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NZ prepares for rough weather as Cyclone Gita looms

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New Zealand is bracing for damage from Cyclone Gita, which is forecast to make landfall near Wellington tonight, bringing strong winds, heavy rain and high seas to coastal areas in the country’s central regions.

The extreme conditions expected in New Zealand later today follow flooding and gales in the country two weeks ago caused by the remains of Tropical Cyclone Fehi.

Tropical Cyclone Gita formed north of Fiji early in February and caused extensive damage in Tonga last week before swinging south through the Coral Sea and curving towards central New Zealand.

“With the recent severe storm damage west coast residents have suffered, it’s really important they do all they can to make their homes safe and weather-tight,” Insurance Council of New Zealand CEO Tim Grafton said.

The MetService forecasts 100-120mm of rain may fall in the Wellington area over 24 hours, while central New Zealand could see landslips, flooding and damaging wind.

There is potential for coastal inundation due to high tides, low air pressure, strong onshore winds and waves above six metres, the MetService says.

In Australia, Cyclone Kelvin crossed the coast at Anna Plains, between Broome and Port Hedland in the northwest, as a Category 2 system early yesterday.

The Insurance Council of Australia says claims from the sparsely populated area – one of the most cyclone-prone regions in Australia – are expected to be minimal.

Shift in trade winds may spell end for La Nina

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A rapid weakening of Pacific trade winds may hasten the decline of this year’s La Nina weather system, the Bureau of Meteorology says.

Four of eight models surveyed by the bureau suggest La Nina is likely to last until late summer, while a few continue the event into autumn.

Large parts of eastern Australia have been drier than average for the past two or three months, the opposite of what is typically expected during La Nina, due to the current system’s weakness.

“Climate patterns have been significantly different from those observed in the last strong La Nina of 2010-12,” the bureau says.

Typically La Nina brings rain and a greater chance of flooding to Australia’s east, while the opposite El Nino system is associated with drought and bushfire risk.

Consumer group raises pressure over unfair contract terms

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The Consumer Action Law Centre is stepping up its campaign for unfair contract term provisions to be extended to insurance, ahead of expected consultations on possible changes this year.

The Federal Government has referred the issue to Treasury for review and, in a response to the Senate inquiry into general insurance in December, says it anticipates releasing proposals early this year.

Law centre Senior Policy Officer Susan Quinn says changes may be introduced through either the Insurance Contracts Act or the Australian Securities and Investments Commission Act.

“As long as the scheme, wherever it sits, is effective and largely mirrors what we have for every other consumer contract, we are going to get a good result from it,” Ms Quinn told insuranceNEWS.com.au.

“We know it is a priority and the Government wants it to happen.”

The law centre last week released a report providing case studies on rejected claims.

“Every other industry must ensure their terms and conditions protect legitimate business interests only and that their own customers can understand the contracts,” law centre CEO Gerard Brody said.

“There’s no reason insurers should get special treatment.”

The Insurance Council of Australia opposes inclusion of unfair contract terms in insurance contracts, but says it is assessing the issues.

“Over the past year ICA and its members have been discussing with stakeholders, including consumer advocates, how unfair contract terms protections could be applied to general insurance contracts,” spokesman Campbell Fuller said. “It is important consumer outcomes are improved without undermining the risk management that underlies policies.”

See ANALYSIS.

Fraud declines as businesses wise up

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The number of reported fraud incidents in Australia plummeted 40% last year, declining for the first time in several years, according to a KPMG Forensic report.

There were 155 reported frauds with a value of $482 million from October 2016 to last November, compared with 259 worth $823 million in the previous year, the group’s Fraud Barometer shows.

KPMG Forensic partner Gary Gill says the scale of the decline is surprising.

“Reported frauds can and do fluctuate due to various factors, but lessons about being more vigilant and aware of fraud risks seem to have been taken on board by companies,” he said.

Government bodies are increasingly targeted, accounting for the most losses in the year at $199.1 million.

“Technologically sophisticated” fraud – which includes hacking, compromising computer accounts, skimming digital data and porting mobile phones – accounted for 6% of frauds and 7% of the total value ($33.8 million).

Losses due to identity theft grew sharply to nearly $17.9 million.

Mr Gill says fraud by professional criminals is a “growing problem”, second only to crimes by business insiders. The latter accounted for 60% of frauds against commercial businesses, whereas external fraudsters were mostly to blame for attacks on government and financial institutions.

Fraudulent compensation and funding claims are on the rise, with many involving compulsory third party claims after fake, staged or minor vehicle accidents.

Major Australian frauds in the year included a $165 million tax scheme that siphoned PAYG payments through a complex web of payroll businesses, and a $128 million fraud against a punting syndicate in Victoria, where the perpetrator kept funds intended for betting on horse races.

NZ insurers pay out $6.5 million a day

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New Zealand insurers paid an average of $NZ7 million ($6.51 million) a day in claims last year, the Insurance Council of New Zealand (ICNZ) says.

They settled or partially settled a record 70,000 claims, including 39,000 Kaikoura earthquake claims, 25,500 related to extreme weather and 2070 residual Canterbury quake claims.

ICNZ CEO Tim Grafton says the fact that insurers are still receiving “over-cap” Canterbury claims from the Earthquake Commission shows insurers should be the first port of call after such catastrophes.

“Almost 800 claims were transferred in the year,” Mr Grafton said. “The private insurance sector has proved its ability to be effective first respondents to these sorts of events, managing and settling claims quickly and effectively. We believe this is the model for the future.”

The total settlement cost for insurers last year was $NZ2.55 billion ($2.37 billion).

EQC funds NZ tsunami research

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New Zealand’s Earthquake Commission is co-sponsoring a research project on tsunami risks in the city of Porirua north of Wellington.

The research will examine likely wave paths and the implications for emergency services planning should the harbour city be hit.

The EQC has provided about $NZ70,000 ($65,181) to the project, a spokesman told insuranceNEWS.com.au.

GNS Science expert Wendy Saunders will undertake the research, co-funded by Porirua City Council.

“Here in the Wellington region we’ve now got a lot of good data… that, combined with Porirua land data and new modelling technology, means we should be able to give an assessment of tsunami risk at a much more precise level,” Ms Saunders said.

