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Australia ‘heavily exposed’ to secondary perils

The hailstorm that hit Sydney last December was further confirmation of the growing risk to insurers from secondary natural perils, Swiss Re’s latest Sigma study says.

Other perils in this category include river floods, bushfires, flash floods, landslides, torrential rainfall and droughts, plus fallout from primary perils such as hurricane-induced rain, storm surges, tsunamis and land liquefaction.

“Australia is heavily exposed to secondary perils,” Swiss Re Head of Property Treaty Underwriting for Australia and New Zealand David Sinai said.

“Secondary perils are typically weather-related, so we might expect that climate change will have an influence on secondary peril loss outcomes in the future.

“As our world warms, we will experience increased atmospheric energy – more storms; a warmer atmosphere, which can absorb more moisture, leading to more intense rainfall events; and more heatwaves driving an increase in bushfire losses.”

The Sigma study estimates insured losses from secondary perils exceeded 60% of the $US76 billion ($106 billion) the industry paid last year on natural catastrophe claims.

It was the second year running that second-tier hazards, loosely termed as those not covered by catastrophe models, were responsible for at least half of natural catastrophe losses.

See ANALYSIS.

Townsville claims rise as coverage rows rumble on

The number of claims lodged after the devastating Townsville floods in February has risen to 27,355, amounting to more than $1.13 billion.

About 214 claims have been denied, with 260 sent to internal dispute resolution and 25 in external dispute resolution. But 19,900 claims are still open.

Channel Nine’s A Current Affair last week reported on flood victims which it said are “battling” insurers for payouts. As insuranceNEWS.com.au has previously reported, many businesses and strata residents did not have flood cover.

The show features businessman Mike Adlard, who says QBE won’t pay because he didn’t have flood cover.

And Lee Lane and Joanne Chambers, who own units in the same Townsville complex, say Vero told them their body corporate does not have flood insurance, leaving them with no compensation for damage to their homes.

Insurance Council of Australia spokesman Campbell Fuller says the case studies don’t reflect the true situation. So far $230 million has been paid out for repairs, services, emergency accommodation and replacement items, and 25% of critical home building claims have already been resolved.

“We are aware that A Current Affair spent a long time trying to find bad case studies,” Mr Fuller said.

The program features claims adviser David Keane, who has been holding meetings in Townsville for unhappy insureds. He told insuranceNEWS.com.au he is assisting about 70 people with claims, and giving advice to hundreds more.

He accepts people without flood cover cannot expect to be paid for flood damage, but says “it’s not always that simple”. Some homes were damaged by stormwater before being inundated for a second time by floodwater after the Ross River Dam was opened.

ICA says insurers use hydrologists to determine the cause of damage, and some claims may be part-paid.

But Mr Keane says the quality of hydrology reports has been “variable” and he has examples of hydrologists determining all damage was due to flood, despite photographic evidence of stormwater in the property.

And he says blaming the client for failing to arrange flood cover is not always fair.

“Most strata residents did not know that they were not covered for flood. They were not asked about it. Somewhere the chain of communication has failed. Something is broken.”

QBE declined to comment to Channel Nine, citing privacy, but Vero says it has approached claims “with fairness and compassion”.

“Commercial customers, including strata management, typically need to ‘opt in’ to flood cover,” it said.

Vero says strata claims “can be complex” due to building cover being taken out by the body corporate, not the resident.

“In relation to strata claims, a significant proportion of claims on broker-sourced policies appear to have been caused by flood damage. However, we still expect to accept more than half of the claims we have received.”

Hawking reforms ‘must be handled with care’

Hayne royal commission recommendations to strengthen anti-hawking laws must be given “careful consideration” to ensure changes don’t have a detrimental impact on the general insurance industry, Finity has warned.

Commissioner Kenneth Hayne’s final report recommendation 4.1 specifies “hawking of insurance products should be prohibited”, and the Government has pledged to act.

But Finity says outlawing “cross-selling” could lead to “turmoil”.

“If you arrange car insurance on the phone, can an insurer ask about your home insurance? Can a travel agent offer you travel insurance? This is where we see the anti-hawking changes could create turmoil.

“Taking the anti-hawking definition and the recommendation at face value, many current practices would become illegal.”

Finity says unsatisfactory sales conduct highlighted in last year’s royal commission hearings was related to life insurance and funeral cover – but that might not stop general insurance being caught in changes to the law.

“It is necessary to evaluate whether the various cross-selling situations are indeed a detrimental hard sell of unwanted products or are beneficial to consumers in terms of awareness and convenience.

“To use the travel example, there could be significant benefits for consumers, especially the less financially sophisticated, in reducing the risk of taking an overseas trip without thinking about travel insurance.”

Finity believes insurance brokers are unlikely to be significantly affected by changes to anti-hawking laws.

“Most offers of insurance that they make are solicited or would be regarded as solicited.”

It says some add-on insurance products have raised genuine concerns, but there are other measures being brought in to deal with that issue.

“The royal commission has made a number of recommendations to deal with this situation – including deferred sales, commission limits and product design and distribution obligations.

“Is the extension of anti-hawking needed to deal with these circumstances, as well as all the other provisions?”

Finity suggests the current law simply needs to be properly enforced, rather than new laws being required.

“Most general insurance products are not prone to mis-selling or overselling. The vast majority protect a physical asset or legal liability and only one insurance policy is needed for each asset or legal exposure.

“Careful consultation will be necessary to strike the right balance between protecting consumers and allowing the convenient and helpful offer of insurance products to consumers.”

Insurers’ apathy drives out NZ insurtechs

Nearly all insurtechs in New Zealand are being forced to form partnerships with other start-ups or planning overseas expansion because local insurers as so apathetic.

About 65% of incumbent insurers and brokers admit they are not proactive in engaging with insurtechs, a report from EY and InsurTechNZ says.

Some 90% of insurtechs are approaching each other for business, while 67% plan to expand overseas in the next year; 31% of those plan to expand to Australia.

The report says insurtech development is challenged by New Zealand’s small population and limited access to the marketplace, which is dominated by single-player insurers and broking duopolies. The report says this creates a bias towards the status quo.

About 72% of insurtechs are working with incumbent insurers, brokers or service providers, yet 25% say developing a relationship with an incumbent is the biggest barrier to growth.

Some 63% do not believe there is enough collaboration between incumbents and insurtechs to realise a successful transformation of the insurtech ecosystem.

Seventeen insurtech companies have launched since 2017. Most focus on customer engagement and experience, but an increasing number involve back-end systems servicing both customers and insurers. There is little evidence of insurtechs trying to compete with incumbent insurers, according to the report.

While incumbents increasingly see the need for innovation, they prefer to own it themselves, the report says. It suggests insurtechs should better align with incumbents’ business drivers and demonstrate how they can tackle underlying problems.

In Insurance News magazine this month

How will insurance brokers deal with the fallout from the Hayne royal commission? The latest edition of Insurance News, the industry’s most popular magazine, looks at the quandary for brokers struggling with the consequences of an inquiry they weren’t even invited to participate in.

From the Vero SME index to broking and industry leaders, as well as an ethicist, you’ll find some real answers in Insurance News.

We’ve also asked the federal Assistant Treasurer and his Opposition counterpart to give us their views on a number of industry issues, you can also catch up with some of the latest trends in insurtech, see how the industry is progressing in terms of performance and profit, and contemplate the ironies of a flood insurance definition that still apparently causes confusion.

