgan CEO Michele Levine has defended the survey, telling insuranceNEWS.com.au it is an opportunity for businesses to do some “soul-searching”.

“This is all about image,” she said. “It’s about how Australians view these professions.”

She says insurance brokers peaked in 2014, when 16% of respondents rated them as ethical and honest.

“It’s trended down since then and it’s something for them to look at. Is it bad press? Is it the claims-handling?”

Mr Booth says the Vero SME Index demonstrates “overwhelmingly” that clients appreciate their brokers.

But Gold Seal MD Sheila Baker, whose company provides training and support services to broking organisations, told insuranceNEWS.com.au that not all brokers work hard and with integrity.

“My question is: is there room for improvement? Yes, there is. Do all brokers operate squeaky clean businesses? Regrettably, no.”

She says it is important to tackle this small group to restore the industry’s reputation.

UAC to hold inaugural Wellington expo

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The Underwriting Agencies Council (UAC) will hold its first expo in Wellington on August 3 as the group continues to step up its presence in New Zealand.

The event at the Rydges Hotel will open with a seminar led by guest speaker Paul Ash, Director of the National Cyber Policy Office, with the expo to follow.

“We are expanding into other areas,” UAC GM William Legge told insuranceNEWS.com.au. “Wellington, being the capital, is an obvious choice.”

UAC held its first New Zealand expo in Auckland in 2015, and its first in Christchurch last year. It has 10 members in New Zealand, according to its website.

For more information, contact admin@uac.org.au.

CQIB names young professional winner

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Amy Porta from Bill Owen Insurance Brokers in Cairns has won the Council of Queensland Insurance Brokers (CQIB) Peter McCarthy Young Professional of the Year award.

She receives $1000, CQIB Convention registration and a trophy recognising “outstanding commitment and service” over the past year.

CGU won the insurer all-rounder award, ahead of runner-up Allianz Australia. The award recognises account security, range of products, service levels, claims administration, accounts, communication, price and availability of senior management.

Six awards were presented at the Queensland Day celebration, attended by 360 members and guests at the Brisbane Convention & Exhibition Centre on June 8.

CGU also won the claims service and domestic insurer awards, while UAA took the underwriting agency award for the ninth year in a row.

The Mick Lambert Barker Award, given to a CQIB business partner staff member for “service above and beyond”, went to Luke Wennerbom from Vero.

Life memberships were bestowed on former CQIB committee members and presidents Glen Butler and Alan Schafer.

“Both Glen and Alan were instrumental in the professional and financial development of CQIB,” President Sean Bemrose said.

Zurich recruits new SME head

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Zurich Australia has appointed Theo Pitsikas as Head of SME.

He joins from Suncorp, where he spent the past eight years working in the SME portfolio.

Before that he was with Allianz for nearly five years.

Australian COO Raelene Seales says Mr Pitsikas’ extensive SME and leadership experience will “significantly enhance” Zurich’s underwriting and product offering.          

Club Marine brings in NZ BDM

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Ken Monk has been appointed Business Development Manager New Zealand at Club Marine, based in Auckland.

He previously managed the marine division at QBE New Zealand.

New Zealand Manager Nick Meister says Mr Monk has a “wealth of knowledge” in claims, sales and underwriting and has “already made an impact” since joining on May 1.

“His knowledge and understanding of the broker and marine markets is a great benefit to Club Marine – as is his passion for sailing,” Mr Meister said.

APIG scholarship opens for entries

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The Wotton + Kearney and Australian Professional Indemnity Group (APIG) Scholarship is now open for submissions.

The program, in its third year, recognises practising APIG members aged under 36 who make an outstanding contribution in professional indemnity and financial lines insurance.

Candidates must write up to 600 words outlining their background in financial lines insurance and their views on the industry from a perspective that affects them.

The winner will attend next year’s Professional Indemnity Forum Conference in the UK. They will also visit the Lloyd’s market in London, with $7500 provided for return airfares, accommodation and spending.

APIG will announce the winner on September 7 at its national gala dinner. Suncorp’s Michael Forster won the scholarship last year.

The closing date for submissions is August 17. To enter or for more information, click here.

Claims Convention registrations open

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The annual Australasian Institute of Chartered Loss Adjusters and Australian and New Zealand Institute of Insurance and Finance Claims Convention will be held in Sydney on September 21.

Its theme is “the art of claims – maintaining customer focus”.

Guest speakers will include Zurich Head of Claims for Property and Engineering Rob Blunden, Arthur J Gallagher Head of Claims Adam Squire, Financial Ombudsman Service general insurance head John Price and Berkshire Hathaway Specialty Insurance Regional President Chris Colahan.

Forensic psychiatrist Grant Lester will discuss techniques for dealing with difficult claimants.

And a trainee loss adjusters’ workshop will be held in Sydney on September 20. Members can email recommendations for speakers to adminoffice@aicla.org.

To find out more and register for the conference at the Sofitel Wentworth, click here.