The Earthquake Commission is backing the tsunami study through its biennial research grant program, which has awarded financial support for 16 projects this year.

CROs to the fore as cyber risks grow

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Chief risk officers will take centre stage as cyber threats are increasingly considered “key operational risks” rather than “information technology risks”, according to Aon.

Its Cyber Security Predictions report says while Australia is yet to see a large-scale data breach, social media has made companies aware of potential impacts such as reduced earnings, operational disruption and claims against directors and officers.

Consequently, directors are expected to take a more active role in cyber security this year, along with increased adoption of standalone cyber insurance.

Regulators are expected to more strictly enforce cyber-security rules and increase compliance pressures by introducing new ones.

Mandatory data breach notification rules take effect on Thursday, and the Office of the Australian Information Commissioner has issued guidelines on how to prepare for privacy incidents with a cyber-incident response plan.

Aon says Australia has seen the same increase in criminal cyber attacks on SMEs as other countries, but this has not extended to industrial control systems used in the mining, resources and utilities sector.

These systems are often protected because they are on separate, private networks, but they are being increasingly connected to IT networks without the same level of security as office and internet-facing systems.

Aon predicts Australian companies will increasingly adopt “bug bounty programs” – under which employees and contractors who identify weaknesses in systems are paid a reward – to protect themselves from criminals who target transactions.

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Corporate

IAG raises guidance, flags retreat from Asia

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IAG has increased its margin guidance after first-half net profit grew 23.5% to $551 million, and has signalled its Asian businesses may be divested following a strategic review.

Gross written premium (GWP) gained 0.6% to $5.83 billion in the half and insurance profit increased 30.1% to $743 million.

The insurer recorded a 17.3% margin for the six months to December 31, up from 13.5% in the corresponding period of 2016.

Margin guidance for the full financial year has now been raised to 15.5-17.5% from 12.5-14.5%.

“This is an encouraging result,” CEO Peter Harmer said. “We started to see a favourable impact over the half [from] a number of initiatives we have put in place.”

Rate rises to counter claims inflation eased pressure in motor, and the upswing in commercial rates continues. Net natural peril claim costs were $78 million lower than the $262 million allowance, thanks to $120 million of protection from aggregate reinsurance cover.

The Australian business made $625 million in insurance profit, up from $542 million, despite a fall in GWP to $4.45 billion from $4.48 billion.

Earnings from the Asian division jumped to $15 million from $2 million, but it is still making an underwriting loss, although this has narrowed to $6 million from $12 million.

IAG expects to complete a strategic review of its operations in Thailand, Indonesia, Vietnam, India and Malaysia this year.

“We have always taken a measured approach to Asia and we believe this is the right time to review the immediate and longer-term strategic options for our individual Asian businesses given the limited expansion opportunities,” Mr Harmer said.

Suncorp blames storms, reforms for half-year profit dip

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Suncorp says investment in strategic programs, Victorian hailstorms and increased regulatory costs are to blame for a 15.8% drop in first-half profit to $452 million.

Investment in the business improvement program contributed to a 5.7% increase in operating expenses for the half.

However, the improvement program is expected to deliver net benefits of $10 million, $195 million and $329 million in this financial year and the next two respectively, and bring operating costs down to $2.7 billion in 2018/19.

It supports “digitisation of customer experiences”, optimisation of sales and service channels, redesign of the claims supply chain, smarter procurement and streamlining the business.

Natural disasters cost the group $395 million – $65 million above the period’s allowance – driven primarily by hail in Victoria, which has a current cost estimate of $167 million.

Regulatory reforms affected compulsory third party premium income and home insurance fire service levies, which reduced headline growth rates.

The group says it had to manage an extra $17 million in costs due to increased regulation.

Gross written premium (GWP) decreased 7% to $4 billion in the half.

Investment income from insurance funds increased 242.9% to $120 million, while total investment income was $192 million, representing an annualised return of 3.2% for the half-year.

Australian home and motor insurance GWP increased 3.9% on the corresponding period of 2016, with 1.5% growth in commercial lines.

Suncorp’s New Zealand profit improved 81% to $67 million. New Zealand general insurance GWP increased 7.6%.

New Zealand CEO Paul Smeaton says the improved result is due to strong growth and the absence of major disasters following the previous year’s earthquake-affected result.

The general insurance business delivered profit of $NZ50 million ($46 million), with premium increases, strong unit growth and strong claims management offsetting increased reinsurance premiums and claims cost inflation, particularly in motor insurance.

Allianz names broking team state bosses

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Allianz GM Broker Distribution Glen Drinnan has named new managers for the group’s broker and agency distribution team.

Shane Risby is Queensland State Manager, Paul Riordan is NSW State Manager, Rob Funnell is Victoria State Manager, Maria Rossi is SA State Manager and Sarah Kempton is NT State Manager. Kate Stebbings has been appointed National Manager Genesis.

“The new leadership team will be meeting shortly to develop new state structures that continue to combine both existing corporate and commercial teams,” Mr Drinnan said.

Allianz says Craig Robson, an integral part of the commercial business, and Peter Stewart, who led the southern region corporate business, have left to pursue other opportunities.

Ebix co-founder sets up IT consultancy

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Former Ebix Australia COO Simon Agar has left the insurance technology provider to start a consulting business.

Sydney-based Risk IT will provide advice on information technology in the financial services sector, with a focus on insurance.

Mr Agar told insuranceNEWS.com.au his 24-plus years at Ebix Australia, which he co-founded, have equipped him to succeed in the new venture.

“I have had a long and fascinating journey with Ebix,” he said. “It gave me the opportunity to work with some of the best minds in the insurance industry.”

Mr Agar has worked on projects with brokers, insurers, premium funders and related partners, covering areas such as broking and agency systems, ecommerce, partner interfaces, online products and payment gateways.

Most recently he oversaw the Ebix placement platform project for Lloyd’s in London.

“I created Risk IT because I saw an opportunity to provide independent advice on improving business processes using global-leading, industry-specific practices and technology platforms,” Mr Agar said.

“I think there is an enormous opportunity to help drive improved client service, revenue and profitability through ensuring systems are optimised and fully utilised and remain relevant to the business and their customers.”

CBL to ditch French business

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CBL Corporation is reviewing all “exit options” for its French construction insurance business and seeking legal recourse from the business’ vendors just over a year after sealing the €94.5 million ($149 million) purchase.