All that and a whole lot more in Insurance News, which is hitting subscribers’ mailboxes at present. Once the mailout is complete, we’ll publish the magazine online.

ICA plays down spike in code breaches

The Insurance Council of Australia (ICA) and major insurers have rejected criticism of the industry’s performance following a 32% rise in code breaches last financial year.

They say the increase has more to do with improved compliance frameworks than a lax attitude, as had been flagged by Code Governance Committee Chairman Lynelle Briggs.

“As we continue to improve our monitoring and supervision of the code, we continue to experience increased numbers of reportable breaches,” a Suncorp spokesman told insuranceNEWS.com.au.

“The increase in reported breaches represents improved identification and capture, not necessarily an increase in the number of breaches occurring.”

Suncorp takes the General Insurance Code of Practice “very seriously”, having taken significant steps since 2017 to increase its quality assurance program.

“We see the code as a mechanism to continue to improve our business and how we serve our customers,” the spokesman said.

IAG has noted a small increase in reportable breaches, which it says is due to its handling of compliance-related matters.

“Where an issue is identified, our priority is to contact the customer and take all the necessary steps to rectify the issue, while doing everything we can to prevent it happening again,” a spokesman told insuranceNEWS.com.au.

“As part of meeting the objectives of the code, we remain focused on ensuring we have the best systems in place to identify any reportable breaches… and to continue to raise them appropriately. We believe this is also an important way the wider industry can improve outcomes for customers.”

ICA plans to discuss with members the “significant issues” raised in the governance committee’s report, spokesman Campbell Fuller says.

“The code has been focused on rectification and remedy of breaches, which has delivered improvements to processes and better outcomes for customers,” he told insuranceNEWS.com.au.

“The industry is committed to improving the reporting of code compliance breaches.”

Natural perils cost $13 billion a year

Australian natural perils generate an average annual cost of $13.5 billion, including insurance losses and intangible impacts, actuarial consultant Finity says.

The total comprises $5 billion for insured costs, including claims from major disasters and smaller events. Other tangible impacts total $4 billion, while intangible expenses are $4.5 billion.

“It is important to not just focus on the insured costs, because the overall costs are much larger,” Finity says. “This is particularly important when evaluating the economic benefits of mitigation and resilience measures.”

The figures make a limited allowance for climate change, with the effects difficult to detect in claims data given the variable nature of extreme events.

“However, attribution studies and anecdotal evidence from individual events indicate how climate change is already affecting the level of risk from disasters. To the extent that the underlying costs are materially higher than indicated by the historical data, our estimate is likely to be too low.”

The intangible costs include deaths and injuries, impacts to mental health, family violence and alcohol abuse, and draw on case studies included in an Australian Business Roundtable report.

Industry missing out on data riches: tech expert

Insurers have not yet unlocked insights from their unstructured data or leveraged it through the claims management chain, according to Gallagher Basset.

Sameer Oghanna, the claims management group’s Head of Automation, Artificial Intelligence and Analytics, says insurers have a wide range of data available from voice analytics, social media, wearable technology, telematics and sensors that they are not analysing.

Accenture research shows most companies process only 10-15% of the data they can access, and that is structured data in traditional databases.

Mr Oghanna says machine learning can give insurers a better understanding of premium leakage, risk appetite and expense management, and better identify fraud.

Artificial intelligence can be applied to unstructured, semi-structured and structured data, giving insurers a more predictive, accurate understanding of claims behaviour, risk and customers.

All industries are entering the fourth industrial revolution of artificial intelligence and machine learning, and insurers must embrace it and expand it or risk falling behind, he says.

Insurers in dark on social risks: actuaries

Social risk changes are being overlooked and should be more closely monitored by insurers through a formal review process, the Actuaries Institute warns.

Introducing an annual social condition report that takes a systematic approach to examining key relationships could avert problems uncovered by the Hayne royal commission, a discussion paper released by the institute says.

“Our basic argument is that relationships [with key groups] are of great value and really there isn’t enough attention given to them,” report co-author Ian Laughlin – a former deputy chairman of the Australian Prudential Regulation Authority (APRA) – told insuranceNEWS.com.au. “There is certainly not a systematic approach to understanding and managing those relationships.”

The concept is broadly modelled on the financial condition report mandated for insurers by APRA, and could be useful for the Australian Securities and Investments Commission (ASIC), which is to take a more active oversight role.

“Our starting point is that this makes sense for the board, and ideally would be driven by the board, but it would also be of considerable value for ASIC in particular [and] also APRA,” Mr Laughlin said.

A mock social condition report, based on a fictional bank, has been made available. It uses signal analysis and relational analytics to provide assessments that can be tracked. It looks at groups including employees, customers, partners, regulators and shareholders.

The report, co-authored by Finity Consulting Principal Hadyn Bernau, has been produced as part of The Dialogue series, published by the Actuaries Institute to drive discussion on important emerging issues.

Mr Laughlin says the social condition report could provide an early warning before issues escalate, with current risk assessment methods commonly based on backward-looking measures.

“The board would see where problems are emerging and are likely to emerge and therefore could take pre-emptive action, and that is really what is important,” he said.

Fire chiefs demand action on climate threat

Former state fire and emergency services leaders have demanded a federal parliamentary inquiry into resourcing as natural disaster risks rise due to climate change.

Some 23 former leaders have written an open letter asking the major parties to commit to an inquiry and examine the need for more research into bushfires and other natural hazards.

“Current federal government climate policy has resulted in greenhouse gas pollution increasing over the past four years,” the letter says. “The Federal Government must prioritise credible climate policy to save lives, property and the environment.”

The group – Emergency Leaders for Climate Action – have also called on Canberra to acquire large firefighting aircraft, as seasonal fleets become increasingly unavailable.

It wants to meet the Prime Minister to discuss adequate resourcing, emergency planning and policy change.

“We have seen our emergency services becoming more and more overwhelmed as they struggle to cope with intensifying extreme weather driven by climate change,” former commissioner of Fire and Rescue NSW Greg Mullins says.

“Emergency services simply don’t have the resources or capacity to adapt to this changing threat, particularly as many face continual budget restrictions.”

Bushfire research body seeks funding extension

The Bushfire and Natural Hazards Co-operative Research Centre is working to secure a new government grant before its funding term ends in two years.

It says the increased frequency and intensity of bushfires, cyclones and other hazards highlights the need to continue with its work.

“The [centre] has reached the phase of its life cycle where the amount of funding to new issues is very limited, at a time where the challenges we are seeing related to natural hazard impacts are increasing,” CEO Richard Thornton said.

“All of this is occurring during large demographic shifts within Australian communities. This will see more vulnerable people at risk, at the same time that the hazard landscape is rapidly changing.”

A joint working group has been established with the Australasian Fire and Emergency Service Authorities Council to present the case for new financial support.

The centre received about $47 million in 2013 from the federally funded Co-operative Research Centres Program to support its work until 2021. Matching contributions came from state and territory government organisations, research institutions and non-profit bodies.

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Corporate

Class action filed over IAG add-on cover

A class action has been launched against IAG and its subsidiary Swann Insurance over add-on cover sold through motor dealerships.

IAG was grilled over the often-worthless products during the Hayne royal commission hearings, and now Federal Court of Australia proceedings have been filed by Johnson Winter & Slattery in co-operation with Bannister Law.

