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Market continues to harden: Gallagher

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Uncertainty and a “more measured attitude” towards risk across several sectors continue to dog the market, according to broker Arthur J Gallagher’s second quarter review of the industry.

“The market continues to harden, which re-emphasises the critical role of a broker, especially for specialist or harder-to-place risk,” Head of Corporate Broking Mark Oatway says.

“This is changing the insurance conversation in response to shifting insurer appetite, premium changes and increased scrutiny of an organisation’s claims history following a rising number of complex claims off the back of extreme weather events and economic change.” 

In property, insurers are asking more questions at renewal time and winding back capacity on high hazard risks such as those with highly combustible assets.

“That said, we are not seeing a narrowing of coverage,” the review says. “The current focus is on price and deductibles and at this stage we are not seeing aspects of cover being stripped out of policy wordings.”

Underwriters are having to tap more often than usual into their referral network for issues that may not have been considered or reviewed historically.

They are also looking for increased rates and/or deductibles for clients with poor claims history. In the worst-case scenarios, they are giving advance warnings that cover may no longer be provided.

The fallout from Cyclone Debbie and other extreme weather events continue to reverberate in the industry, with a rise in long-tail claims and emerging exposures challenging both businesses and insurers.

“For those where cover can be provided, premium increases across the board are expected,” the review says.

“From a claims perspective, the fall-out from extreme weather events creates added complexity while insurers and their suppliers work to resolve a broad range of issues including transport networks and infrastructure, telecommunications, supply related delays and properties with long-term damage that may be beyond economic repair.”

Debbie losses $1.4 billion and rising: ICA

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Insured losses from Cyclone Debbie have reached $1.4 billion and the total continues to rise nearly four months after the storm hit the Queensland coast, Insurance Council of Australia (ICA) data shows.

The bill is just below the $1.41 billion recorded when Cyclone Yasi struck in 2011.

Insurers have received 58,416 domestic claims and 7462 commercial claims, with 89% from Queensland and the remainder NSW.

The Whitsundays and Mackay regions recorded the largest percentage of claims.

Debbie struck the coast near Airlie Beach on March 28 as a Category 4 tropical cyclone, and over the next seven days it brought heavy rain and flooding as it moved south.

About 60% of residential building and contents claims have now been closed, ICA says.

Munich Re last week estimated Debbie caused overall losses of $US2.7 billion ($3.5 billion) and insured losses of $US1.4 billion ($1.8 billion).

The cyclone destroyed some buildings that pre-dated construction regulations, it says in a half-year catastrophe report.

It shows the importance of making properties more storm resistant, it says.

“The loss pattern… clearly shows that exposure in certain areas continues to be high and that industry needs to address this issue through improved structural measures and professional insurance cover,” board member responsible for the Asia-Pacific region Hermann Pohlchristoph said.

Aon Benfield’s Impact Forecasting estimates economic losses from Debbie at $US2.4 billion ($3 billion) and insured losses at $US1.2 billion ($1.5 billion).

Australia exposed to political instability: Allianz

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A series of destabilising events including the Brexit vote and election of Donald Trump may represent a systemic increase in political risk from which Australia is not immune, Allianz warns.

The global insurance giant says in a new report that such upheavals may either be an accumulation of “political accidents” or an indication of systemic change.

It says underlying trends such as global power shifts, weakening institutions and deepening economic and social divisions suggest the latter is more likely.

It would be wise to start preparing for “a prolonged period of political instability”, the report says.

Allianz GM Corporate Affairs Nicholas Scofield told insuranceNEWS.com.au it is “hard to disagree” with the findings, and there is already ample evidence to back it up in Australia.

“In democracies, populist opinion cannot be ignored, and there is no point dismissing it as somehow second rate,” he said.

“This trend is anti-establishment, anti-institutional and anti-big business, and there is no doubt we are seeing the impact.”

He points to rising support for minor parties and recent government activity, including the levy on banks and reversal of the NSW emergency services levy (ESL) reform.

“Go and ask a big-four bank about this after the budget,” he said. “The justification for the bank levy sent a shiver up the spine of much of the corporate sector. It was really justified on the basis that the budget is in deficit and the banks are making good profits.

“With the [NSW emergency services levy transition], we were 11 months into a 12-month transition period and, in the space of two weeks of talkback radio criticism it was dropped – after the industry had spent tens of millions of dollars.

“We are seeing reversal of policies and a plethora of reviews and inquiries being laid on the financial sector. Banks, and increasingly insurance companies, have become the focus.”

Mr Scofield believes the increased level of political risk is here to stay and insurers must intensify their customer focus.

“There is no question that this is the ‘new normal’ in terms of the political environment,” he told insuranceNEWS.com.au.

“We have to step up to a whole new level where we exceed customer expectations. Just delivering on your promise won’t get you attention in the current world.”

NZ hit by flooding after heavy rains

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New Zealand South Island cities Christchurch and Dunedin have been hit by heavy rain and flooding as this year’s wet weather pattern continues.

States of emergency were declared for a number of towns and cities as rivers broke their banks and residents in some areas were forced to leave their homes.

The Insurance Council of New Zealand advised people who had uninhabitable homes due to flood damage to contact their insurer directly for help with temporary accommodation.

“Reports in today suggest that some people may be displaced from their homes for quite some time and in some areas of the South Island it may take two to three weeks for the water to recede,” ICNZ CEO Tim Grafton said.

Some areas of the region received more than 200 millimetres of rain in 24 hours, according to news reports.

“Over the last few days, a slow moving rain band brought some very large rainfall accumulations to places in the east of the South Island that typically don’t see a large amount of rain at this time of year,” New Zealand’s MetService said.

Most places from Christchurch to Dunedin recorded more than the long-term average July rainfall in 24-48 hours.

New Zealand has already experienced a number of severe weather events this year, with the North Island affected by the remains of Cyclone Debbie and a storm dubbed the “Tasman Tempest” also causing damage.

Changing storm patterns bring new wave damage threat

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Fluctuating storm patterns caused by climate change have rendered previously safe waterfront properties and infrastructure susceptible to severe sea damage, according to a new study.

University of NSW researchers analysed data from the “superstorm” that battered eastern Australia in June last year, killing three people and causing almost $1 billion in damage.

While the storm was moderately intense, it hit from the “highly unusual” easterly direction, making it much more devastating.

“That’s what is really worrying,” report co-author Ian Turner says.

He says shifts in storm patterns and wave direction have major consequences because they distort and amplify the natural variability of coastal patterns.

“The damage we saw from a moderately intense storm last year is a harbinger of what’s to come,” he says.

Lead author Mitchell Harley says it is worrying news for people with waterfront property that was previously sheltered from large waves.

“Climate change is not only raising the oceans and threatening foreshores but making our coastlines much more vulnerable as the direction of incoming storms change,” he says.

“We need to be prepared. Not just for the fact that what we consider ‘king tides’ will be the norm within decades, but that the storms that strike the coast will come from unexpected directions, damaging coastal areas and infrastructure once thought safe from storm damage.”