The specialty insurer’s decision to abandon Securities and Financial Solutions (SFS) Europe follows a strategic review showing it consumes a high level of capital for a long time and involves significant estimations of future claims by independent actuaries.

“Although profitable… the board considers the level of estimations and the potential for adjustment presents a disproportionate level of a risk for the wider business of the group,” the New Zealand insurer said last week.

“CBL is currently appointing advisers to run this process on its behalf… all exit options are being considered.”

One option involves a sale of the insurance book and the distribution and operational networks of the managing general agents, European Insurance Services and SFS, on a going-concern basis.

The exit process is expected to take up to 90 days. CBL will cease writing new French construction business from next month and renewals will end from June.

CBL has triggered its legal rights against the vendors of SFS under the purchase agreement and, alongside other potential remedies, has recourse to $NZ40 million ($37.2 million) to recover against its balance sheet.

In a separate statement, CBL says incoming COO Suzanne Tindal will not take up the position this month, as was announced last November. A mutual agreement to terminate the appointment is attributed to the “events taking place”.

The insurer will provide more details about a planned capital raising and information on the French exit when its full-year results are released on Tuesday next week.

CBL also faces regulatory concerns after the Reserve Bank of New Zealand reviewed information provided to assess adequacy of reserves for the French business. The regulator issued a number of directions, including setting the insurer’s minimum solvency at 170%.

The Central Bank of Ireland has also directed CBL Insurance Europe to strengthen its capital base, reserves and reinsurance security.

Trading of CBL shares in New Zealand and Australia has been suspended at the company’s request since February 2.

QBE splits off Asia-Pacific, Latin American results

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QBE will separately report results from its Asia-Pacific and Latin American operations in its annual earnings release next Monday.

It follows the decision announced last August to separate the emerging markets division and revert to the two regional segments, after a blowout in the combined operating ratio.

The insurer is reviewing the Latin American operations, with some analysts saying a sale is likely.

Asia-Pacific underwriting profit was $US27 million ($34.3 million) in 2016, and Latin America posted a $US21 million loss ($26.7 million), according to historical results released to reflect the new structure.

General insurance shines for iSelect

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iSelect’s general insurance business enjoyed strong revenue growth in the half-year to December 31.

The comparator does not give individual figures for its general and life insurance businesses, preferring instead to combine their results.

But it says the underperforming life business dragged on overall insurance earnings, with operating revenue down 11% to $12.8 million. Earnings before interest, taxation, depreciation and amortisation were $1.9 million, down 24% on the corresponding period in 2016.

“We have gained positive momentum in our general insurance business, launching pet insurance, travel insurance and, more recently, relaunching the home and contents insurance business to be a fully integrated end-to-end solution, enabling us to provide our customers with a seamless experience,” iSelect says.

“This has resulted in increasing lead volumes in the general insurance business, with an aim to capitalise on this in the second half of the year in the growing general insurance market.”

The comparator, which also now operates as a “digitally enabled broker”, says overall net profit fell 81% to $478,000.

It blames the plunge on factors including higher marketing investment in digital channels and stable overheads, and investment to support back-end and customer-facing technology.

Whitbread moves ahead with new CEO, Chairman

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Whitbread Insurance Brokers has started the year with a new CEO and Chairman following its $95 million acquisition by Steadfast in December.

Michael Giansiracusa has taken over as CEO after holding senior roles in both general and life insurance since joining the group in 2002. Previous positions included broking operations manager of the commercial division and GM corporate partnerships.

Industry identity Gary Seymour, a former Willis Australia MD and CEO of Macquarie Premium Funding and PSC Insurance Group, has taken over as Chairman from Angela Whitbread.

John Paul Whitbread, previously joint CEO with his sister Claire, will take up a non-executive role on the board.

Mr Giansiracusa says Steadfast’s ownership offers wider opportunities for the business.

“We have a new owner that is prepared to invest and grow us nationally, so it’s an exciting future for the staff and our clients,” he told insuranceNEWS.com.au.

The Whitbread management team also includes GM Broking Ben Bowen, Finance GM Jenny Rodgerson and GM Strata Lia De Sousa.

Zurich-backed insurtech start-up ‘well received’

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Former QBE senior executives Colin Fagen and Blair Nicholls have teamed up to establish a new underwriting agency aimed at bringing personal lines back to brokers.

As reported in a Breaking News bulletin last week, Blue Zebra, which is underwritten by Zurich, intends to be “a new breed in insurance” that will help brokers compete with direct players.

Its insurtech platform will use smart technology, Big Data and product bundling in home, motor and landlord insurance. Blue Zebra says it will make personal lines efficient for brokers again, and tackle the “advice deficit” in Australia.

Zurich CEO General Insurance Raj Nanra told insuranceNEWS.com.au brokers will welcome the proposition.

“The soundings we’ve already taken indicate this will be the case,” he said. “It will give brokers another string to their bow and they’ll be able to present an end-to-end solution to their clients, in one bundled package.”

Mr Fagen was Group COO of QBE until he left the company a year ago. He had previously led its Australian and New Zealand operations.

Mr Nicholls was chief actuarial officer and head of reinsurance before joining Berkshire Hathaway Insurance as its Australia and New Zealand CEO – a role he left in July 2016.

“We see an opportunity for differentiation in the market and to support intermediaries,” Mr Fagen told insuranceNEWS.com.au. “Most insurers have channel conflict, but all of our focus and investment will be in the intermediary market.”

SME products will be introduced shortly after personal lines.

The company has invested heavily in technology, and Mr Fagen says it intends to stay “lean and nimble” so it can compete on price.

“We believe we can write tens if not hundreds of millions of dollars worth of business with less than 20 people.”

Mr Fagen is Blue Zebra’s MD, while Mr Nicholls is CEO.

Stephen Jeffery has moved from IAG to become Chief Underwriting Officer for personal lines, while Mark Polglase left QBE to take up the equivalent role for SME. Former Berkshire Hathaway Insurance Australia COO Matt Hodson is COO.

The new offering will be piloted with a small number of brokers before a broader rollout, with the final launch subject to regulatory and licensing approvals.

Aon names new Australian chief

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Aon Risk Solutions Australia says James Baum will take over as CEO in the second quarter from Lambros Lambrou, who will move into a broader role with the global business.