“The claim, seeking compensation, relates to misleading and deceptive conduct in relation to the way the insurance products were presented and sold in car dealerships to purchasers of motor vehicles and motorcycles between January 1 2008 and August 1 2017,” Bannister Law Principal Charles Bannister said.

IAG issued a statement to the Australian Securities Exchange confirming it is “aware of a representative proceeding”.

An IAG spokesman told insuranceNEWS.com.au that while Swann no longer sells add-on products, customers with long-term policies are still supported.

IAG says since January last year it has been contacting affected customers to tell them about refund options. It has so far refunded more than $22 million to more than 38,000 customers.

“We are… reviewing the statement of claim in relation to a representative proceeding filed on behalf of a Swann policyholder,” the spokesman said.

“As we’ve previously acknowledged, for many customers, the Swann add-on insurance products did not deliver the value they should have.

“We have previously agreed, in consultation with ASIC, to offer $39 million in refunds to the 68,000 affected customers that we identified.”

QBE names global ‘centre of excellence’ leader

QBE has appointed Uwe Schoberth to lead a new global market management (GMM) team tasked with strengthening customer focus across key regions and product lines.

Mr Schoberth was most recently global head of major trading partner engagement and has been with QBE since 2014. He previously managed XL’s operations in the US and Canada.

QBE describes the US-based GMM as a “centre of excellence” and says the team will work globally and at a divisional level to devise best practices.

The GMM will also leverage internal and external data and analytics resources to further improve capabilities, the insurer says.

Mr Schoberth will report to London-based QBE International CEO Richard Pryce, who is one of three regional division group executives.

“GMM is a key differentiator for us,” Mr Pryce said. “It’s about driving a consistent experience for our customers that sets the bar higher.”

The group simplified its global structure last November into three operations comprising international, Australia Pacific and North America.

Earlier this year QBE said it would overhaul its approach to customer service and feedback in response to shifting market expectations.

Engineering consultant calls in administrators

Engineering, building and disaster response consultant Censeo has been put into administration, with CEO Kate Middleton attributing the company’s demise to “legacy debt”.

Censeo’s website says it has been on the supplier panels of Australia’s “largest insurers and builders” for more than a decade, “with many exclusively using Censeo in some states”.

But history – in the form of inherited debt – dogged the company.

Censeo was set up in 2005 and was acquired in 2011 by loss adjuster Cerno, which had been formed from the merger of the Australian business of McLarens Young International and Freemans Australia.

Burdened with an unwieldy ownership structure and associated debt, Cerno was forced to merge in 2015 with listed claims management company Stream Group.

Stream’s Australian operations were placed into liquidation early the following year, but Censeo survived thanks to a re-privatisation through a management buyout.

Ms Middleton told insuranceNEWS.com.au that calling in the administrators was a “sad and unforeseen outcome”.

“My team and I are heartbroken for all affected,” she said. “We have gained so much incredible traction over the past 12 months in particular, having successfully diversified into other sectors outside of insurance.

“Unfortunately, it doesn’t matter how strong your pipeline is and how collaborative your client relationships are – when a left-field legacy issue hits, your time is up.

“Ultimately, we were plagued by a legacy debt related back to Stream, which meant Censeo was never fully set up for success. It has been a hard lesson, but I am proud of what we built.

“For now, I’m working closely with clients, staff, suppliers and the administrator to ensure as smooth a transition for all parties as possible given the circumstances.”

Christopher Baskerville and Marcus Watters from Brisbane-based Jirsch Sutherland have been appointed joint administrators.

The first meeting of creditors was in Sydney last week.

Hollard-backed SMSF covers gain market support

Two Hollard-backed covers aimed at the self-managed superannuation fund (SMSF) market are achieving success since their launch last year.

CoreSuper SMSF Trustee Administrative Penalties Insurance and CoreSuper Tax Audit Insurance have received positive feedback from Self-managed Independent Superannuation Funds Association (SISFA) members.

The covers are sold to members through the SISFA trustee membership package, which is also distributed via general insurance brokers.

“What SISFA has done is created a self-managed super fund trustee membership and, as part of that trustee membership, they can elect to have or not to have the insurance component,” product co-creator Brenden Turner told insuranceNEWS.com.au.

“It’s been very well received by the professional industry of the advisers, accountants, auditors, as well as the trustees.”

Individual or corporate trustees of SMSFs that incur administrative penalties under section 166 of the Superannuation Industry Act and costs for preparing Tax Office-directed compliance and tax audits are covered, according to the insurance policy.

Hollard is the policy insurer, and its authorised representative CoreSuper administers the product, including handling and settling claims.

Bond & Credit sees growth in Tokio Marine deal

Specialist underwriting agency the Bond & Credit Company (BCC) is confident it can grow under new owner Tokio Marine & Nichido Fire Insurance.

The Sydney trade credit, surety and mergers and acquisitions insurer has been sold to the Japanese insurer for an undisclosed amount through subsidiary Tokio Marine Management Australasia, which is the managing agent of branch operations here.

“Our acquisition by Tokio Marine marks a new chapter for the Bond & Credit Company,”Executive Director Scott Newland said.

IAG has sold Tokio Marine its stake in BCC Surety and BCC Trade Credit, entities owned by the business, the Australian insurer told insuranceNEWS.com.au.

Tokio Marine CEO Shigekazu Ueno says the combination of Bond & Credit’s underwriting expertise and Tokio Marine’s financial strength and global reach “presents exciting opportunities for the group to grow and expand these lines of business across the Oceania region and other areas in the future”.

The Bond & Credit Company achieved $36 million in gross written premium last financial year and has 24 employees in its Sydney and Melbourne offices.

Insurers check US aerial imaging group’s offering

Insurers are in talks with the Geospatial Intelligence Centre (GIC), a non-profit group owned by the US insurance industry that is expanding its aerial data collection operations to Australia and New Zealand.

GIC uses fixed-wing aircraft with survey-grade cameras to collect high-resolution vertical and oblique images. In the US the data is collected across the country and updated each year for the top 150 metropolitan areas. Images are taken again after catastrophes.

Insurers in the US pay an assessment-based membership fee to access imagery and data, which aims to improve efficiencies in underwriting, claims handling and fraud investigation.

GIC has so far conducted flights over Melbourne and plans to collect aerial imagery covering 90% of the Australian population.

“The Insurance Council of Australia and its members are engaged in ongoing talks with the Geospatial Intelligence Centre,” Insurance Council spokesman Campbell Fuller told insuranceNEWS.com.au.

GIC MD Ryan Bank says the Australian insurance and geospatial market is an attractive opportunity, because the weather and climate is favourable for image collection and there is strong interest in the service.

“We had enough funding to launch in Australia, start the flight program and start collecting that data,” he told insuranceNEWS.com.au while visiting Melbourne last week.

Mr Bank, who is also visiting New Zealand, says the collection approach and technology offers greater capacity and fewer restrictions compared with drones, which are increasingly used in loss adjusting and have complementary uses.

After Hurricane Michael struck the US in October last year – it was the strongest storm in terms of maximum sustained windspeed since Hurricane Andrew in 1992 – 14 aircraft collected high-resolution imagery over two days covering 85,000 square km – an area the size of Ireland and Northern Ireland – with information available for insurers 24 hours later, Mr Bank says.

The technology was also used in assessing damage from the California wildfires, allowing insurers to rapidly see how policyholders were affected and quickly settle claims.