Previous studies estimate sea level rise from climate change over the next century could put $226 billion of infrastructure at risk in Australia.

While hurricanes and cyclones seem to get the most attention, this study demonstrates how damaging east-coast low-pressure systems can be, Mr Harley says.

Cyclone damage adds to Queensland fire risk

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Parts of Queensland face increased fire risk, partly because of damage to vegetation caused by cyclones Debbie in March and Marcia in 2015.

The two storms caused significant damage to coastal vegetation south of Bowen, according to the Bushfire and Natural Hazards Co-operative Research Centre’s Northern Australia Seasonal Bushfire Outlook.

“Very strong winds stripped leaves from the canopy, increasing the fine fuel loads and changing the structure of the vegetation,” the outlook says.

“These changes to the fuel persist and there remains an increased fire risk in this area.”

Queensland Fire and Emergency Services staff from northern and central regions are co-ordinating risk identification and hazard mitigation activities.

Much of western and central Queensland is destocked of cattle following three years of drought, but this year’s rain has resulted in increased fuel loads in some areas.

“However, due to both the high price and shortage of store cattle, these areas remain either destocked or only lightly stocked,” the outlook says. “This has created higher-than-normal fuel loads that will carry into this northern Queensland fire season.”

In northern WA, recent weather conditions mean above-normal fire potential is expected in parts of the Ord Victoria Plain and Dampierland regions of the Kimberley.

The southern half of the Pilbara and central parts of the Gascoyne region also face above-normal fire potential.

The bushfire outlook for southern Australia will be released in September.

Kaikoura quake payments top $460 million

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Insurers have paid more than $NZ500 million ($463 million) in claims following last year’s Kaikoura earthquake.

The Insurance Council of New Zealand (ICNZ) says 51% of residential buildings had been assessed by the end of last month, compared with 39% a month earlier.

“Progress is moving at a rapid pace and we have a high level of confidence that the majority of people will have received settlement offers by the end of this year,” ICNZ CEO Tim Grafton said.

Insurers have received more than 43,000 claims, including more than 31,000 for residential properties.

By the end of last month 36% of residential claims and 67% of commercial claims were fully or partially settled.

Insurers are acting as agents for the Earthquake Commission and are managing most of the building and contents claims.

The figures do not include claims the commission is handling, nor claims against policies bought offshore.

The total value of Kaikoura claims was $NZ1.88 billion ($1.74 billion) at the end of last month, with commercial policies accounting for $NZ1.39 billion ($1.29 billion) and residential claims nearly $NZ474 million ($439 million).

ICNZ says the time between assessment and a settlement offer for residential properties is typically 4-12 weeks.

Silt and debris cleared in Edgecumbe flood response

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New Zealand’s Earthquake Commission (EQC) is continuing to oversee the clean-up of properties in Edgecumbe after flooding caused by the fading Cyclone Debbie.

“Our response to the Edgecumbe flood required a different approach than the EQC would typically take following such an event,” spokesman Paul Walsh said.

“The EQC is managing the clean-up with five contracting companies, so therefore no payment is required for the majority of Edgecumbe customers.”

Settlement of most claims has involved clearing silt and debris from around properties inundated when heavy rainfall caused the Rangitaiki River to breach a levee.

A small number of properties were significantly damaged, including homes that have been “red-stickered” as dangerous. Engineering assessments are being carried out.

“EQC has received 271 claims for Edgecumbe and work has been completed on 175 of these to date,” Mr Walsh said.

Debbie brought a “tropical torrent” to New Zealand in April, with the EQC receiving more than 1000 claims following the deluge.

Fintech incubator to open Melbourne hub

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Non-profit fintech incubator Stone & Chalk will open a hub in Melbourne to meet growing demand for support from Victoria’s start-up community.

Phase one of the move will connect Victorian fintech start-ups with an innovation marketplace comprising large Australian and global corporate customers.

The hub, which officially opens next month, offers 60 desks for fintech start-ups and is housed alongside agriculture technology expert SproutX.

“Our Melbourne hub will help to further accelerate an already fast-moving industry that’s integral to Australia’s future,” Stone & Chalk CEO Alex Scandurra said.

Stone & Chalk also has a hub in Sydney.

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Corporate

New CEO vows to build on Pen’s strengths

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Incoming Pen Underwriting Australia CEO Ken Keenan aims to “create value in new and interesting ways” when he takes over on January 1.

As reported in a Breaking News bulletin earlier today, parent company Arthur J Gallagher announced Mr Keenan will replace Gary Marshall, who is retiring.

“Pen is an impressive offering and there is a lot we can do to build on its strong value proposition to create value in new and interesting ways,” Mr Keenan said.

“I look forward to working with [Mr Marshall] over the coming months to ensure a smooth transition for our people and our clients.”

Mr Keenan is currently Gallagher’s GM Branch Operations, a role he took on this year.

He was previously CEO of the Canadian broking division in Toronto.

Gallagher MD for Australia and New Zealand Steve Lockwood says Mr Marshall has made a significant contribution over the past 17 years.

“While his are large shoes to fill, we are delighted to backfill from within and ensure the best possible transition for our clients and our team,” he said.

“[Mr Keenan] has a number of leadership roles under his belt, including several roles that include an underwriting focus.”

IAG focuses on speed with united Australia unit

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IAG’s decision to unite its Australian businesses into one division will accelerate decision-making processes in the company, CEO Peter Harmer says.

As reported by insuranceNEWS.com.au in a Breaking News bulletin on Wednesday, the newly formed Australia Division brings together the Australian Consumer, Australian Business, Operations and Satellite divisions under COO Mark Milliner, who becomes CEO Australia Division.

Mr Harmer says in a message to staff that the new division will help the company transform from a “product-centric organisation to one that is more focused on the customer”.

Describing the change as a “logical next step for IAG”, he says it will ensure the group maintains its leadership position in key Australian markets.

The new management structure sees Australian Business Division CEO Ben Bessell become EGM Business Distribution. He will report to Mr Milliner, but will remain a member of IAG’s Group Leadership Team.

Consumer Division CEO Anthony Justice, whose reporting relationship also changed in the restructure, has decided to leave the company.

insuranceNEWS.com.au understands Mr Justice, who joined IAG in 2011, is highly regarded within the management group. Mr Harmer says Mr Justice has been a valued executive and his “passion and commitment” will be missed.

CFO Nick Hawkins retains responsibility for the group’s New Zealand and Asia divisions.

IAG will report its financial results for Australia, New Zealand and Asia on August 23. The Australia Division results will be reported in consumer and business segments.

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PSC buys WA, Queensland brokers

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PSC Insurance Group has bought two broking companies and invested in a technology-driven planning business, as it continues to pursue acquisitions.

It has taken over Perth-based National Franchise Insurance Brokers (NFIB) and Gold Coast-based Riley & Associates, while taking a 16% interest in Clover.com.au.

The NFIB deal is expected to cost about $1.2 million, with an initial $200,000 deposit followed by quarterly instalments over a year, based on revenues.