Mr Baum is currently Commercial MD and Aon Broking Pacific Chairman, and has been an insurance broker for more than 20 years.

He joined Aon in 2005 and has worked in every facet of the placement business, the company says.

As reported in a Breaking News bulletin last week, Mr Lambrou will move to his new role in the second quarter after heading the Australian business since late 2013.

The company says CFO and Aon Pacific COO Bill Hooper will also represent the Pacific region on the global Aon Risk Solutions operating committee, adding to his current responsibilities.

Mr Hooper will work closely with Mr Baum, the company says.

Before moving to Australia, Mr Hooper was Aon Asia-Pacific CFO based in Hong Kong, where he oversaw businesses in 20 countries, including five joint ventures.

Insurance Advisernet hails ‘fantastic’ first half

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Insurance Advisernet Australia says gross written premium from its local and New Zealand business passed $500 million in the half-year to December 31, up more than 12% on the corresponding period of 2016.

Premium rate rises of 5-7% were among the drivers of its strong performance.

“We are very optimistic – we have had a fantastic first six months of the financial year,” MD Shaun Standfield told insuranceNEWS.com.au.

The long-term prospects are good, he says.

“Pleasingly, a number of our advisers have put on new staff members over the past 12 months and we have also put on 17 new authorised representatives, which are starting to generate income,” Mr Standfield said.

“And, by all reports, there is an excellent pipeline of opportunities in the next six months and beyond.”

McLardy McShane fills Group GM position

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McLardy McShane COO Meg Long has been appointed Group GM with immediate effect.

She joined in July 2014 as GM of Empire Insurance Services, the Melbourne brokerage’s financial services licence-holding company, before becoming COO the following year.

Meanwhile, Nick Brown has been confirmed in the role of Group CFO. He and Ms Long will report to CEO Don McLardy.

Tower predicts $5 million hit from storms

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New Zealand general insurer Tower expects the financial impact from recent weather events to be about $NZ5 million ($4.65 million) after tax.

New year storms are expected to cost $NZ1.4-$NZ1.8 million ($1.3-$1.67 million) after tax from about 300 claims, while Ex-Cyclone Fehi is estimated to cost $NZ2.2-$NZ3.2 million ($2.04-$2.97 million) after tax from 150 claims.

It is too early to calculate damage from Tropical Cyclone Gita, which has passed through Samoa, American Samoa and Tonga and could still affect Fiji.

Tower has a non-catastrophe reinsurance program under which it absorbs the first $NZ7 million ($6.5 million) of pre-tax losses and reinsurance covers the next $NZ10 million ($9.3 million), up to $NZ5 million per event.

Weather event costs in New Zealand may have already reached $NZ7 million.

Should damage from Gita exceed $NZ5 million, Tower may be exposed to a further $NZ3.5 million ($3.25 million) after tax, prior to catastrophe cover commencing.

The insurer retains full catastrophe cover of $NZ798 million ($742.25 million) with appropriate back-up cover.

XL Catlin rolls out new A&H offering

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XL Catlin has introduced its Protect and Assist product to Australia, designed to help businesses cover staff amid emerging risks and heightened security threats.

The accident and health offering provides global coverage and combines comprehensive personal accident and corporate travel insurance, backed by a range of support and response services. It is designed to reduce pre-travel risks, provide assistance when needed and give insurance cover when things go wrong at home or abroad.

Clients can build their own solutions by selecting core and optional services and coverage.

“We believe Protect and Assist is an innovative proposition in the Australian market, and it will change the way brokers and clients view accident and health insurance,” Country Manager for Australia Robin Johnson said.

CFO leaves Genworth

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Luke Oxenham has resigned as CFO of Genworth Mortgage Insurance.

CEO and MD Georgette Nicholas has thanked Mr Oxenham for his contribution over nearly six years in the role.

Genworth Director Capital and Reinsurance William Milner will become Acting CFO until a replacement is found.

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Regulatory & Government

Shipton flags talks on ASIC ‘toolkit’

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Australian Securities and Investments Commission (ASIC) Chairman James Shipton has highlighted the importance of the regulator’s work on misconduct issues, in his first appearance before the Parliamentary Joint Committee on Corporations and Financial Services.

“For there to be appropriate accountability in the regulatory framework, penalties must be appropriate and ASIC’s enforcement toolkit should be as complete as possible,” he said.

“I look forward to further discussions about these issues following the release of the Enforcement Review Taskforce’s report.”

Mr Shipton, who began a five-year tenure this month, says every cent in the financial system is “other people’s money”.

“We must never forget that financial risks can, and often are, catastrophic to real people and can, at an extreme, cause human suffering,” he said.

Mr Shipton also highlighted ASIC’s work lifting professional, ethical and competency standards among financial planners, and the regulator’s involvement in the parliamentary committee’s current inquiry into the life insurance sector.

Data breach reporting regime starts this week

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New data security laws come into effect on Thursday, making it mandatory for companies with an annual turnover of at least $3 million to report breaches to affected individuals.

The Notifiable Data Breaches scheme also applies to most government agencies and non-profit bodies.

Breaches must be reported to the Office of the Australian Information Commissioner.

Specialist cyber risk insurer Emergence Insurance has urged businesses to review their security procedures.

“You’re only as safe as your weakest link,” Head of Underwriting and Product Development Jeff Gonlin said. “A cyber insurance policy is part of every successful business’ risk management framework.

“Cyber insurance is not the first line of defence; it is designed to protect a business when its IT security, policies and procedures fail to stop an attack.”

Distribution draft bill ‘may harm consumers’

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Product design and distribution draft legislation is poorly designed for insurance and may disadvantage consumers and brokers, according to industry submissions.

The Insurance Council of Australia (ICA) says the new rules may reduce rather than increase the likelihood of consumers buying cover suitable for their needs.

“We fear this will be accompanied by consumers having to face both more complex processes when buying and renewing policies, and higher premiums because of greater compliance costs,” its submission says.

The legislation requires suppliers to make “target market determinations” about who would buy their product, and requires distributors to sell to the identified segment.

The aim is to ensure people buy products that meet their needs, preventing mis-selling.

ICA says the draft bill sometimes operates at too generic a level, while at other times it is too prescriptive.