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Cloud services, diseases among emerging risks: Swiss Re

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Infectious diseases and the widespread use of cloud services are among the top six emerging risks with high potential impacts, according to this year’s Swiss Re Sonar report.

Data and services are increasingly accessed through “super clouds” by businesses and households, generating potential for trouble, the reinsurer says.

“If a huge data storage provider such as Amazon Web Services is disabled for 24 hours, it is going to cause business interruption for countless sub-providers and their clients,” the annual report says.

Risks to the insurance industry in the next three years include the return of inflation, reduced market access amid a rise in nationalism and protectionism, and regulatory fragmentation.

Longer term, the report flags underestimated infectious diseases and growing water supply stress as threats with the highest potential impact.

Avian flu, SARS, Ebola, smallpox, yellow fever, dengue and Zika are well known, but diseases are becoming less predictable as risk factors change and grow more complex.

“The question isn’t whether another deadly infectious disease will appear, but when and how well society is prepared to cope with it,” the report says.

Swiss Re identified 20 emerging risks using an internal crowdsourcing platform that collects views from underwriters, client managers, risk experts and others.

“Ignoring emerging risks is not an option, neither for political decision-makers, the insurance industry, nor society as a whole,” Swiss Re Chief Risk Officer Patrick Raaflaub says.

“The earlier we adapt to these changes, the better prepared we will be.”

The Internet of Things and related cyber attacks is considered a medium-impact risk in the next three years, as are ramifications from increased use of opioid medication, and stress and fatigue in safety-relevant jobs.

“Eroding rationality” as the rise of social media and other internet platforms affects information quality also has implications for insurers.

“Growing distrust in established political institutions is spreading to corporate players, many of which are already held in low esteem by important sections of the population.

“This will have a particular impact on the insurance industry, whose business model is highly dependent on clients’ trust.”

Other issues flagged include the rise of the gig economy, carcinogens in artificial turf, artificial intelligence, antimicrobial overuse in animal farming and dangers from eSports, or hardcore video gaming.

Politicians split on debt-ridden US flood scheme

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A battle is brewing among US politicians over renewal of the National Flood Insurance Program (NFIP), which is due to expire on September 30.

Lawmakers have tabled two competing bills proposing contrasting ways to extend the federal program,according to AM Best's News Service and US media reports.

One of the bills, the Safe National Flood Insurance Reauthorisation Act, seeks to renew the program for six years and cap premium rises at 10% for homeowners.

It estimates this would generate savings of about $US750 million ($985 million) a year.

The bill also gives the Federal Emergency Management Authority, which manages the program, authority to fire consultants, engineers or contractors hired by private insurers that “act in bad faith” or deliberately hurt the NFIP.

Proposals in the competing bill include extending the program for 10 years and allowing more private sector competition, with measures to stop private insurers cherry-picking risks.

More than 5 million homes and businesses are covered by the NFIP. In January it borrowed $1.6 billion ($2.09 billion) from the US Treasury, bringing its total debt to around $US25 billion ($32.77 billion).

Companies ‘face hurdles in digitisation race’

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Significant barriers including lack of vision, inadequate implementation skills and siloed operations are stopping companies fully reaping the benefits of digital transformation, according to a new report by XL Catlin and the Harvard Business Review.

The need to replace legacy technology systems, budgetary constraints and shortage of staff with digital know-how are other issues cited by the 335 corporate executives interviewed.

About 74% of respondents want to improve customer experience by digitising operations, but only 47% have done this.

More than 70% hope to become more profitable, but only 42% have achieved this.

The gulf is similar for other objectives such as increasing revenue, reducing expenses and improving insights into customer needs and expectations.

“Sadly, many are nowhere close to realising these outcomes,” the report says.

“Our survey findings suggest companies still struggling to reap the benefits of digital transformation may need a broader approach to the undertaking, one that addresses not only the front end of the business, but also the back end.

“A broader approach to embracing digital technology across the enterprise will also require that corporations revisit the human component of digital transformation, from the commitment and leadership of the senior executive team to the availability of front-line employees who have the skills to take advantage of all that digital technology has to offer.”

Companies must review commonly overlooked areas such as research and development, supply chain, the manufacturing process, where applicable, and the distribution network.

Shipping losses drop, but storm clouds gather

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Large shipping losses have halved in the past decade, but a “perfect storm” of regulatory pressure, narrow margins and new risks is gathering, according to Allianz Global Corporate & Specialty’s (AGCS) fifth annual shipping review.

Last year, total losses of shipping fell 16% to 85 incidents, compared with 101 in 2015. The number of losses above 100 gross tons declined 4% to 2611.

The most common cause was sinking in bad weather, while machinery damage caused more than one-third of shipping incidents.

AGCS Global Product Leader Hull and Marine Liabilities Baptiste Ossena says while the long-term downward loss trend is positive, the shipping sector is being “buffeted by a number of interconnected risks at a time of inherent economic challenges”.

Threats include greater environmental scrutiny, with record fines for pollution, costly new ballast water management rules and increased political risks in hotspots such as Yemen and the South China Sea affecting vessel routes.