Administrator Cor Cordis put NFIB on the market earlier this year.

“Given PSC’s national footprint and scale, NFIB will be able to expand its client reach and sales capability and will strengthen PSC’s capability and services to franchise and affinity groups throughout Australia,” PSC said.

The group will also pay about $1.2 million for Riley & Associates, which will be integrated with an existing Gold Coast business.

The acquisitions are expected to contribute a combined $500,000 to earnings before interest, tax, depreciation and amortisation on an annualised basis.

PSC says Clover is an early-stage personal financial advisory and planning business that uses technology to attract clients and deliver services.

“The investment will enhance the group’s ability to evolve its online capability and use of technology to reach our existing and future client base,” it said.

Melbourne-based PSC has been an active acquirer since listing on the Australian Securities Exchange in December 2015. “The pipeline continues to look strong, with more announcements expected in coming months,” it said last week.

Sura adds liability specialist to stable

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Sura has added to its list of branded underwriting agencies with the introduction of liability business Sura Specialty, formerly Lawsons Underwriting Australasia.

Sura Specialty MD Kevin Corkery says the agency’s products are designed to meet “hard-to-place” liability risks in diverse sectors such as rail, mining, chemical manufacture, importers and distributors, and property owners.

He says brokers can expect no change to Lawsons’ focused approach to complex liability risks, paired with additional service depth and new business opportunities.

Sura’s underwriting agencies also include Sura Hospitality, Sura Professional Risks, Sura Labour Hire, Sura Engineering, Sura Construction, Sura Film and Entertainment, Sura Marine, and Sura Plant and Equipment.

Cover-More pilots insurance for pre-existing mental illness

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Cover-More has announced a trial to insure travellers with pre-existing mental health conditions including schizophrenia, bipolar disorder and post-traumatic stress.

Potential customers with diagnosed illnesses will undertake an assessment to determine if travel cover can be provided. Approved insurance will be offered with additional premiums. Some travellers with serious conditions will not be covered.

“We are trialling cover for travellers with existing mental illness at this stage because we want to get it right and give people with mental illness a fair deal and effective care,” CEO Mike Emmett said.

“It seemed a natural, and overdue, extension… and we hope other travel insurance providers follow our lead.”

The trial follows Cover-More’s decision to remove a general exclusion for mental illness from all travel insurance products sold in Australia and New Zealand, starting last month.

Since last month Cover-More’s travel insurance policies in the two countries have been underwritten by its parent, Zurich.

“We’re very excited around this underwriting arrangement for our local business, as well as the strengthening of our travel insurance offering in Australia and New Zealand,” Zurich Australia and New Zealand CEO General Insurance Raj Nanra said.

“It allows for further opportunities to explore how Zurich and Cover-More can collaborate and support our local plan to diversify the product and distribution offerings.”

XL Catlin targets cyber risks as breach rules tighten

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XL Catlin has introduced a cyber and data protection policy in the Asia-Pacific region as governments impose more stringent regulations that raise the stakes for companies.

The policy covers business interruption, extortion demands, response costs and third-party liabilities that organisations face following a data breach. It also covers liability associated with media exposures, invasion of privacy and false advertising in offline and online content and social media.

Country Manager for Australia Insurance Robin Johnson says Canberra passed a law in February requiring mandatory notification of data breaches, and companies need to comply within a year.

Singapore and Hong Kong are considering similar provisions, while countries including China, Japan, Malaysia, South Korea and Taiwan have introduced laws or more exacting standards for data and network protection, XL Catlin says.

“With increasingly stringent regulations, as well as the financial and reputational fallout of a cyber incident, companies need to have a robust risk management strategy and the right insurance solution to protect themselves against cyber risks,” Mr Johnson said.

A report by Juniper Research estimates the cost of data breaches will reach $US2.1 trillion ($2.7 trillion) worldwide by 2019, almost four times the estimated cost in 2015.

“No company is fully secure, no matter how superior its cyber-defence mechanisms are,” International Financial Lines Regional Manager Timothy Powell said. “They must proactively embed cyber risk management in their strategies and operations to combat the unrelenting threat.”

IAG licence changes approved

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IAG will consolidate its nine Australian general insurance licences into two after receiving approval from the Federal Court of Australia.

From August 1 it will have two licensed Australian entities: Insurance Australia Limited (IAL) and Insurance Manufacturers of Australia Pty Limited.

IAL will become the insurer of policies issued by CGU, Swann Insurance, WFI, IAG Re, Mutual Community General Insurance, CGU-VACC Insurance and HBF Insurance.

IAG says the consolidation will help make it a simpler, more efficient and agile business.

“Reducing the number of insurance licences in Australia from nine to two… will free up resources that can be used to improve operations and customer service,” it said.

“There will be no impact on IAG’s consolidated regulatory capital.”

The insurer says customers will not be affected, but all have been informed of the changes.

“The terms of the policies will not change after the transfer, other than IAL will become the insurer under each transferred policy,” it said. “There will be no impact on claims and policies will continue to operate and be renewed in the same way.”

GSA opens finance broking division

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Sydney-based GSA Insurance Brokers has started offering finance broking, in response to feedback from clients.

“The finance lending market for businesses has changed significantly over the past few years and continues to do so rapidly,” GSA says in an email to clients. “It can be a hard landscape to navigate. Clients have told us their finance facilities are in need of a fresh approach.

“GSA Finance will ensure your needs are well understood and that the products provided are suitable to help your business now and in the foreseeable future, whether that is to support growth/expansion, cashflow or asset acquisition.”

The finance broking division covers a range of products including business loans, commercial property, equipment finance and home loans.

Commercial and consumer finance are offered through GSA’s in-house broker. GSA’s other divisions are claims management, employee benefits, risk advisory, credit and financial risks, workers’ compensation, professional risks, general insurance and sports and leisure.

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Regulatory & Government

Hospital cladding confirmed as flammable

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Tests have proved that cladding on the facade of Brisbane’s Princess Alexandra Hospital is combustible.

The investigation was conducted following London’s Grenfell Tower disaster, which left at least 80 people dead.

“We’ve removed about 80 square metres of cladding and sent it to a specialist facility in Victoria,” Housing and Public Works Minister Mick de Brenni said.

“Meanwhile, preparations are being made for the potential replacement or rectification of cladding at the Princess Alexandra Hospital after results of an initial screening test on a section of cladding indicates the product is combustible.

“We’ve now engaged an independent fire engineer who will oversee the test and provide advice on any remedial work necessary to the building.”

Authorities insist the hospital is safe after additional emergency measures were put in place.

Meanwhile, Federal Industry, Innovation and Science Assistant Minister Craig Laundy has dismissed claims by Opposition Leader Bill Shorten that fire protection regulations in the National Construction Code (NCC) are insufficient.

Mr Laundy says the code is clear about standards for installing sprinklers and the use of cladding on high-rise buildings.

“The NCC contains fire safety requirements for high-rise apartment buildings that limit fire spread, alert occupants to the detection of smoke, facilitate evacuation and enable fire brigade operations,” he said.