It calls for the Government to delay introduction of the bill until issues are resolved.

“The variability, as between consumers and for any individual consumer across time and life circumstances, requires general insurers to offer a range of product offerings,” ICA says.

The National Insurance Brokers Association warns there is a lack of clarity about the level at which the target market should be identified, creating compliance risk for insurers, their agents and others.

“How would it work where the product has various options that may or may not be appropriate for various sub-classes?” it says.

The association says the new rules may also cause problems with broker best-interests obligations when providing personal advice.

“If it is in the client’s best interests to purchase a particular policy but the client does not fall within the target market for that policy as set out in the target market determination, which statutory duty does the insurance broker breach?”

Canberra lifts AFCA payout caps

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Brokers have had the compensation cap for disputes raised from $174,000 to $250,000 by the new Australian Financial Complaints Authority (AFCA).

The Federal Government’s financial services super-ombudsman will start handling disputes no later than November 1, and its scope around insurance-related cases has been widened.

Apart from the compensation cap for general insurance broker disputes being raised to $250,000, the AFCA transition team has decided the cap on uninsured third party motor vehicle claims increases will rise from from $5000 to $15,000 and the cap on income stream insurance product disputes from $8300 to $13,400 per month.

“AFCA will provide a one-stop shop to ensure consumers get a fair deal in resolving disputes with banks, insurers, super funds and small amount credit providers, without the expense, inconvenience and trauma associated with going to court,” Minister for Revenue and Financial Services Kelly O’Dwyer said.

The Government is seeking a proposal for a non-profit company to run the scheme, and the closing date for submissions is March 15.

Proposals must show how the scheme will meet the authorisation set out in the legislation, which is to provide a fair, independent, accessible, accountable, efficient and effective dispute resolution service for consumers and the financial services industry.

The Australian Securities and Investments Commission will retain direct oversight of the Financial Ombudsman Service and Credit and Investments Ombudsman in the interim.

The Insurance Council of Australia has welcomed AFCA, calling it a win for all.

CEO Rob Whelan says a “service that seeks to resolves disputes in a timely, efficient manner is a positive move towards consumer and small business protection”.

Financial Ombudsman Service Chief Ombudsman Shane Tregillis says AFCA will “simplify, strengthen and increase access to free external dispute resolution”.

NSW reviews specialised insurance licensing

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The NSW State Insurance Regulatory Authority (SIRA) is reviewing the specialised insurance licensing framework and is seeking public feedback.

SIRA says the review aims to develop a smarter, risk-based model that aligns with recently introduced licensed insurer regulatory guidelines, while enhancing customer outcomes.

The framework includes specialised insurance licensing policy, standard licence conditions, general information requirements and S189 business information requirements.

SIRA will consider feedback when finalising and issuing revised licensing documentation, before initiating a staged transition to move specialised insurers to the new framework.

For copies of the draft licensing framework or more information, email consultation@sira.nsw.gov.au. The closing date for submissions is March 16.

WA plans new workers’ comp legislation

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The WA Government has approved a draft bill to modernise its workers’ compensation legislation.

Amendments to the Workers’ Compensation and Injury Management Act include implementing lifetime care and support arrangements for catastrophically injured workers.

“The current Act has only been amended on a piecemeal basis since it was adopted in 1981, and it’s unwieldy for stakeholders who use and apply it,” Commerce and Industrial Relations Minister Bill Johnston said.

Public consultation will occur before the draft legislation is introduced into the WA Parliament.

ICWA opens neurotrauma research grants

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Applications are open for two Insurance Commission of Western Australia neurotrauma research grants worth $100,000 each.

The commission has partnered with the Neurotrauma Research Program at the Perron Institute for Neurological and Translational Science to co-ordinate the research. 

It is the second year the commission has funded studies to improve rehabilitation for people with catastrophic injuries.

Neurotrauma researchers in WA can apply with projects focused on increasing the independence of people with acquired brain or spinal cord injuries, improving functional recovery through rehabilitation, and repairing and regenerating central nervous system tissue.

The commission is also interested in projects that develop therapeutic interventions, reduce physical and psychosocial burdens on care-givers and lower costs for insurers.

Commission Secretary Kane Blackman says the program may help reduce the more than $1 billion in “claims costs and outstanding estimates for care” recorded last year.

Applications must be submitted by 5pm (WA time) on Monday March 19 for research projects starting from July 1.

For more information or to apply, click here.

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Life Insurance

Suncorp weighs options as life profits improve

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Suncorp has yet to decide on the future of its life insurance business, which reported a sharp rise in net profit for the six months to December 31.

CEO Michael Cameron says strategic alternatives including a partnership, sale or reinsurance are being explored.

“Pleasingly, optimisation of the Australian life insurance business is progressing well,” he said. “The focus is on providing great customer outcomes and delivering better returns for our shareholders.”

The business increased after-tax net profit to $30 million from $11 million in the corresponding period of 2016. When measured on an underlying basis, net profit grew 56% to $39 million.

Total annual inforce premium increased 0.9% to $808 million, but total new business fell 3% to $32 million. Planned margins improved 33.3% to $12 million.

AustralianSuper cuts premiums, joins code

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AustralianSuper is reducing average premiums on various life insurance covers by up to 20% from May, meaning fund members will pay $100 million less for group policies.

Death cover premiums will fall an average of 14%, total and permanent disability 6% and income protection 20%.

“This premium reduction for the industry division will benefit the overwhelming majority of members and no member will have a premium increase,” Group Executive of Membership Rose Kerlin said.

AustralianSuper has also signed on to the voluntary Insurance in Superannuation Code of Practice, which starts on July 1.

Challenger annuity sales edge up

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Challenger says first-half annuity sales grew 4.3% to $2.3 billion after the previous corresponding period was lifted by changes to the age pension taper rate.

Fixed-term annuity sales grew 13.7% to $1.87 billion, while lifetime sales declined 23.8% to $422.3 million.

The annuity book grew by $800 million, or 69%, on the previous corresponding period, driven by increased sales and a reduced level of maturing annuities.

Challenger says about 15% of the book matured in the first half, with the rate set to decline to 10% in this half due to the continued focus on long-term sales.

CEO Brian Benari says sales in Japan through a relationship with Mitsui Sumitomo Life Insurance contributed 17% of Challenger Life’s annuity sales in the half.