“We can enable insurers to transform the way the customer experiences the insurance relationship,” Mr Bank said.

Information collected by GIC is made available to emergency responders and other priority organisations “at no cost, courtesy of the insurance industry”, he says.

GIC was set up by the US National Insurance Crime Bureau, a 106-year-old body owned by the country’s insurers and self-insurance organisations to fight insurance crimes, mainly in the area of vehicle theft.

Insurance Advisernet goes it alone in NZ

Insurance Advisernet New Zealand has resigned as a corporate member of NZbrokers after a three-year partnership.

The resignation takes effect on September 30, and does not affect Insurance Advisernet’s relationship with NZbrokers’ parent company AUB Group.

AUB is a 50% shareholder of Insurance Advisernet.

Insurance Advisernet MD Shaun Standfield says the New Zealand business has “grown significantly” since the partnership with NZbrokers was established in 2016.

“The collective strength of the group across Australasia allows us to stand independently, with in excess of $600 million in gross written premium, more than 200 member broker firms and 75,000 clients,” he said.

He thanked NZbrokers for its support, saying that being a member “had been one of the key components to achieving the incredible growth that we have achieved in New Zealand”.

Insurance Advisernet Australia was formed in 1996 and is AUB’s largest Australian partner.

Insurance Advisernet New Zealand began operations in 2006 and was AUB’s first investment across the Tasman.

AUB launched NZbrokers in 2015 to amalgamate BrokernetNZ, BrokerWeb Management and Runacres.

The combined operation became the country’s third-largest broking group after Crombie Lockwood and Aon NZ.

Johns Lyng takes over US restoration group

Johns Lyng Group has bought US water and fire damage restoration company Steamatic for $US3.1 million ($4.33 million).

The acquisition will help Johns Lyng expand its restoration and building services into international markets.

The US market is estimated to be worth $US200 billion ($279.33 billion).

Steamatic owner Bill Sims will retire over the expected earnout period, while President Stefan Figley will continue in his role.

“Water restoration services is one of the central pillars upon which our brand is built, so the opportunity to take that expertise and track record to a large overseas market is significant,” the Johns Lyng CEO Scott Didier said.

“There is a strong opportunity for our insurance building and general contracting business in particular.”

Steamatic Australia owner and CEO Oliver Threlfall says his company uses the brand under licence to the US company, but the sale will have no direct effect on his company’s operations.

Nomads no more as Nib-owned insurer rebrands

Travel insurance provider World Nomads Group has rebranded as Nib Travel.

The name change was announced last week, more than three years after health insurer Nib Holdings acquired the business for $95 million.

“We’ve been part of the Nib Group family since 2015, but as we continued to expand our offering and distribution channels we recognised an opportunity to also refresh our corporate look,” Acting CEO David Kan said. “The refreshed brand will help support our growth aspirations both in Australia and abroad.”

Consumer brands owned by the travel business, including World Nomads, Travel Insurance Direct, Nib and SureSave, will trade under existing names.

The Nib-owned business is the third-largest global travel insurance distributor in Australia.

Cover-More hails flexible insurance take-up

More than 57,000 people have taken up Cover-More’s flexible insurance product since it was introduced a year ago, the travel insurer says.

The product offers a “cancel for any reason” add-on clause.

The Zurich-owned specialist says customers have claimed for a range of circumstances not traditionally covered by travel insurance, such as relationship breakdown, denied visas or incorrect passports, changing jobs or revoked leave.

About 34% of payouts were for travel amendments or cancellations, 25% for medical or dental, 20% for lost or stolen luggage, 14% for travel delay and 3% for rental car damage.

Cyber specialist brings digital health cover to Australia

UK-based CFC Underwriting has launched its bespoke e-health product in Australia as part of a global rollout.

The policy achieved success when it was first offered in the US, with more than 220 healthcare businesses signing up.

CFC sees potential for the product in Australia because the Federal Government recently unveiled a $55 million investment in the digital health technology and services industry.

“We’re seeing incredible uptake in the US from both traditional healthcare providers that are adopting technology as part of day-to-day patient care [and] from the technology platforms themselves,” CFC Healthcare Team Leader Timothy Boyce said.

“But demand isn’t limited to the US, so it only makes sense for us to make this cover broadly available in other regions.”

The product provides affirmative cover for bodily injury arising from advice given by companies and practitioners, plus technology failures and cyber events.

“Digital healthcare companies have found themselves in a grey area where affirmative cover is foggy,” Mr Boyce said.

“Malpractice policy triggers are fairly static and cyber policies exclude bodily injury.

“So where do they go? What’s needed is a bespoke product that addresses the overlap of technology and healthcare risks these businesses experience.”

Lockton boosts health and community services team

Lockton Companies Australia has expanded its national health and community services division with the appointment of Vikki Karatovic, Ann-Marie Gordon and Genevieve Mathews to specialist roles.

“This investment continues Lockton’s commitment to add talented staff with expertise who complement our core specialisms and, above all, add client value,” Lockton CEO Paul Marsden said.

Ms Karatovic and Ms Gordon previously worked at Gow-Gates Insurance Brokers, according to their LinkedIn pages. Ms Mathews was most recently with Avatar Brokers, which specialises in life sciences and technology, and was previously a client executive at Aon.

The three will be based in Lockton’s Sydney office. The broker also has offices in Perth, Melbourne, Brisbane and Darwin.

Health specialist Tego targets life sciences

Specialist healthcare underwriting agency Tego Insurance is targeting growth in the rapidly expanding life sciences and clinical trials sectors.

CEO Eric Lowenstein says capacity is not keeping pace in these sectors, providing an opportunity for Tego, which is widening its product suite.

“We constantly field inquiries from brokers who cannot find competitive or suitable solutions for existing and emerging risks in the healthcare industry,” Mr Lowenstein said.

“Tego’s mission is to provide that cover.”

Tego says it can provide protection for life science companies, which apply biology and technology to healthcare, as they progress from research and clinical trials to sales and distribution.

Lloyd’s syndicates are providing capacity for the life sciences and clinical trials products, plus an entity medical malpractice product. The entity insurance includes malpractice allegations, errors and omissions, liability for injury or property damage, and cyber liability.

Tego also provides medical indemnity cover to individual doctors under an underwriting agreement started in 2016 with Berkshire Hathaway Specialty Insurance.

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Regulatory & Government

Broker jailed for taking customers’ cash

Former Phoenix Insurance broker Sergio Amaranti has been jailed for two years and nine months after diverting client refunds totalling about $200,000 to his own accounts.

Amaranti previously pleaded guilty in the District Court of WA to seven counts of dishonest conduct.

“Offending of this type undermines the trust of the community and customers of Phoenix and the trust that the community has in members of your profession,” Justice Fiona Vernon said last week.

“This is a breach of trust of clients, employers, co-directors and co-workers. When this trust is misplaced, this is the most important factor in sentencing.”

Amaranti diverted 51 refunds owed to 35 clients for policy cancellations and adjustments into personal accounts held in his name. A total of $199,391.32 was transferred between January 6 2009 and October 14 2015.

The Australian Securities and Investments Commission (ASIC) permanently banned Amaranti from the financial services industry in November 2016.

“Mr Amaranti was a director and senior insurance broker who used money owed to his clients for his own benefit,” ASIC Commissioner John Price said today.