“The Prime Minister has written to premiers and chief ministers asking them to conduct an audit on the non-compliant use of cladding on high-rise buildings, and all jurisdictions have responded.

“I want to assure the public that the Australian Government will continue to work with all state and territory governments to stamp out non-compliance with our code, so the public can continue to be confident in our world-class built environment.”

The Senate inquiry into non-conforming building products has held public hearings in Melbourne and Sydney.

The Melbourne Metropolitan Fire Brigade told the inquiry it is disappointed by the lack of action since a fire at the city’s Lacrosse apartments in 2014.

Acting Executive Director for Emergency Management Adam Dalrymple says the fire, which was fuelled by flammable cladding, was a “wake-up call”.

“Since then I believe that regulators have been rubbing the sleep out of their eyes,” he said.

“With this tragic event [Grenfell], everyone has woken up, albeit some two-and-a-half years after we had a similar event in our own backyard.”

Fire Protection Association Australia CEO Scott Williams suggests the inquiry look beyond products to the people installing them, and regulators overseeing both.

 “We need to have products that are what they claim to be, are validated and are fit for purpose,” he said.

“Overlying that, we need empowered regulators that are proactive and willing to act to ensure people and products come together to achieve compliant building outcomes.”

Crop cover subsidy should be short-term, review finds

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The NSW Independent Pricing and Regulatory Tribunal (IPART) says any subsidy to encourage take-up of crop insurance should be temporary.

“We consider that a temporary subsidy…is likely to be the most effective measure to help meet the objective of developing a commercial market for multi-peril crop insurance,” it says in a final report.

It says any subsidy should be set at the same percentage rate across regions, regardless of risk variation, to avoid supporting inefficient farming practices and cropping where there is more chance of failure.

The review finds a temporary subsidy may result in a small net benefit across society, but would lead to higher government spending, because its cost would more than offset any subsequent savings in drought assistance.

IPART last year released a draft report on its review of multi-peril crop insurance incentives, and held public hearings last August.

The final report reiterates its view that additional weather stations offer the highest benefit per dollar spent, followed by a business skills program and the temporary upfront subsidy.

“While the weather stations and the business skills program are unlikely to increase the uptake of multi-peril crop insurance, they could assist farmers to be better prepared for drought.”

Weather stations may help improve farming practices, but would not materially reduce the cost of insurance premiums because current weather information “is sufficiently robust”, it says.

RBNZ holds fire on cyber-risk crackdown

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The Reserve Bank of New Zealand (RBNZ) has decided against strict cyber-risk rules for financial businesses, opting for a flexible approach.

“We doubt prescriptive regulations would appreciably improve the outcome when the technology and threat landscape are both changing so rapidly,” Head of Prudential Supervision Toby Fiennes said.

The regulator will review its policy “from time to time” to ensure it remains appropriate, and will also monitor whether financial institutions are taking risks seriously.

“We look to self-discipline and market discipline to provide the defences, agility and crisis preparedness that are required,” Mr Fiennes told the Future of Financial Services conference in Auckland last week.

Businesses should take a collaborative approach to cyber risk by sharing information about threats identified or attacks experienced, he says.

Mr Fiennes told the conference the RBNZ is “not the technical cyber expert”, but a range of standards and guidance has been developed internationally and in New Zealand that businesses can draw upon.

RBNZ concerns centre on the broader financial systemic risk from a cyber attack, while the regulator also has a statutory objective to promote confidence in the insurance sector.

“An attack that caused large-scale loss or theft of policyholders’ data could undermine confidence,” Mr Fiennes said.

Fintech developments are also posing challenges, with the RBNZ balancing the benefits of allowing innovations to flourish while being alert to systemic risks emerging.

Mr Fiennes says the dynamic cyber environment requires organisations to be nimble in their approach to security and abreast of internal vulnerabilities, as well as external threats.

“In the final analysis there is no simple silver bullet,” he said. “Businesses, regulators and other authorities all need to play a part and remain alert to emerging risks and opportunities.”

Stability board hails insurance standard

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The Financial Stability Board (FSB) has welcomed publication of a new accounting standard for insurance contracts, and says insurers should begin implementation as soon as possible.

International Financial Reporting Standard 17 is expected to take effect on January 1 2021, giving insurers time to adapt processes, systems and organisational structures.

The FSB says insurers should consult with the International Accounting Standards Board and regulators on how to support consistent and practical application of the standard.

“Enhanced dialogue with auditors and market authorities during the implementation stage will also be important,” it says.

The standard aims to give investors more certainty around the reliance they can attach to estimates of insurance contract liabilities.

“Relevant disclosures from reporting entities should aid in the understanding of the methodologies and assumptions used in developing those estimates,” the FSB said.

icare invests in spinal injury treatment

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The Insurance & Care NSW (icare) Foundation has partnered with Spinal Cord Injury Australia to fund a fitness service for spinal injury victims in rural NSW.

NeuroMoves Lismore offers modified equipment and tailored exercise programs for patients with ongoing neurological conditions or physical injuries.

icare Foundation GM Amanda Keogh says before NeuroMoves, there were no suitable gyms in Lismore.

“[Patients] would have had to travel up to two hours away or miss out on the kind of specialised fitness services it provides,” she said.

Up to 50% of people with spinal cord injuries in NSW live in regional areas.

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Life Insurance

Super reforms to ease life opt-out

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The Federal Government is targeting automatic payment of life and disability insurance premiums under proposed superannuation reforms.

Financial Services Minister Kelly O’Dwyer says Canberra has tasked the Australian Prudential Regulation Authority with making it easier for consumers to opt out of policies provided with super.

It is part of a range of reforms, which also include strengthening default MySuper products to ensure investment and insurance strategies meet members’ financial interests.

Annual member meetings would be introduced to make super providers more accountable, while funds would have to be more transparent in reporting on fees and spending under the reforms.

Super fund directors who breach their duties would be subject to the same civil and criminal penalties as directors of ordinary managed investment schemes.

A draft bill and explanatory memorandum outlining the proposed changes have been published on the Treasury website for comment. Submissions close on Friday August 11.

The Productivity Commission is also examining group insurance arrangements as part of its inquiry into the super system’s efficiency and competitiveness.

“The Government will consider if any further changes to improve the superannuation system are required in light of any recommendations made by the Productivity Commission,” Ms O’Dwyer said.

The Financial Services Council says it supports all the proposals, including making it easier for people to opt out of cover inside super.

But it notes group life insurance provides a valuable safety net that delivers benefits very efficiently for millions of Australians, and consumers need to understand the ramifications of opting out.

“The FSC strongly supports all proposals that give consumers more power and greater transparency over one of their most important assets – their superannuation savings,” CEO Sally Loane said.

Advice industry challenges ‘intensifying’

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Issues confronting the financial advice sector are “increasing and intensifying”, according to Connect Financial Service Brokers CEO Paul Tynan.

He says there is a “vacuum of leadership and direction” and the viability and relevance of licensees has been “under constant question” since the advice model’s inception.