Overall net profit for the company fell 3% to $195 million.

Centrepoint fills CEO position

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Angus Benbow has been appointed CEO of Centrepoint Alliance, replacing Soula Cargakis, who was interim CEO after John de Zwart departed last November.

Ms Cargakis will resume her role as Distribution and Marketing Executive.

Before joining Centrepoint, Mr Benbow was CEO of Shadforth Financial Group, which he led through significant change after it acquired IOOF in 2015.

He has also held senior positions at Perpetual, including GM wealth solutions and private wealth, and most recently transformation and integration director.

ASIC website spells out professional standards reforms

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The Australian Securities and Investments Commission website now features a section keeping financial advisers abreast of incoming professional standards requirements and other related information.

The new requirements were introduced last March and aim to lift education, training and ethical standards in the financial advice sector.

The site includes information on obligations for advisers, scope of reforms, start dates for reforms and compliance schemes for the code of ethics. To access the section, click here.

CFP numbers rise to global record

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The number of Certified Financial Planners (CFPs) has risen 3.2% worldwide, the Financial Planning Association (FPA) says.

The Financial Planning Standards Board – the global CFP licensing body – has reported an additional 15,726 certified professionals, bringing the total to a record 175,573.

FPA CEO Dante De Gori says Australia now has a network of 5702 CFPs.

“The continued growth of the CFP designation provides a larger pool of highly competent and ethical financial planners,” he said.

“The CFP designation is the only financial planning designation recognised worldwide that requires financial planners to adhere to world-class professional and ethical standards.”

JVs the way forward for advisers: Bombora

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Joint ventures and other alliances are the future of the advice industry, according to dealer group Bombora.

MD Wayne Handley says, in light of reforms to the Life Insurance Framework, the specialised risk advice model of the future will be underpinned by “working collaboratively with complementary service providers”.

He says this “can only enhance client outcomes. At the same time, the benefits of scale and operational efficiency can be considerable. As a new era dawns, more than ever it is important to develop meaningful and sustainable relationships with fellow professional service providers.” 

Mr Handley cites recently formed joint ventures between Bombora NSW practice MBS Insurance and accountant Pitcher Partners Sydney, and Honan Insurance Group with HLB Mann Judd.

Bombora is in talks about joint ventures with a number of other businesses and will make announcements shortly. “The model is resonating,” Mr Handley said.

He also flags the benefits of specialisation and attracting new talent to the industry by establishing academic and professional development pathways similar to those in the legal, accounting and engineering sectors.

Specialisation will drive a more innovative approach to delivering advice, he says.

Educational council chief steps down

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Mark Brimble has resigned as Chairman of the Financial Planning and Educational Council following the Financial Adviser Standards and Ethics Authority’s decision to adopt the council’s framework and course approval list.

Deputy Chairman Sharon Taylor will act in the role until a replacement is appointed.

Financial Planning Association (FPA) Chairman Neil Kendall has thanked Dr Brimble for his “outstanding contribution” since his appointment in November 2013.

“In this volunteer role, Mark has guided the development of a world-leading university curriculum for bachelor degrees in financial planning,” Mr Kendall said.

Dr Brimble was responsible for establishing the Financial Planning Research Journal and a research grant to support academic studies in financial planning.

The Financial Planning and Educational Council was established by the FPA in 2011 as an independent body tasked with raising the standard of financial planning education and promoting financial planning as a distinct learning area and career choice.

AIA backs chronic pain education program

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AIA Australia has formed a partnership with Pain Revolution, a community program that helps chronic pain sufferers.

Last year pain scientists and clinicians rode bikes from Melbourne to Adelaide in the inaugural Pain Revolution Ride, making stops to spread the word on pain science with five regional communities.

The cyclists were on the road for seven days and hosted eight educational events, and raised $80,000 for development of the Local Pain Educators network.

Each year about 5 million Australians suffer chronic pain – whereby, after damaged tissue has healed, the brain continues to register pain because it has learned to be overly protective.

This year’s Pain Revolution Ride will visit communities between Sydney and Albury, raising money to train local health professionals as “pain educators”.

AIA Australia Chief Group Insurance Officer Stephanie Phillips says the partnership is important given a significant number of the insurers’ customers suffer chronic pain.

“We see supporting Pain Revolution as a real shared-value opportunity – tackling chronic pain and finding a new, effective path to recovery not only has potential benefits for our own claimants, but for society and the millions of Australians suffering this condition,” she said.

To learn more, click here.

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The Professional

NIBA award deadline draws near

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Nominations for the National Insurance Brokers Association annual awards close on February 28.

The insurance broker of the year category is sponsored by QBE and sees regional finalists vie for the Stephen Ball Memorial Award. The young professional broker prize is sponsored by Vero and involves regional winners competing for the Warren Tickle Memorial Award.

For more information and to nominate, click here.

AIG appoints new Queensland manager

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Lorelle Hillman has been appointed GM Queensland at AIG, replacing Adam Stewart.

Ms Hillman has been with the insurer for the past 10 years, most recently as client relationship manager and national public sector practice leader.

Before joining AIG she was a business development manager at Lumley and worked at Aon in London.

BHSI NZ manager takes up Melbourne posting

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Berkshire Hathaway Specialty Insurance (BHSI) Marine Manager Mark Dixon has moved to Melbourne after spending two years in New Zealand building the company’s marine business.

“[His] role will see him further developing BHSI’s presence within the Australian market, with a focus on marine cargo and stock throughput,” Head of Marine Dimitry Zilberud said.

Mr Dixon will work closely with Barton Phillips on the transport and logistics segment.

Meanwhile, BHSI has hired Anthony Prindiville as Manager Casualty WA and Mark Shepard as Senior Property Underwriter, as operations begin in WA.

Mr Prindiville joins from Chubb and will start next month. Mr Shepard, who joined BHSI at the end of last month, was also previously with Chubb.

Actuaries Institute promotes deputy to top job

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Elayne Grace has been appointed CEO of the Actuaries Institute, replacing David Bell who resigned late last year.

Ms Grace was previously the institute’s deputy CEO and has been Head of Public Policy since 2013.

President John Evans says Ms Grace has a proven record of promoting the actuarial profession and the institute.