“His deliberate actions breached the trust that must exist between insurance brokers and their clients.”

The sentence has a non-parole period of 18 months and, due to the conviction, he is automatically disqualified from managing companies for five years.

ICA warns of repairer exodus under claims reform

Builders, smash repairers and other suppliers may withdraw their services if claims handling regulatory reforms are applied too broadly, the Insurance Council of Australia (ICA) warns.

A Treasury consultation paper proposes removing claims handling exclusions from the definition of financial service, which would allow the Australian Securities and Investments Commission to have stronger oversight.

ICA supports the plan overall, but says the proposed claims handling definition is too wide and fails to take into account the range of parties that may be caught up in extra training, administration and supervision.

Many suppliers are small businesses that could withdraw their services if they must meet the obligations, leading to less competition, increased costs and premium impacts without any real benefit for consumers, ICA says in a submission.

The issue would be compounded in regional areas and after catastrophes, when there are already significant logistical and practical difficulties in handling and settling claims.

“If suppliers withdraw their services in these circumstances, insurers may be forced to cash settle and transfer the repair risk to the consumer,” the submission says.

ICA says the exemption for advice should remain, allowing discussions to be had with clients about claims, and suggests a 24-month transition period for reforms.

The Financial Rights Legal Centre rejects concerns abut increased training requirements and says adjustments can be made to ensure claims managers are trained to the extent that their roles involve any personal or general advice.

“This is not an insurmountable challenge and the threat of ‘regulatory burden’ should not be used as a red herring to prevent reform and improved standards,” it says.

It also opposes a Treasury option that would limit the advice regulatory impact for some documents used in the process.

“If the documents contain elements of general or personal advice, which they do, they should be deemed as such and regulated,” it says.

“Financial Rights does not wish to see the continuation of exemptions and loopholes.”

Fels maintains push for premium details disclosure

Providing details of the components that determine premiums will improve transparency and enable consumers to understand what policies cover, NSW Emergency Services Levy Insurance Monitor Allan Fels says.

The Insurance Council of Australia (ICA) has voiced concern at the proposal, included among recommendations in a Treasury discussion paper on ways to improve disclosure in general insurance.

But Professor Fels and Deputy Monitor David Cousins, in a joint submission as private citizens, say it will produce better consumer outcomes.

“The aim of component pricing is to make transparent to the insured the elements of risk that are taken into account in determining the insurance premium they pay, and the financial impact of those risk factors on that price,” they say in the submission.

“Insurers should provide a full break-up of the premium payable on a policy, including any taxes and charges included in the premium.”

ICA’s submission says the proposal could have implications for commercially sensitive information. Tests by several insurers suggest consumers believe it would mean “more extraneous information” to work through before making a decision.

Professor Fels and his deputy have dismissed these concerns.

“Suitably framed component pricing obligations appear, on balance, capable of enabling consumers to have more informed discussions with their insurance company about their risks and how to manage them,” they say. “Any risk to insurers is likely to be outweighed by the significant benefits this initiative is likely to provide for consumers.”

A Treasury recommendation to explain premium rises upon request has IAG’s in-principle support.

But the insurer wants more discussion on ways to explain the “complex” details of component pricing to consumers in an effective manner.

“IAG supports further exploration of what components of a price might be most useful and practical to provide to consumers,” the insurer says.

“However, there are many risks and challenges with component pricing. One concern is a risk of greater levels of underinsurance, as consumers opt out of insuring for low-frequency, high-impact scenarios to lower premiums.

“Another is that it is not clear how valuable this information would be to consumers.”

Suncorp favours year-on-year comparisons on renewal notices and wants a more careful approach around pricing component details.

“Caution should be taken… to ensure that the amount of information provided to customers on renewal documents is not unnecessarily increased,” Suncorp says.

AFCA consults on naming and shaming

The Australian Financial Complaints Authority (AFCA) will “run a limited consultation” with stakeholders on its plan to reveal the names of businesses involved in consumer disputes.

The authority announced the policy, which will start on July 1, last week.

“AFCA is committed to creating transparency within the financial sector to rebuild trust and meet community expectations,” a spokesman told insuranceNEWS.com.au today.

“Currently, the outcomes of these decisions are published on the AFCA website without the name of the financial firm listed.

“AFCA will be changing the AFCA rules to enable us to do this. We will run a limited consultation with stakeholders regarding the required changes.”

Consumer advocates have applauded the move, but the Insurance Council of Australia is concerned insurers, particularly those with significant market share, may be unfairly affected.

“Naming insurers without context risks creating unjustified reputational damage,” ICA spokesman Campbell Fuller told insuranceNEWS.com.au.

“For example, publishing the raw number of disputes involving each business would not take into account the fact large businesses are likely to receive more complaints. Insurers that specialise in mass-market products may also receive more disputes.”

ICA has called for more consultation with AFCA on the new rule.

Queensland unveils floodplain management plan

Queensland has introduced a long-term flood resilience plan, building on work undertaken since the 2011 Brisbane floods.

The Brisbane River Strategic Floodplain Management Plan covers current and expected risk, disaster management, mitigation infrastructure, community resilience, building guidelines, land use planning and landscape management. It features 52 measures to strengthen the resilience of communities on the Brisbane River floodplain.

“This plan will guide future investment to build our resilience and reduce the impact and cost of floods,” Minister for State Development, Manufacturing, Infrastructure and Planning Cameron Dick said.

The state’s Flood Resilient Building Guidance for homes – a project that has involved insurers and other stakeholders – was also introduced at last week’s launch.

“Queensland is the most flood-prone state in Australia, and the new guide identifies simple measures such as wet-proofing the lower level of a home, which can significantly reduce clean-up and recovery efforts following floods,” Mr Dick said.

The Insurance Council of Australia says the guide will help home and small business owners understand how to reduce flood exposure.

“This is a practical resource that will lead to an increase in flood-resilient properties in communities with a known flood risk,” GM Risk and Disaster Planning Karl Sullivan said.

“The guide offers many retrofit measures that will strengthen homes against floodwater and make clean-up and recovery post-flood faster and easier, assisting communities to rebuild.

“It is compelling reading not just for the residents of the Brisbane River floodplain, but anyone who lives in flood-prone communities.”

EQC inquiry calls for submissions

Earthquake Commission (EQC) public inquiry chairman Silvia Cartwright has called for submissions on ways to improve the state-owned insurer’s response to natural disasters.

“I am aware that strong views about EQC have been expressed in public discussion,” she said.

“I want to hear a range of views before formulating any opinions or recommendations. I come to this inquiry with no preconceived ideas.”

The EQC inquiry is mainly focused on lessons from the Canterbury earthquakes, while also welcoming input on experiences following subsequent events.

The inquiry, which is seeking views from organisations and the public, will provide an interim report by the end of June and is due to deliver its findings later this year.

“My commitment is that I will do my best to bring about improved experiences for claimants and others dealing with EQC in future,” Ms Cartwright said.

Written submissions are open until May 19. More details are available here.

APRA calls for industry leadership on compliance

The Australian Prudential Regulation Authority has called on the general insurance industry to show “greater leadership” in responding to consumer concerns.

The regulator has published a statement Chairman Wayne Byres prepared for Senate Economics Legislation Committee hearings that were cancelled after the federal election was called.

“Our message to the general insurance industry was that they should heed the advice they give to policyholders: to understand the risks they face and take steps to protect against them,” Mr Byres says.