“No matter how often excuses are spun, it’s the potential and perceived conflict of interest of institutions that simply can’t be avoided,” he said.

“From its inception it has been impossible to defend and claim the process is in the best interest of the consumer and provides unbiased/uninfluenced advice when institutions are both the product manufacturer and owner of the licensee.

“It’s a situation that first evolved from the development of platforms in the 1990s, which laid the foundation for the current business model.”

Mr Tynan says the only way to test models is through the public eye – and it is inevitable that individual adviser licensing will be preferred.

He believes the concept will be resisted, not only by institutions afraid to lose influence and control of distribution networks but also regulators fearing a massive escalation in workload.

“Yet individual [licences] would immediately lift the public perception of advice, the industry as a whole, and be the catalyst for a revolutionary change to the dealer group model.”

Australians ignoring funeral costs

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About 60% of Australians have not thought about their funeral costs, or they expect families to foot the bill, according to comparator Finder.

It says the findings underscore the need for people to take funeral planning more seriously, because the final bill can easily exceed $10,000.

The national average for funeral costs, for both cremation and burial, is $7025.

“It’s concerning that the vast majority of Aussies – older generations included – aren’t considering the cost they may be leaving behind to family members when they pass away,” Finder Money Expert Bessie Hassan said.

“Australians worried about the price of their service should consider a funeral prepayment plan or a capped funeral insurance policy.”

According to Finder, Perth is the most expensive city in the country to hold a funeral, averaging $7764.

Sydney and Melbourne are second and third at $7621 and $7586 respectively. Brisbane is fourth ($7259), followed by Adelaide ($6657), Hobart ($6508) and Canberra ($6131).

NZ financial providers fall short on fee clarity

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New Zealand financial providers often fail to adequately explain fees charged or why a product is appropriate for a client, a survey for the Financial Markets Authority (FMA) has found.

It follows the publication of FMA guides on conduct and how customers should expect their providers to behave.

“We thought it was also important to hear from consumers directly about what’s actually happening, through our survey,” FMA Director of External Communications and Investor Capability Paul Gregory said. “We’ll share with providers what their customers are telling us about them and, where there are issues, we’ll expect to see them do better.”

More than two-thirds of customers say their provider is knowledgeable and the information it provides is easy to understand. Providers also score well on fairness and professionalism.

But only half of investors agree their provider has explained fees and just 52% of respondents agree their provider has helped them understand why a product is appropriate for them.

The research conducted by Colmar Brunton questioned 1000 New Zealanders.

The FMA plans to conduct the survey annually.

“The changes that have been introduced through the FMA licensing of financial service providers put good conduct at the heart of the industry’s priorities,” Mr Gregory said.

ANZ holds APEX webinars

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ANZ Wealth has announced its third series of APEX Lunch and Learn webinars to help advisers stay abreast of industry and regulatory change.

The sessions cover topics ranging from platforms and investments to technical and soft skills, and practice management.

Head of Sales Don Sillar says the webinars were created in response to adviser calls for efficient tools to help them remain compliant.

ANZ Wealth also offers the APEX Insights Content Hub, the APEX Business Transformation Program and flagship annual event APEX Inspire.

The webinar series runs from August 15 to September 21. Advisers can register here.

Deadline looms for AFA award nominations

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Nominations for the Association of Financial Advisers (AFA) annual awards program close this Friday.

The awards are for rising star, female excellence in advice, adviser of the year and practice of the year.

Winners will be announced at the AFA conference in October.

For more information, click here.

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The Professional

Dive In registrations set to open

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Registrations for this year’s Dive In Australia festival open on August 1.

The Lloyd’s-inspired global diversity event runs from September 26-28 and Australia will host 10 events – eight in Sydney, one in Melbourne and one in Perth – in line with the theme “the diversity dividend”.

For more information, click here.

In conjunction with the festival, Macquarie Bank is hosting an industry diversity survey, which aims to create a benchmark for inclusivity. Participate here.

ICA names consumer outcomes manager

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The Insurance Council of Australia (ICA) has appointed Fiona Cameron as GM Policy, Consumer Outcomes.

Ms Cameron was previously ICA’s senior manager for government and industry relations.

“Her new role focuses on developing and implementing ICA’s policies in relation to consumer outcomes,” CEO Rob Whelan said.

“It includes responsibility for the industry’s Consumer Liaison Forum, the General Insurance Code of Practice, statutory schemes and ICA’s consumer referral service.”

Ms Cameron has worked for the NSW Department of Premier and Cabinet, the Liquor, Hospitality and Miscellaneous Workers’ Union and the NSW Attorney-General’s Department.

Sarah Phillips filled the role on an acting basis after Vicki Mullen left last year to join Swiss Re.

Experienced executives join Berkley Australia

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Former Ironshore Australia CEO David Rogers has joined Berkley Insurance Australia as National Manager Corporate Solutions.

Mr Rogers’ experience includes working as a regional executive of Ironshore based in Chicago and as an underwriter with Endurance Specialty in Bermuda.

He will develop products and expertise in the transactional insurance market, specialising in warranties and indemnities, tax opinion and contingent liability covers. His corporate solutions remit includes cyber, product recall, life sciences and environmental liability.

Berkley has also appointed Jon Willmott as NSW State Manager. He was previously underwriting manager at ProRisk, where he spent the past decade. Before that he was a professional risks underwriter at Beazley.

IAG recruits media strategist as digital chief

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IAG has hired News Corp online product strategist Mark Drasutis as Chief Digital Officer.

Mr Drasutis will lead “initiatives to anticipate what’s next for customers in a connected world and deliver those experiences”.

He starts in October with the Customer Labs team and reports directly to Chief Customer Officer Julie Batch.

“Under [Mr Drasutis’] guidance, we can accelerate our focus on driving IAG forward to become a leader in digitally enabled customer experiences,” Ms Batch said. “[He] is an innovator, consumer product expert and strategic visionary who cares deeply about building high-performing teams, working in agile environments and focusing on the needs of customers.”

Mr Drasutis has more than 20 years’ media and digital product experience.

He led News Corp’s digital product platform, audience insights and innovation teams as chief product officer. He has also worked at Yahoo, delivering “consumer experiences” using data and customer insights.

Actuaries’ working group to drive diversity plan

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The Actuaries Institute has set up a working group to drive a diversity and inclusion strategy endorsed at its council meeting last month.

It says the strategy is a response to the changing working environment and increasingly diverse backgrounds of actuaries, and takes account of culture, age and gender.

The institute says 38% of members speak at least one Asian language, 55% are younger than 34 and 33% are female.

Working group members include Deloitte Partner Trang Duncanson, Finity Consulting Principal Ashish Ahluwalia, KPMG Associate Director Elizabeth Martin, MLC Insurance Head of Actuarial, Information Angela McLaughlin and graduate at Deloitte Helena McGeorge.

Actuaries Institute Head of Communications and Marketing Katrina McFadyen and Committee and Volunteer Engagement Manager Lily Meszaros are also members of the working group.