She has delivered key position papers on issues such as mental health, Big Data disruption, healthcare funding and retirement, and has led the institute’s involvement in the Financial System Inquiry and other inquiries by national regulators.

QBE Foundation unveils charity partners

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QBE’s charitable arm, the QBE Foundation, has announced new partnerships with Mission Australia and KidsCan New Zealand.

It will also continue partnerships with Assistance Dogs Australia, Brainwave, Foodbank, the Kids’ Cancer Project, the McGrath Foundation, the Women’s Justice Network and Jawun.

Partners are given a one-off cash donation and a year-long commitment of support.

The Kids’ Cancer Project supports the QBE Foundation Young Researchers Fellowship, which aims to increase treatment options for rare childhood cancers. This year’s research will focus on diffuse intrinsic pontine glioma, for which there is no effective treatment.

The foundation has also selected suicide prevention charity R U OK? as a community partner.

COO Bettina Pidcock, who takes over as foundation chairman from Chief HR Officer Sally Kincaid, says QBE is particularly proud to continue working with Jawun, through which corporations help Indigenous people develop skills for the business world.

“This partnership sees our people join with communities of First Nation Peoples around Australia, in locations from Redfern to Cape York and the Kimberley, to share their skills and help build capabilities,” she said.

“Along with bringing lasting, material and immeasurable improvements to the lives of Indigenous people, our people have reported experiences that are humbling and inspiring.”

Perth to host disaster resilience conference

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The inaugural Australian Disaster Resilience Conference will be held in Perth from September 6-7.

Organising body the Australian Institute for Disaster Resilience says local government, community groups, non-government bodies, non-profits, research groups, education partners and the private sector are expected to attend.

“Resilience is about how we can understand, live with, manage and adapt to a world of increasing change, uncertainty and surprise,” the institute says.

“The conference will provide a premier opportunity to achieve effective and meaningful partnerships and further strengthen co-operation by engaging with disaster resilience thinking and practice across multiple activities and scales.”

Today is the closing date for abstract submissions, which can explore risk reduction strategies, the economics of disaster resilience and building resilience, among other subjects.

For more information, click here.

FMA awards open for nominations

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This year’s Floodplain Management Australia (FMA) Excellence Awards are now open.

The program recognises outstanding contributions from FMA organisations and individuals around land use planning, reducing flood impacts, managing floods or restoring affected communities.

The awards are split into two categories: the FMA-NRMA Insurance flood risk management project of the year, and the FMA-Allan Ezzy flood risk manager of the year.

Nominations close on April 6. For more information, click here.

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International

Insurtechs draw record investment

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A record $US2.1 billion ($2.64 billion) of venture capital was invested in insurtechs last year, while the number of deals hit a new high of 247, according to KPMG.

Overall funding for fintech, which incudes insurtech, blockchain and other financial technology services, passed $US31 billion ($39 billion) last year.

Growing interest in regtech, artificial intelligence and the Internet of Things is expected to keep the flow of investments strong this year.

“Corporate investors are expected to remain active as they seek out partnerships and opportunities to expand into adjacencies,” KPMG says in its Pulse of Fintech Q4 report.

Insurtech offerings matured significantly last year, from advances in automation to the evolution of personalised insurance, as seen by the growth of telematics-based motor insurance.

KPMG says Trov, in which Suncorp has invested, is further developing and expanding its value propositions.

“[This year] insurtech is expected to hit its stride in terms of investment,” the report says.

“Traditional insurance companies are expected to take innovation up a notch, while blockchain consortiums are expected to expand and further develop and test specific-use cases.”

Ethnic minorities ‘quoted more for UK car cover’

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People with names common among ethnic minorities have been quoted more to insure their cars in the UK, according to two media investigations.

Last month the Sun newspaper claimed motorists were asked to pay more for cover if their name was Mohammed than if they were called John.

In response, BBC radio’s You and Yours program checked five leading comparison sites and found “Muhammad Khan” was quoted on average £140-£280 ($248-$496) more than a white BBC producer. A woman using the surname Khan also produced some higher quotes.

The radio program varied its testing methods by changing its IP address and home address, and in most cases the name Muhammad Khan still showed higher prices.

The Association of British Insurers says it is “unlawful and unacceptable to price insurance based on ethnicity, and insurers will always act within the law”.

The Financial Conduct Authority says it expects insurers “to ensure they are not indirectly discriminating against certain groups of people without legitimate reason”.

The regulator is now investigating how insurers determine prices.

Nat cat record drags down Allianz profit

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Allianz has reported a 2.3% decline in net profit for last year, with CEO Oliver Bate blaming the industry’s “costliest natural catastrophe year”.

Accounting changes from the one-off impact of US tax reforms and the sale of bank subsidiary Oldenburgische Landesbank were other contributing factors to the net profit falling to €6.8 billion ($10.7 billion).

Operating profit increased marginally to €11.1 billion ($17.4 billion) from €11.06 billion ($17.3 billion). Claims from California wildfires, hurricanes and other natural catastrophes totalled about €1.1 billion ($1.73 billion) last year, up from €700 million ($1.1 billion).

Allianz’s property and casualty (P&C) business was affected by these huge claims, with operating profit falling 7.5% to €5.1 billion ($8 billion), while the combined operating ratio weakened to 95.2% from 94.3%.

P&C gross written premium increased to €52.3 billion ($82 billion) from €51.5 billion ($80.77 billion).

The Australian P&C unit made an operating profit of €342 million ($536 million), down 4.2%, while the combined operating ratio deteriorated by 0.3 percentage points to 93.9%.

The German insurer is aiming for an operating profit of €11.1 billion ($17.4 billion) this year, plus or minus €500 million ($785 million).

New accounting standard ‘has minimal’ impact

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General insurers are less affected than their life counterparts by the new accounting standard IFRS 9, which took effect at the start of this year, according to Fitch Ratings.

There will be a “moderate increase in volatility of investment income”, but the overall impact is likely to be manageable because the bulk of insurers’ investment portfolios are fixed-income-type securities.

The International Accounting Standards Boards introduced IFRS 9 in 2014 to replace IAS 39.

Financial assets and liabilities are now measured at fair value as a starting point, and gains or losses treated as fair value through profit and loss.