The threat of offshore cyber attacks is significant, but since no major incident has occurred, the industry remains complacent.

Rising bankruptcies and high debt levels are causing some ship owners to cut maintenance budgets, crew numbers and training, which can increase loss activity.

AGCS says negligence and poor maintenance are leading causes of liability loss in shipping, and it has noticed an increase in claims involving the latter.

Safety-enhancing technology such as electronic navigation tools and shore-based machinery monitoring is helping to eliminate human error, but users need to understand its limitations.

AGCS and other insurers are in the early stages of working with ship owners to utilise voyage data recorder analysis.

Other risks identified in the review include structural integrity of vessels, autonomous shipping, fires at sea and the potential for $4 billion-plus clean-ups if larger vessels are wrecked.

Willis Towers Watson strengthens senior broking team

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Willis Towers Watson has named Cliff Jeyes as Head of Broking Asia, Australasia, Central and Eastern Europe, Middle East and Africa, and announced other senior appointments.

His appointment comes amid moves to strengthen leadership in the corporate risk and broking business, led by Global Head of Broking Philip Smaje, who says the reorganisation “aligns with our broader corporate risk and broking structure”.

Mr Jeyes is based in Singapore, a spokesman told insuranceNEWS.com.au.

Head of Broking Australasia Helene Madell now reports to Head of Corporate Risk and Broking Australia Andrew Boal and Mr Jeyes.

TT Club hails ‘stability’ as premium rises

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Global transport and logistics industry insurer TT Club has reported premium and surplus growth for last year.

It recorded gross written premium of $US177.8 million ($234.16 million), up 3.37% on the previous year, and a surplus of $US5.2 million ($6.85 million), an increase of 8.33%.

The combined operating ratio worsened slightly to 95.3% from 94.4%.

“The theme of recent years of an increasing number of factors causing instability around the world has continued, and shows little sign of abating,” Chairman Ulrich Kranich said.

“Set in this context, the stability in the club’s performance is extremely welcome.

“As a mutual, the club’s finances are managed to produce a small surplus, and to achieve this was therefore an entirely satisfactory result.”

TT Club also retained its A- financial strength rating from AM Best for the 11th successive year.

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Analysis

June renewals: rising at last

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The soft market may finally be behind us, as brokers report underwriters successfully pushing through rate increases in the June renewals.

Most brokers contacted by insuranceNEWS.com.au have reported rises across all sectors and classes.

Arthur J Gallagher says the transition from a soft market began early this year and premiums are now hardening “across multiple classes”.

“Insurers are looking to restore profitability on lines that have been affected by high loss ratios,” MD Broking Sarah Lyons told insuranceNEWS.com.au.

“It’s a mixed story, however, reflecting variations in capacity and price-driven competition in some spaces.

“Other insurance classes have seen loss ratio reductions, which may translate into premium-related benefits at renewal.”

Ms Lyons says the directors and officers’ insurance market is experiencing “significant correction”. “Scrutiny on the insured’s risk exposures for many clients may lead to reduced limits and increased premiums.”

“Although much of the correction is being witnessed at the corporate end of the spectrum, risks from large-end to small business are all experiencing tightening conditions as insurers strive to return their portfolios to a reasonable or acceptable investment return.”

In property, major insurers are seeking rate increases of about 5-7.5%, while professional indemnity rates are expected to be flat, driven by a loss ratio reduction and a more favourable claims environment.

Public and product liability capacity “remains readily available”, with insurers applying minimum rate increases to risks without losses.

Ms Lyons says business pack policies are seeing a minimum 5% increase, up to 8% in some cases.

And in management liability, increases are anywhere between 10% and 25% due to high loss ratios and increased pressure on margins for insurers.

Perth-based Leed Risk Services MD Con Manetas told insuranceNEWS.com.au small rate increases, tougher underwriting criteria and restrictions on policy wordings are all in evidence in this renewal season.

“Those things together are usually a sure sign the market has bottomed out,” he says.

Mr Manetas says this time last year underwriters tried to push through some increases, but there was resistance.

“Clients are more open to it this year. There is more acceptance of small rate increases.”

He says in the SME sector rates are up 0-5%, and in the middle corporate space rises are 0-10%, but clients that shop around could get a better deal.

“You can still be surprised,” Mr Manetas says. “For new business, rates tend to be a bit better than for renewals.”

Similar increases can be expected over the next year to 18 months, he says, unless new players enter the market or there is a very benign claims environment.

Insurance House, which is based in Melbourne but has offices in Sydney and rural Victoria and NSW, says the picture is “very spotty”.

Executive Chairman Gary Gribbin says personal lines are seeing increases of 3-6% and SME 3-5%, but the middle corporate market remains soft.

“Insurers are being more selective and tightening their underwriting criteria,” he told insuranceNEWS.com.au.

“It has definitely firmed up a little, and the market has bottomed out in personal and SME.

“But there is still significant softness in the corporate sector. The industry is still awash with capital and it has to be put to use.”

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