“Pursuing short-term financial gain at the expense of doing the right thing inevitably comes at a steep cost in reputational damage and lost revenue, and we have challenged the industry to show greater leadership in responding to concerns about products or services, rather than being dragged into action by regulators or governments.”

Mr Byres also says the recent budget announcement of an additional $150 million over four years will “upgrade our supervisory capabilities”. The funding comes on top of $60 million over four years announced in November.

“Taken together, this additional funding will support an increase of roughly 100 additional permanent staff, a meaningful increase relative to our long-run operating level of about 600,” Mr Byres says.

“We will also be using our additional resources to implement our new enforcement approach, which we plan to make public later this month.

“Taking into account developments such as the Banking Executive Accountability Regime, the royal commission, the learnings from the [Commonwealth Bank] inquiry – and the fact we have had new powers given to us – we plan to set out a new approach to enforcement that will see us utilising our enforcement tools more quickly in future, particularly for unco-operative institutions.”

ASIC lays fewer charges

The number of charges laid in criminal cases brought by the Australian Securities and Investments Commissions (ASIC) plunged in the second half of last year.

Only 76 criminal charges were laid in the period, compared with 210 in the first six months, the regulator says.

Nine people were charged in criminal proceedings, compared with 13 in the first half.

However, the number of charges laid for strict liability offences increased to 433 from 342, with 185 people charged, compared with 176.

Strict liability offences mean a defendant can be held liable for a crime, regardless of their intent. The prosecution is not required to prove fault, but the defendant can argue a “reasonable mistake” defence.

ASIC resolved 56 financial services-related outcomes in the six months to December 31, the same number as the previous six months. It has 15 criminal and 66 civil financial services-related matters still be decided.

About $12.7 million of civil penalties were imposed, compared with $20.44 million in the first half.

ASIC has adopted a “why not litigate” approach to industry in response to the Hayne royal commission, and a new law allows it to pursue harsher civil and criminal penalties.

Comcare names new CEO

The Federal Government has appointed Sue Weston as Comcare CEO for a five-year term.

Comcare provides the workers’ compensation and rehabilitation scheme for Commonwealth employees, and handles the Commonwealth’s asbestos-related claims liabilities.

Ms Weston, Deputy Secretary at the Department of Industry, Innovation and Science since 2009, takes over from Jennifer Taylor, who left the role earlier this year.

“Ms Weston has an impressive record of public sector experience and strong leadership, which will stand her in good stead to lead Comcare,” Minister for Jobs and Industrial Relations Kelly O’Dwyer said.

WA workers’ comp rates increase 3.7%

WA workers’ compensation premiums are set to increase 3.7% on average next financial year.

WorkCover WA Acting CEO Chris White says the average recommended premium will be 1.645% of total wages, up from 1.585% in the current year.

“Western Australian average recommended premium rates are low by national standards,” he said.

“This small increase continues to ensure the workers’ compensation scheme is fully funded.”

The rates are based on advice from scheme actuary PricewaterhouseCoopers and take into account data from insurers and economic factors such as moves in interest rates and wages.

This is the second year of basing the rates on the 2006 Australian and New Zealand Industrial Classifications, instead of the 1993 version, with the change affecting some industry classes but not the overall average.

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Life Insurance

Policy admin sale clears way for Freedom wind-down

Freedom Insurance has reached an in-principle agreement to transfer its policy administration business to a third party.

The sale will net $5 million, which it will use to pay creditors, wind down operations and meet regulatory obligations. Excess funds will be returned to shareholders.

The $5 million reflects the value of net trail commissions after offsetting commission clawbacks, administration costs and customer remediation.

Freedom negotiated an interim commission clawback to allow ongoing administration and prepare for an orderly transition.

It was exploring options to keep its administration business – including its rights to trail commissions – but an expected liquidity shortfall has accelerated after a significant rise in policy lapse rates, leaving it with few options.

Freedom subsequently intends to exit its wealth management business, at which point it will have exited all its operating businesses.

The board expects to make an announcement on its financial position after the transition.

Freedom’s long-term financial stability has been uncertain since it halted new sales and stopped phone sales for term life and trauma products following criticism of its high-pressure sales tactics. It suspended trading last month.

Super funds seek separate claims reform treatment

The Association of Superannuation Funds of Australia (ASFA) supports proposed claims handling reforms but says the sector should be viewed differently from other insurance providers.

Significant regulatory and statutory obligations and oversight already apply to super, ASFA says in a Treasury submission.

“These existing obligations and the potential for the new measure to overlap with them need to be taken into account in determining the application of claims handling as a financial service to superannuation trustees,” it says.

Treasury is consulting on a Hayne royal commission recommendation to remove the claims handling exclusion from the financial service definition.

The change would allow the Australian Securities and Investments Commission to enforce a higher standard of behaviour and require claims to be handled “efficiently, honestly and fairly”.

ASFA says any reforms need to be applied so they are consistent across various super business models, while groups that don’t hold a financial services licence shouldn’t have to obtain one “for the sole purpose of satisfying this claims handling obligation”.

The submission stresses that claims handling should not be caught up in rules related to providing advice – a risk already identified in the consultation paper.

ASFA offers to form a consultation group to help the corporate regulator ensure reforms are adapted to the super environment and efficiently achieve their purpose.

FPA names new conduct tribunal head

The Financial Planning Association (FPA) has appointed Dale Boucher as Chairman of its Conduct Review Commission, after Graham McDonald stepped down for family reasons.

Mr McDonald will remain a member as Deputy Chairman.

The commission’s tribunal hears disciplinary complaints against FPA members.

Mr Boucher moves up from deputy chairman. His position includes the role of independent code administrator for the FPA’s Professional Ongoing Fees Code.

“The FPA’s Code of Professional Conduct continues to play an important part in holding members accountable for misconduct, and provides significant benefits for consumer protection,” FPA Chairman Marisa Broome said.

Aon appoints reinsurance broking boss

Aon has appointed Danny Alexander as Head of Life Reinsurance Broking for Australia and New Zealand.

Mr Alexander was previously head of client solutions at Scor, and has worked for Swiss Re and Munich Re.

Aon’s regional reinsurance Head of Broking John Carroll says Mr Alexander will “position our offering to help clients achieve the most effective balance sheet management through a bespoke blend of reinsurance solutions, risk mitigation and capital optimisation”.

Integrity fills retail BDM roles, enhances product range

Integrity Life has made a series of distribution appointments and rolled out product improvements in its retail business, which launched last month.

Liz Dzelmanis and Amie Pachos become business development managers (BDM) for the Sydney distribution team, responsible for establishing relationships with advisers and helping them guide clients through Integrity’s products and policies.

Ms Dzelmanis was formerly a BDM at ANZ OnePath and has worked at AIA, AMP and CommInsure. Ms Pachos was a BDM at CommInsure.

Voula Makris and Alicia Faour have been appointed Senior BDMs for the Victorian, Tasmanian and WA distribution team.

Ms Makris was previously a BDM at CommInsure, while Ms Faour was a BDM at ANZ OnePath.

Josh Lawrence has been appointed National BDM, moving from AIA.

Advisers can now nominate to split their commission with another adviser if they received a joint referral or are partners.

Clients have a choice of different vehicles in which to hold life cover, including superannuation. They can split and combine cover across personal, business, self-managed super fund and super, and take advantage of a 15% premium rebate.