Expressions of interest from male members are invited to further diversify the group, which is also welcoming feedback on the strategy.

The key strategy goals are to create a diverse and inclusive environment, ensure committees and working groups represent the members and to promote the benefits of diversity.

NIBA names top Queensland, WA brokers

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Maria Newman from Marsh has won the National Insurance Brokers Association Queensland broker of the year award, beating finalists Lisa Carter from Clear Insurance and Pro-Insure’s Shane Flower.

The state’s young professional broker honour, for under-35s, goes to Stacey Lloyd, also from Marsh.

Finalists were Kimberley Lundberg from Insurance Aid General Brokers and Amy Morrison of Insurance House.

In WA the broker of the year award goes to Brett Piggott of Willis Temby Insurance Brokers, while Jody Williams from Oracle Group was a finalist.

Jamie Rigoli from JLT has taken the young broker title, beating finalists Paula Eggers from Marsh and Centrewest’s Daniel Curnow.

Winners from five regions will compete for national honours at the association’s convention in Sydney on September 11.

The Stephen Ball Memorial Award for broker of the year is sponsored by QBE and carries a prize worth about $20,000.

Vero sponsors the Warren Tickle Memorial Award for young brokers, which offers a personal and business development experience worth about $10,000.

HDI appoints regional claims boss

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Industrial lines insurer HDI Global has appointed David Lloyd as Regional Claims Manager, ASEAN and Australasia.

Mr Lloyd, who will be based in Sydney, has more than 30 years’ experience in the Australian and London markets. Most recently he was head of technical claims at Zurich Australia, and previously he worked for QBE Europe.

HDI has also appointed Kevin Sullivan as Claims Manager, based in Sydney. He was previously senior technical claims officer in QBE’s major property loss team.

Allianz workers’ comp stalwart retires

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Allianz has promoted Adam Lloyd to GM Underwritten Workers’ Compensation and Distribution, replacing Michael Taig, who is retiring after 17 years in the position.

Allianz Australia Chief GM Workers’ Compensation Helen Silver says Mr Taig has been “an integral part” of the workers’ compensation unit, and is “very pleased Adam has joined the workers’ compensation senior management team” to replace him.

 “His technical experience and people leadership skills make him the perfect person to lead our underwritten business in future,” Ms Silver said.

McLarens appoints global marine chief

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John Cupitt has been promoted to Head of Global Marine at loss adjuster McLarens, based in Brisbane.

He previously served as national manager of marine for more than two years, and has held senior roles at Cerno and predecessor MYI Freemans during a 30-year career.

His survey work in Australia and the Pacific region has included cargo, shipping and protection and indemnity club matters, and commercial hull and pleasure craft claims.

Ex-JLT manager takes EBM role

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EBM has named Clint Jeuring as Executive Account Director.

The former JLT manager started last week and is based in Perth with the corporate broking team.

Mr Jeuring worked for 17 years with JLT, including at its UK headquarters, where he was involved with negotiating complex claims for wholesale and retail clients.

Suncorp, Elders win Canstar landlord award

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Elders Insurance and Suncorp have won this year’s Canstar national award for outstanding-value landlord insurance.

Elders won state awards in Victoria, Queensland and Tasmania, and Suncorp was on top in NSW, WA and SA. Terri Scheer won in north Queensland.

The results follow Canstar’s review of 46 products from 41 insurers.

“One of the main drivers behind Elders Insurance’s award-winning performance for landlord insurance was its competitive pricing,” Canstar Group Manager Banking and General Insurance Stephen Morfea said.

“For each state and region considered, premiums were below the market average.”

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International

New regional hubs pose threat to Lloyd’s: AM Best

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Lloyd’s faces a challenge to its competitive position in an increasingly difficult operating environment, according to ratings agency AM Best.

It has affirmed the financial strength rating of A and long-term issuer credit rating of A+ for Lloyd’s in the UK and China, reflecting its “strong and stable risk-adjusted capitalisation, excellent business profile and recent strong underwriting performance”.

But AM Best adds that Lloyd’s “excellent position” in the global insurance and reinsurance markets could be challenged.

“In particular, the growth of regional (re)insurance hubs, combined with the comparatively high cost of placing business at Lloyd’s, is reducing the flow of business into the London market.”

Lloyd’s is responding to the threats, AM Best says.

“Improved access to international business is being supported by the Vision 2025 strategy and the establishment of regional platforms, and Lloyd’s continues to implement initiatives to improve efficiency and reduce operating costs.

“AM Best will continue to closely monitor Lloyd’s ability to defend its strong competitive position against the prevailing market headwinds.”

US storms take toll, but first-half cat costs drop

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US hailstorms and tornadoes dominated natural catastrophe costs in the first half, but global losses were less than half average levels, according to separate reports by Munich Re and Impact Forecasting.

Overall losses totalled $US41 billion ($52.5 billion), down from $US111 billion ($142 billion) in the corresponding period last year and compared with a 10-year average of $US102 billion ($130.6 billion), Munich Re estimates.

Insured losses totalled $US19.5 billion ($25 billion), down from $US32 billion ($41 billion) in the corresponding half last year and an average of $US29 billion ($37 billion).

Aon Benfield subsidiary Impact Forecasting estimates first-half economic losses were $US53 billion ($67 billion), 56% down on the 10-year average and 39% below the 17-year average.

Insurance losses were estimated at $US22 billion ($27 billion), 35% below the 10-year average.

“The financial toll from natural catastrophe events during the first six months may not have been historic, but it was enough to lead to challenges for governments and the insurance industry around the world,” Impact Meteorologist Steve Bowen said. “This was especially true in the US after the insurance industry faced its second-costliest first half on record following a relentless six months of hail-driven severe weather damage.”

Munich Re says US storms accounted for three of the five costliest events in the half, each causing economic losses above $US2 billion ($2.6 billion). The combined total reached $US18.5 billion ($23.7 billion), of which $US13.5 billion ($17.3 billion) was insured.

Climate patterns, including a “coastal El Nino phenomenon” affected atmospheric circulation over the US, helping generate super-cell storms that brought hailstones as big as 11cm.

“The exceptional accumulation of severe thunderstorms in the US highlights just how important it is for insurers to have in-depth knowledge of natural catastrophes and how these are affected by climatic changes,” Munich Re board member Torsten Jeworrek said.

Munich Re says floods in Peru in February and March were the most expensive event, with losses of $US3.1 billion ($4 billion), of which only $US380 million ($486 million) was insured. Australia’s Cyclone Debbie was the second-costliest, with overall losses of $US2.7 billion ($3.5 billion) and insured losses of $US1.4 billion ($1.8 billion).

“In terms of actual loss amounts, Asia and Australia were not as badly hit by natural disasters as they often are,” Munich Re board member responsible for the region Hermann Pohlchristoph said.

Insurtech investments soar to record level

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Investors poured a record $US985 million ($1.25 billion) into insurtech deals in the second quarter, up from $US398 million ($503.7 million) in the corresponding period last year, according to a Willis Towers Watson’s report.