“The impact on the income statements of life insurers is likely to be greater, due to their higher exposure to non-fixed-income investments compared with non-life insurers,” the ratings agency says.

“Non-life insurers have simpler, lower-yielding and highly liquid investment portfolios in short-term instruments to match their short-tail liabilities.

“Therefore, the impact of IFRS 9 on their financial statements is likely to be minimal, because asset liability management is less crucial.”

Arch Capital fights back with strong Q4

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Bermuda-based Arch Capital rebounded from a catastrophe-affected third quarter to post a stronger earnings result in the final three months of last year.

Net profit grew to $US203.5 million ($256.5 million) in the quarter to December 31, compared with $US62.4 million ($78.6 million) in the corresponding period of 2016.

Gross written premium (GWP) rose 25.7% to $US1.4 billion ($1.8 billion), lifted by gains in the mortgage business. GWP from the insurance segment increased 8.5% to $US767.5 million ($967.4 million) and reinsurance GWP grew 4.6% to $US289.3 million. ($364.6 million).

The group’s combined operating ratio improved to 86.3% from 90.2%. Net investment income grew 42% to $US99.6 million ($125.5 million).

Full-year profit declined to $US566.5 million ($714 million) from $US664.7 million ($837.8 million) in 2016 after the third-quarter result was hit by a “significant level” of catastrophe events.

ISO enhances risk management standard

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A risk management standard has been overhauled amid threats to reputations and brands from cyber crime, political risk, terrorism and other sources, the International Organisation of Standardisation (ISO) says.

The clearer, shorter and more concise version of ISO 31000 Risk Management – Guidelines has reviewed the principles of risk management and includes a focus on leadership. The standard places a greater emphasis on creating and protecting value and features principles such as continual improvement and consideration of human and cultural factors.

“The revised version of ISO 31000 focuses on the integration with the organisation and the role of leaders and their responsibility,” technical committee chairman Jason Brown said.

“Risk practitioners are often at the margins of organisational management and this emphasis will help them demonstrate that risk management is an integral part of business.”

Risk is defined as the “effect of uncertainty on objectives”.

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Analysis

Claims shape as battlefield in contract dispute

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Insurers may have a tough time fighting plans to extend unfair contract terms to the industry, with claim rejections providing an easy target for campaigners for change.

The Consumer Action Law Centre last week released a report that plays to the worst public perceptions of insurance and the less-than-stellar reputation the industry sometimes struggles to rise above.

The report – called Denied: Levelling the Playing Field to Make Insurance Fair – presents case studies in which consumers have been hard-hit by claim rejections, and makes the case that the sector should no longer be excluded from unfair contract term provisions that apply elsewhere.

In one example a women’s car is stolen and damaged but the insurer denies the claim because the thief is aged under 30 and her policy doesn’t cover young drivers.

In another “Sally” buys a 12-year-old car and has warranty insurance added to a loan without her knowledge. Her claim is denied after various issues with the car emerge, because the virtually useless policy excludes pre-existing defects and wear and tear.

One case features a traveller who books a holiday to celebrate recovering from cancer but is refused a payout when the trip is cancelled after cancer is diagnosed elsewhere, in a result a specialist says is unexpected and unpredictable.

The report says its examples show insurers can apply policy terms in ways that have perverse, unfair outcomes that are often not intuitive. Protections including utmost-good-faith obligations are inadequate and it often appears difficult for an individual to get a result without a lawyer.

“The duty of utmost good faith is about candour, not community expectations of fairness – it doesn’t go to the heart of the power imbalance between insurers and their customers,” law centre CEO Gerard Brody says. “It does nothing to assure someone that they’re getting a fair deal when they buy an insurance policy.”

Groups including the law centre, Choice, the Financial Rights Legal Centre and the regulator, the Australian Securities and Investments Commission, have backed extending unfair contract provisions to insurance contracts.

The Senate committee inquiry into general insurance recommended legislative changes to remove the exemption for general insurers, and the Government anticipates releasing proposals early this year.

Such a move has long been fought by insurers, which are nevertheless in discussions with various groups about the issues raised.

“We have long held that there are very ample protections for consumers under the existing legislation,” Insurance Council of Australia (ICA) CEO Rob Whelan told the Senate inquiry. “The Insurance Contracts Act offers many remedies for consumer protections already.”

The industry is “already in advance” of unfair contract laws and it would be unnecessarily bureaucratic to add another layer, he says.

Unfair contract terms laws were introduced in 2010 covering most consumer areas, leading to changes in industries such as telecommunications, retailing and banking.

The law centre says the legislation has had a significant impact, with industries moving to improve contracts so there is less chance of disputes arising. It hopes for the same effect in insurance.

“We are very interested in speaking with insurers about the contract terms we see are causing problems,” law centre Senior Policy Officer Susan Quinn tells insuranceNEWS.com.au. “They can get on the front foot here really – there is nothing preventing them or slowing them down.”

A bill to include insurance under unfair contract terms entered Parliament in 2013, but was not passed after an election was called. That version would likely fall short of current consumer group expectations.

“I think we have seen enough in recent years to come to the point where we need to start again and look more seriously at how effective the laws will be in the way they are drafted,” Ms Quinn says.

“We are in a different environment now.”

Issues to be considered would include how “subject-matter” is defined, so large swathes of policy clauses are not carved out, according to the law centre.

Insurers argued in a previous submission that extension of unfair contract terms could have significant negative implications for consumers and insurers.

They say uncertainty over whether a term that is needed to limit the insurer’s risk could be voided and  may lead to cost increases, higher premiums and diminished competition in risky segments.

ICA spokesman Campbell Fuller says the law centre’s paper does not address the fact that special provision has been made for the unique nature of insurance contracts in similar unfair contract term legislation in the European Union and New Zealand.

The industry continues to highlight potential repercussions from the detail of any proposal.

“Any changes to unfair contract terms protections need to be developed carefully and in close consultation with the industry, or they risk jeopardising customer experiences and adding unnecessary complexity to insurance processes,” Suncorp Insurance CEO Gary Dransfield says.

Nevertheless, there is strong pressure for the industry to address problem areas and the consumer campaign comes amid an increasing focus on financial services conduct.

“Many people lose out on their insurance because of unfair contract terms,” Mr Brody says. “And insurers are facing a big trust problem with Australians.”

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