Critical illness policies can now be reset after 12 months, with potential additional benefits on the cover.

Integrity is also offering reduced premiums for insureds who do not smoke or have preconditions, and who have a healthy body mass index.

TAL helps advisers with grief management

TAL’s Risk Academy has introduced a training course to help advisers support grief-stricken clients.

It will help advisers understand the support they can offer customers and learn about other grief assistance resources.

Under Financial Adviser Standards and Ethics Authority education requirements, advisers must undergo training in client care and practice.

“Very little training is available to equip advisers to have the right conversations when their customers are suffering from grief,” TAL Head of Licensees and Partnerships Beau Riley said. “Feedback from advisers tells us this is the most important area they need to get right to effectively support their customers, and that having these skills can be a real differentiator.”

The course is run by TAL Head of Mental Health Glenn Baird.

BT hails cancer support program results

BT says its early intervention cancer assistance program has seen 86% of participants improve their function since its launch in January last year.

Some 28 out of 35 people have returned to work or are expected to do so in the first half of the year under the program, while the wait between a claim and the start of health support has been reduced from nine to five months, the life insurer says.

Thirteen clients have returned to work in full duties since the completion of their programs, while 12 clients with continuing programs have returned on full or partial duties.

The program provides access to a health coach and support around sleep hygiene, exercise and healthy eating, plus community engagement.

About 90% of clients are satisfied with the claims experience, BT says.

The program recently won an innovation award at the Financial Services Council’s Life Insurance Awards.

“Offering health support earlier gives clients with cancer a better chance at getting their lives back on track,” BT Head of Claims Life Insurance Neil Borthwick said. “The initial results, which show that most participants return to work on full or partial duties, are very encouraging, and inspire us to do more with this tailored approach.”

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The Professional

Small steps ‘key to broking revolution’

Continual small advances through “perpetual action” can deliver big results for brokers as competition increases and the industry changes, Austbrokers & IBNA Member Services (AIMS) GM Glenn Schultz says.

“Too often we convince ourselves that massive success requires massive action,” Mr Schultz says in a speech to the group’s conference in Los Angeles today.

“We put pressure on ourselves to make some earth-shattering improvement that everyone will talk about. In reality, the difference a tiny improvement can make over time is astounding.”

Mr Schultz says brokers can’t afford to stand still in a competitive environment and as the pace of change accelerates.

“Action needs to start now. For some, this is just increasing existing actions. For others, the decision to start something different is upon them.”

“Perpetual action” is the theme of this year’s AIMS conference, which alternates annually between international and Australian locations. The event opens today at the Langham Huntington in Pasadena and will wrap up on Wednesday.

Mr Schultz says the insurance industry has been predicated on looking backwards, with past activities used to predict the future and products provided accordingly. But the focus is shifting.

“By 2025 the revolution will have occurred – the 180-degree change.

“Insurance will be based on projections, data and technology; providing the ability to look forward. History will be a small part of the equation.”

He says competition pressures are seen with insurers changing their approaches, client needs shifting and “mega-mergers” in broking.

“Evolution is being overtaken by revolution and the competition is increasing dramatically,” he says.

NTI welcomes new motor chief

National Transport Insurance (NTI) has recruited Zurich’s Nick Dendrinos to fill the newly created Head of Motor role.

Mr Dendrinos worked at Zurich for almost 13 years, most recently as head of motor Australia and New Zealand, and has 30 years’ motor insurance experience.

NTI says he will help maintain the company’s position in heavy vehicle and motor, mobile plant and equipment, and marine cargo and liability.

A Zurich spokesman confirmed Mr Dendrinos has left the company.

“Nick was a strong contributor to our market-leading commercial motor proposition and he leaves with our best wishes.”

It is understood Zurich’s head of motor role is under review but that a search for a replacement will likely begin soon. In the meantime, Head of Marine Matt O’Sullivan will also be responsible for motor.

Ex-NZI chief joins Hollard board

Hollard today announced Karl Armstrong will join as a non-executive director on June 11.

Mr Armstrong was responsible for IAG New Zealand’s pricing, product and underwriting across its stable of brands from 2016 until his retirement last year.

Before that he was chief risk officer from 2014 and CEO of NZI from 2008.

ANZIIF tailors education to NZ advice overhaul

The Australian and New Zealand Institute of Insurance and Finance (ANZIIF) has established four education pathways for brokers to comply with New Zealand’s new financial advice regime.

The pathways are included in the ANZIIF New Zealand Certificate for Advisers (General Broking).

“It will provide equivalent outcomes at Level 5 standard as per the current draft code,” the institute says.

“ANZIIF also has a process… to make sure brokers’ current qualifications and experience can still be recognised for prior learning.”

The final code will be released to brokers by the fourth quarter.

For more details, click here.

Allianz recommits to refugee scholarships

Allianz and asylum support group Settlement Services International will fund more scholarships for refugees this year.

The insurer has allocated $50,000 out of $84,000 required to sponsor 35 people under the program in NSW.

Recipients are across secondary school, vocational training and university, plus people seeking recognition for prior qualifications.

The program has run for three years, and 21 refugees have been hired by Allianz in a variety of skilled, permanent roles.

Another 20 have been supported through pre-employment workshops.

Industry workers chip in for children’s charity

Budget Direct and parent company Auto & General teed off to raise $145,000 at an annual fundraiser last week at Brisbane Golf Club.

The money will support the Act for Kids therapy program for traumatised children who require long-term support.

“This is our fifth year supporting the Act for Kids charity and we are delighted to have had 30 business partners participate,” Auto & General Community Manager Gerry O’Shaughnessy said.

Act For Kids has welcomed the support.

“A donation of this size is enough to provide close to 1000 hours of integrated therapy for children who have been abused or neglected,” CEO Neil Carrington said.

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International

Cyber take-up soars as risk awareness grows

Cyber-insurance purchases have doubled in five years in the US following high-profile disruptions from the WannaCry and NotPetya attacks, a Marsh report shows.

Last year 38% of the global broker’s clients bought cyber cover, up from 19% in 2014, with growing reliance on technology also raising concerns over potential disruption.

Health and education are the largest purchasers, but buying rates in hospitality and gaming have increased more than any other sector over the past three years.

Recent attacks show cyber threats have evolved to create business interruption and supply chain disruptions, as well as data breaches and theft, and more companies consider themselves at risk.

Insurers are refining their approach and are more carefully defining the boundaries of property, casualty and cyber policies.

“Property insurers, for example, are generally no longer willing to provide coverage for business interruption caused by network intrusions,” Marsh says. “Those losses are increasingly expected to be covered under cyber policies, which have expanded to respond to a wide variety of potential risks while still being competitively priced.”

Last year average cyber policy limits bought by companies with more than $US1 billion ($1.4 billion) in annual revenue increased more than 25% to $US62.4 million ($86.5 million).

Average cyber limits for all companies increased 11% to $US20.9 billion ($29 billion).

Consumers pay price for complex distribution chains: FCA

The length and complexity of some insurance distribution chains means customers pay too much for home and motor products, according to the UK’s Financial Conduct Authority (FCA).

It also creates the risk of customers buying inappropriate cover or receiving poor service.

A recently introduced insurance distribution directive requires that all companies in the distribution chain act in customers’ best interests. But many lack sufficient focus on customer outcomes and need to address this urgently, the FCA says.