There were 64 deals, a new milestone for any quarter.

About 45% of deals were struck in the US, which remains the hotbed of insurtech activity, although its share is down from 65%.

US-based technology developer Trov, in which Suncorp has a 6% interest, raised $US45 million ($56.85 million) in venture funding during the second quarter. Suncorp put in $US3.1 million ($3.9 million).

The report says claims technology is an emerging area of focus, with (re)insurers targeting strategic investments in, and partnerships with, technology start-ups.

Claims management, a $US170 billion ($215 billion) industry globally, is one of the insurance sector’s most underestimated areas.

“Claims management can be the most powerful driver of customer satisfaction and retention,” Willis Towers Watson Securities CEO Rafal Walkiewicz said. “Today it is not always a positive experience. For investors that build their thesis around disruption driven by risk mitigation, claims managers are particularly attractive.”

Technology paves way for distribution, pricing overhaul

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US premiums are expected to fall as the industry adopts technology to reduce distribution costs, according to insurance exchange MarketScout.

Property and casualty insurance has the highest distribution expense of almost any financial services industry, it says.

But rapid advances in technology have made it possible to “reformat” distribution models.

“By utilising new tech-enabled distribution, underwriters are ultimately going to reduce acquisition expenses, which will enable them to offer the consumer a lower premium,” MarketScout CEO Richard Kerr said.

“The end result will be a win-win: a net premium reduction for the insured and an increase in return on equity for the insurance company.”

AIG chief makes case for robot underwriters

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Rather than triggering massive job losses, automation will fill the insurance world with adaptive, tech-savvy employees who welcome change, according to AIG President and CEO Brian Duperreault.

He makes the comments in a LinkedIn article entitled Will Robots Take Over the Insurance Industry? This follows a survey that found nearly one-quarter of fintech professionals believe automation will cost them their job.

Mr Duperreault is optimistic, arguing automation will make insurance better and customer relationships stronger, and help attract the right talent.

He says automated policies could free small business owners to spend more time with customers, rather than with insurance agents.

While this may sound “scary”, he is not suggesting people are not required to write policies.

“Insurance will always remain a people business. It’s just that these people will be doing different things. The reality today is that a machine or algorithm can probably do a better job quickly producing a policy that meets my needs as a small business owner.”

In contrast, underwriting a major company is complicated and requires a skilled person and team, because a machine cannot do it alone.

And small business owners will not want to talk with chatbots or algorithms if they are confused about a “business-threatening” claim, he says.

“In my opinion, the biggest need in our industry will be having people who know how to use this technology to better manage risk for our clients and can help them in a time of need.

“Data can improve the work we do and make it more efficient. And for companies such as AIG, that means helping us to be better underwriters and risk managers.”

Data law reforms to lift EU cyber market: Aon

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Demand for cyber coverage in Europe will grow sharply as the EU prepares to enforce data protection laws in May next year, according to Aon.

Major brokers are already helping clients assess their cyber exposure and determine if they need to enhance coverage under the European Global Data Protection Regulation (GDPR).

They are also working with insurers to tailor products.

“The upcoming GDPR… is expected to be a catalyst for accelerated growth,” Aon’s Global Cyber Market Overview says.

“All companies doing business with clients and prospects in the EU will need to comply with the new legislation. It will require companies to notify the regulator and individuals in the event of a breach of personally identifiable data.”

Companies that fail to comply could be fined up to 2% or 4% of their global revenue, depending on their business activity and subject to monetary caps.

Europe’s standalone cyber market generated gross written premium of $US135 million ($171 million) in 2015, well behind the US market’s $US1.5 billion ($1.9 billion).

Aon expects competition in the global cyber-insurance market to intensify as more carriers seek to meet growing demand.

“The world is continuing its digital transformation with no sign of slowing down,” the report says. “Insurers that are trying to grow in this segment are actively developing their strategies.

“Many are investing in new capabilities, establishing partnerships with cyber-security companies and hiring experts outside the industry to build a competitive edge.”

Aon study reveals top 50 US insurers

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The top 50 US property and casualty insurers achieve above-average return on equity and control costs better than the overall industry, according to Aon-owned Ward Group.

Ward’s list of the leading insurers domiciled in the US produced a combined operating ratio of 92.6% for the 2012-16 period, lower than the wider industry’s 99%.

“Low investment returns, rising loss costs and competitive market conditions continue to impact financial returns for the industry,” Ward Group Partner and Head Jeff Rieder said.

“In selecting the Ward’s 50, we identified companies that pass financial stability requirements and measured their ability to grow while maintaining strong capital positions and underwriting results.”

The top 50 produced an 11.4% return on equity, above the industry’s 8.4%, and their net written premium grew 30.1% compared with 16.6% for the industry.

Expenses relative to revenue last year were 9.3% lower among the top 50.

Ward analysed almost 3000 insurers. The shortlist includes WR Berkley, HCC Insurance Holdings Group, Chubb, Geico and Munich Re America.

ABI blames Government as UK motor premiums soar

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The average UK motor insurance premium has hit a new record high of £484 ($789.60) following the Governments’ decision to cut the personal injury discount rate and increase the personal premium tax, according to the Association of British Insurers (ABI).

The 11% increase compared with the second quarter of last year is four times the rate of inflation, and the biggest year-on-year rise since the ABI began tracking premiums for private cars in 2012.

The Government recently cut the personal injury discount rate from 2.5% to -0.75%, the lowest in any advanced economy.

The insurance premium tax went up to 12% from 10% on June 1.

ABI Director-General Huw Evans says the premium increase shows the importance of the Government advocating a new framework for the discount rate and halting further increases to the insurance premium tax.

“The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels,” he said.

“Most younger and older drivers are likely to face increases even higher than this, hurting people who can least afford it.”

Mr Evans says the increases will likely cause reinsurance premiums to increase on renewal, which will have a flow-on effect for customers.

Lloyd’s sets out crisis contingency plans

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Lloyd’s has formulated guiding principles to ensure a quick and effective response to market-turning events – situations that causes significant impact and could trigger a rapid rise in insurance pricing.

The last clear market-turning event was the September 11 2001 terror attacks, when all classes of business recorded rate rises of 40%.

“One important area where we can help is to make sure the Lloyd’s market is in a position to act swiftly and decisively to any future market-turning events,” Director of Performance Management Jon Hancock said. “This is about stronger, smarter oversight.”

“We want to make it as straightforward as possible to raise new capital. Doing so will ensure Lloyd’s is even better prepared for once-in-a-generation, market-turning events.”

The six principles, influenced by the “dry run” exercise carried out by the London market in November last year, are grouped under crisis management and opportunities.

They are: market stability and payment of claims; management of failing syndicates/members; stakeholders/data collection/co-ordination and communication; support the market; accelerate key processes; and Lloyd’s priorities.

RIMS forum to focus on cyber threats

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The Risk and Insurance Management Society (RIMS) will hold its first Cyber Risk Forum in response to rising concerns about potential threats.