It has warned the industry it will not hesitate to act against companies and senior managers when breaches occur.

“Through our recent work we have continued to see poor manufacturing, sales and distribution approaches leading to sales of low-value and inappropriate products, unfair treatment of claims and service issues,” FCA Director of Supervision – Retail and Authorisations Jonathan Davidson said.

“The widespread extent of these issues demonstrates a culture that pays insufficient regard to customer outcomes in some parts of the general insurance sector.”

The FCA has uncovered many cases in which insurers, manufacturers and distributors have not considered the impact of their actions on product value and customer outcomes.

The average level of commission taken by some distributors of guaranteed asset protection insurance is more than 60%, the regulator says.

Manufacturers are ceding control over all elements of product sales – including the end price – to distributors, and not assessing if they are suitable to handle the product.

The FCA has published guidance for companies to improve their culture and governance issues and focus on customer outcomes.

Lloyd’s tightens booze ban

Lloyd’s passholders who show signs of being under the influence of alcohol will be barred from entering the market’s premises during working hours, under new rules announced last week.

The ban extends a move two years ago to prohibit employees drinking alcohol while at work.

Lloyd’s says the ban also applies to illegal drugs, and anyone breaching it risks having their pass confiscated.

The market has also set up a 24-hour bullying and harassment hotline for whistleblowers and victims to report incidents.

Lloyd’s has vowed to take tough action after a Bloomberg report described the atmosphere as one of “near-persistent harassment”, based on accounts from several female executives.

“Further actions… include establishing a market-wide access point for reporting inappropriate behaviour, undertaking a market-wide culture survey, a comprehensive review of policies and practices across the Lloyd’s market and provision of preventative training,” Lloyd’s says.

Tech revolution ‘brings underwriting, operational’ dangers

Automated underwriting and the prospect of intelligent software selling policies to customers will require a “different way of thinking about insurance risks”, a new report says.

Consultant Oliver Wyman expects insurance advice and policies to be managed by intelligent software within six years, with automated pricing and underwriting facilitated by huge amounts of unstructured customer data.

This could create a “very dynamic asset-liability mix” and a “volatile market and insurance risk profile”, which must be managed in real time, the Guy Carpenter affiliate warns.

“Robust, automated asset-liability management processes and approaches are required to stay within risk limits.”

The report, which envisages the insurance industry in 2025, says the new pricing and underwriting methods “also require a different way of thinking about insurance risks. Today, these are mostly modelled and managed using static risk factors, such as age.

“In the future, unstructured data from sources such as social media and the Internet of Things will play a much more significant role (assuming policyholders allow access). The associated risk factors need to be properly understood, modelled, and managed.”

Oliver Wyman says insurers’ operational risks will also become increasingly digital.

There is a danger that smart software will make “suboptimal decisions on behalf of the company”.

“As important, the use of ‘intelligent adviser’ algorithms changes the nature of mis-selling and conduct risk, making them much more systemic… than idiosyncratic. Both the controls framework and the risk assessment and quantification framework need to be adapted.”

Oliver Wyman warns risk functions in today’s insurance companies “are not set up to provide oversight and challenge for such a business model and risk landscape”, and may be outpaced by development in other parts of the business.

Insurers should automate their risk identification processes and make better use of other sources of data, including external structured data, social media and other unstructured data.

In terms of skill sets, financial and actuarial specialists will be less needed, while staff with business, technology and coding skills will be in higher demand.

Reinsurer conference feels ‘winds of change’

Climate change, digital disruption and other pressing issues will be discussed under the “winds of change” theme at the Singapore International Reinsurance Conference in October.

Registrations are open for the event, which runs from October 29 to November 1.

Details of the program and speakers will be unveiled at a later date. More than 1000 delegates attended last year’s event.

For more information, click here.

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Analysis

Rise of the ‘secondary’ nat cat threat

Losses aside, last December’s near $1.2 billion hailstorm in Sydney has a far more chilling message for Australian insurers: better get used to it.

Hailstorms like that and other “secondary” perils such as floods, bushfires, droughts and liquefaction will remain the biggest source of natural hazard losses, Swiss Re says in its latest Sigma report – Natural Catastrophes and Man-Made Disasters.

For the second year running, small and mid-sized events usually excluded from natural catastrophe risk models have combined to account for the majority of claims payouts.

These and spillover effects from primary perils such as cyclones and earthquakes made up more than 60% of the $US76 billion ($107 billion) insurers worldwide paid last year on natural catastrophe claims.

The Camp wildfire in California, which the industry labels secondary, was the single largest insurance loss event last year at $US12 billion ($16.8 billion).

“We expect that secondary perils (including river and storm surge floods) will, more and more, rank among the top loss-making events in any one year, and that this will happen sooner rather than later,” the Sigma report says.

Insurers need to get a better handle on this. Swiss Re says the industry’s laser-like focus on primary perils, because of the severe losses they cause, has led them to overlook hazards in the second tier.

“This means (re)insurers need to develop enhanced methods of risk measuring, monitoring and modelling to manage a different kind of natural perils result volatility, one that is more frequency-driven than severity-driven,” the report says.

This new approach must address the “strong underlying trend increase in both frequency and severity due to environmental and societal changes, particularly urbanisation. Failure to afford due recognition to these loss events and their underlying growth trend will, over time, risk facilitating increasingly more pronounced market dislocation.”

Growing urbanisation and the increase in climate change-influenced weather events, of which Australia has seen plenty in recent years, will bring an acceleration in the frequency and impact of secondary peril risks.

“Australia is heavily exposed to secondary perils,” Swiss Re’s Head of Property Treaty Underwriting for Australia and New Zealand David Sinai said.

“Sigma states that the growth in secondary peril insured losses is mostly due to concentration of exposure growth in larger cities, in coastal areas and on floodplains.

“Put simply, when we put more assets in harm’s way, we will see more losses.”

The Insurance Council of Australia’s data tallies with Swiss Re’s warning on the heavy financial toll secondary perils are inflicting, according to Mr Sinai.

About 67% of normalised insured losses tracked by the council since 1966/67 could be traced to secondary hazards. They account for 14 of the top 20 normalised loss events, and the 1999 Sydney hailstorm in Sydney ranks as the most costly at $5.6 billion.

“From this we can infer that the main driver of increased losses over time in Australia is growth in underlying exposures, which aligns with our Sigma research on global losses,” Mr Sinai said.

Swiss Re believes the industry needs to readjust its risk lens.

“Large losses from secondary perils are occurring more regularly,” Group Chief Underwriting Officer Edouard Schmid said.

“Secondary peril losses will accelerate due to ongoing urbanisation, also in areas exposed to flooding such as along coastlines and in river plains, development in areas vulnerable to fire risk such as wildland-urban interface, and also because of long-term climate change projections.

“This is a trend the insurance industry must act on so we can continue to underwrite catastrophe business sustainably.”

There is not enough evidence to link climate change directly to increased losses from secondary perils, or even primary hazards, but a warming planet certainly is not helping.

“With climate change, we expect that wildfires and drought will occur more frequently, and that tropical cyclones will possibly be more intense,” the Sigma report says.

“However, climate change itself is not the sole cause of huge resulting losses. Rather, it is the impact of population growth and urbanisation. Weather and other events become catastrophes only when they hit densely populated areas.

“The probability of heavy losses, given growing concentration of economic assets in densely populated towns and cities, has likewise multiplied.”