The event in Las Vegas will cover topics such as management collaboration and responsibilities, emerging risks, mitigation strategies and insurance.

“To remain competitive, organisations must embrace new technologies and face cyber uncertainties head on,” RIMS CEO Mary Roth said.

“While business leaders are aware of the importance of cyber security, the challenge is in keeping pace with the evolution of new threats.”

Writer and futurist Peter Warren Singer will deliver a keynote address, while other speakers include executives from Microsoft, Procter & Gamble, Kaiser Permanente, Aon, Moody’s, Google, Marsh and PayPal. The forum will be held on September 7-8.

Global authorities team up to plug insurance gaps

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The UK Government has announced a tie-up with the World Bank and Germany to tackle underinsurance in developing countries.

Minister of State for the Department for International Development Lord Bates told the International Insurance Society (IIS) forum in London last week of the global partnership for climate and disaster risk finance and insurance solutions.

It comes after Prime Minister Theresa May announced the new London-based Centre for Global Disaster Protection.

Insurance Development Forum Chairman Stephen Catlin, speaking at the IIS forum, praised the announcements, warning coverage gaps in much of the world are “a global problem no one organisation, company or individual can solve alone”.

“This is a big step towards activating our common mission as a critical public-private partnership empowered to take on the enormous problem of underinsurance in at-risk developing economies.”

The Centre for Global Disaster Protection will help poor countries strengthen their disaster planning and prepare financially for catastrophes.

The UK will provide £30 million ($49.36 million) for the centre and the World Bank has committed staff to support it.

Germany will contribute €20 million ($32.91 million) as a step towards a linked World Bank multi-donor trust fund for country-specific technical assistance and support, with the aim of helping vulnerable countries tailor disaster risk financing mechanisms. 

The IIS forum had the theme “global resilience and the role of insurance”. It hosted more than 500 insurance executives, regulators, policymakers and academics.

Insurance News is a Media Partner of the IIS Global Forum.

Beazley steps up expansion plans as earnings rise

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Specialist insurer Beazley is pressing ahead with growth plans, including in Europe and the US, encouraged by improved earnings for the half-year to June 30.

Pre-tax profit grew 6% to £158.7 million ($260.87 million) in the half, and gross written premium increased 2% to £1.15 billion ($1.89 billion).

The combined operating ratio stayed at 90%.

“Despite our continued success in generating strong underwriting profits, conditions for many of our underwriters remain exceptionally difficult,” CEO Andrew Horton said.

“Our priorities in this environment are clear. We will not sacrifice profitability for growth, which means we will continue to walk away from underpriced business.”

The London-based insurer took steps during the half to shore up its growth prospects, including acquiring a specialist managing agent in Canada and hiring more underwriters in Europe, Singapore and Miami.

Beazley is working to expand in Europe, which accounts for more than 5% of overall business. It has established a new Dublin-based insurance company to support this.

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Analysis

IAG’s new Australia Division is worth watching

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Until Peter Harmer took the reins at IAG late in 2015, the entities that made up Australia’s largest insurance group existed in a series of independent silos, each of which carried its own systems and cultures.

It was a reflection of the way IAG had been built. It was formed in the 1980s by the NSW-based National Roads and Motorists’ Association (NRMA), which had a highly profitable insurance arm and an ambitious (and fractious) board of directors.

In 1998 the NRMA bought state-owned insurance operations in WA and SA, and the next year formed a joint venture with Victoria’s RACV Insurance, giving the formerly NSW-based organisation a substantial insurance footprint.

In 2000 the NRMA demutualised, with the road services and insurance branches being separated. The insurance expansion continued, with New Zealand’s dominant State Insurance acquired in 2001.

The following year NRMA Insurance became Insurance Australia Group (now simply IAG), and in 2003 it scored a coup by acquiring one of Australia’s largest commercial insurers, Melbourne-based CGU. A host of other acquisitions have followed, most notably NZI and the insurance operations of Wesfarmers.

When Mr Harmer took over leadership of Australia’s largest and most profitable insurance group in 2015 from Mike Wilkins, he knew things would have to change.

Mr Wilkins had taken an underperforming group of businesses, built mainly on acquisitions and given it a solid grounding for profitability. Mr Harmer’s challenge is to unite the IAG businesses and people behind a customer-centric culture focused on flexibility and efficiency.

He was one of the first local insurance leaders to warn of implications for the industry from the coming technological storm, where product innovation, flexibility and a deeper understanding of the market will replace outdated but tried and true methods.

The management structure he adopted was notably flat, with CEOs for each unit reporting directly to him.

It put a lot on his shoulders, but it gave him time to refine his strategy and his team.

In the past couple of years some senior people have left, and some extraordinary talent has been added, particularly in the innovation and support areas. The formation of a single division for the Australian businesses is a logical progression.

New CEO Australia Division Mark Milliner is one of Australia’s most experienced insurance executives, whose 21 years at Suncorp gave him an exceptional grounding in all things insurance, as well as the development of brands and – as Suncorp was built substantially on mergers and acquisitions – how to bring businesses together.

Suncorp’s success was built on a strategy of “one business, many brands”, and the Brisbane-based insurer was successful in bringing its support structures together to service the brands.

The problem with single entities within a group adopting their own methods and systems – and IAG reputedly has dozens of different systems that do essentially the same tasks – is that it’s a real obstacle to adopting fewer efficient systems for use across the division.

IAG has been tackling the problem for about two years, and it can be expected to accelerate under the new management structure, which encompasses the Australian Consumer and Australian Business units, as well as the Operations and Satellite units.

The insurer says the new division “centralises accountability for the customer, product, distribution and operations functions for IAG’s Australian brands”.

One sign of that move towards a more agile and efficient structure came immediately after news of the formation of the Australia Division, when IAG announced it has received Federal Court approval to consolidate its nine insurance licences into two.

Insurance Australia Limited (IAL) will become the insurer of all policies issued by CGU, Swann Insurance, WFI Insurance, IAG Re, Mutual Community, CGU-VACC Insurance and HBF.

The other licence is held by Melbourne-based Insurance Manufacturers of Australia (IMA), which is owned 70% by IAG and 30% by RACV. It will continue to provide policies for NRMA Insurance and RACV Insurance.

IAG has already come a long way in its program to build a 21st-century company where the greater use of data and more flexible products and approaches will happen across the business, moving it closer to Mr Harmer’s vision of a customer-centric company.

And Mr Milliner has had around 15 months as COO to understand the scale of the challenges involved in bringing the Australia Division into a single, cohesive unit. We should expect plenty of change to happen, much of it behind the scenes.

Technology will become even more of a focus in the George Street headquarters, and although IAG is coy on the subject, new efficiencies will inevitably result in headcount reductions.

It’s notable that the IAG Satellite unit, formed last year to be a “growth engine” by acting as a change agent, testing new ideas and “thinking customer and digital first”, has also been placed under Mr Milliner’s oversight.

A rapidly changing consumer landscape in which technology is dominant means IAG and the development of its new Australia Division will be watched closely by competitors and the market in general.

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