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Lucky country told to brace for worse cat losses

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Despite experiencing its second-worst cyclone last year, Australia has been “relatively lucky” when it comes to natural catastrophes.

Swiss Re Property Treaty Underwriting Manager ANZ David Sinai believes “we have not seen the worst that Australian cyclones can serve up”.

Mr Sinai has drawn local insights from Swiss Re’s latest Sigma report, called Natural Catastrophes and Man-Made Disasters.

Total global economic losses from natural disasters last year were about $US330 billion ($425 billion), almost double the 10-year average. The US was hit by devastating hurricanes and fires, but in comparison Australia escaped lightly, as it has in other recent years.

“[Cyclones] Larry, Yasi, Marcia and Debbie have all managed to miss the largest population centres in the regions they affected,” Mr Sinai said. “A direct hit on Cairns, Townsville or Mackay would have resulted in much larger insured and economic losses.

“Our model shows a severe cyclone hitting the populated southeast of Queensland, though rare, has the potential to generate losses that are multiples of the losses we have seen since Yasi.”

The same applies to bushfires. The Tubbs fire in California caused almost $10 billion in losses and Mr Sinai believes that could easily be repeated here.

“Locally, Risk Frontiers has estimated there are more than 100,000 homes in Sydney exposed to high bushfire risk, being within 100 metres of the bushland interface,” he said.

“It is entirely plausible that 5-6% of these high-risk homes could be destroyed in a large bushfire event, roughly equalling the impact of the Tubbs fire.

“Swiss Re’s bushfire pricing tool generates losses of up to $7 billion.

“However, in light of the Californian experience, I am starting to think this number could be insufficient for worst-case scenarios.”

See ANALYSIS.

Lawyers pursue class action over combustible cladding

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Law firm Adley Burstyner and building inspector Roscon Property Services are building a class action against construction companies over losses caused by the use of combustible cladding in residential buildings.

Principal Lawyer David Burstyner told insuranceNEWS.com.au the losses may include premiums on house and contents insurance, which have increased dramatically for residents living in affected or potentially affected buildings.

It is not entirely clear which buildings are affected and which are not, he says.

Losses may also include the costs to residents of interim measures such as installing sprinkler systems, declines in property values and the cost of replacing combustible cladding.

Adley Burstyner is seeking expressions of interest from affected residents.

The firm is confident it has found a way to conduct the claim that does not require all benefitting owners’ corporations to comply with requirements in the Owner’s Corporation Act for a special resolution to pass with a 75% majority.

A large number of affected property owners are passive about the combustible cladding issue or don’t sit on the owners’ corporation committee, Mr Burstyner says. They are either too scared to take action or are ignoring the problem.

He says the class action is “the only recourse” left to owners. The Victorian Supreme Court has ruled the state’s building authority cannot force builders to rectify combustible cladding issues for occupied buildings.

Culture clash a ‘major challenge’ on innovation

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An industry analyst says fast-moving insurtechs and cautious insurers are still feeling their way towards working together on innovations.

“This is the major challenge I see in this space,” EY partner Andy Parton told insuranceNEWS.com.au. “Bringing these two different cultures together is like suits and jeans and getting those two things to work.”

EY and Insurtech Australia will launch their inaugural sector “ecosystem report” at the Australian and New Zealand Institute of Insurance and Finance’s Insurtech Conference in Sydney on May 2-3.

Mr Parton says the creation of Insurtech Australia was part of a significant expansion of the sector, growing from almost nothing over the past 12-18 months.

“What we wanted to do with this report is take a pulse on what that market looked like, in size and scale and focus, and also what is the sentiment of the insurtech companies out there in terms of what they are trying to achieve and how they are seeing that play out with the incumbent insurers.”

Mr Parton says start-ups, which are often still founder-funded, and major insurers face time pressures of different types.

Companies that embrace innovation and work with insurtechs to re-engineer their processes are likely to have good prospects over the next few years.

“Frankly, those that aren’t successful in doing that are going to be challenged and threatened.”

Insurtech Australia CEO Brenton Charnley says the focus remains on enabling rather than disrupting, with the local sector well placed to be a more significant global player.

“To do that we need to attract more investment, we need to move faster in trialling new technology and we need to deliver products that the customer ultimately values,” he said.

Incumbents often grapple with the “innovators’ dilemma”, where they face the fear of eroding what they have while moving in unproven directions.

Mr Charnley predicts insurance will change in coming years, with data and technology providing more dynamic and personalised products, which may include more unbundling of cover for specific assets.

Tasmanian insurer scores satisfaction hat-trick

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RACT Insurance has been named as generating the highest levels of customer satisfaction in the industry.

The Roy Morgan General Insurance Satisfaction Report gives the insurer a 93.5% satisfaction score, followed by Defence Service Homes Insurance on 91.1% and AMP at 90.8%.

About 79.2% of Australians are satisfied with their general insurance, down 0.4% from the previous year’s study.

RACT Insurance has won the Roy Morgan Customer Satisfaction Award for three consecutive years.

Scientists to study Kaikoura fault pattern

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New Zealand’s Earthquake Commission has engaged a structural geology expert from the University of Canterbury to study the mysterious effects of the 2016 Kaikoura quake.

Now regarded as one of the most complex earthquakes on record, the Kaikoura quake ruptured more than 17 active faults, while leaving other active faults in the area untouched.

Andy Nicol will lead a team of 14 researchers from the University of Canterbury, Lincoln University, GNS Science and Geoscience Australia.

Faults build up stress over time and rupture during an earthquake, with fault cycles developing over tens of thousands of years. Professor Nicol will compare cycles for some faults that ruptured in the Kaikoura quake with some that didn’t.

This will help create a picture of how faults behave and help forecast when they might rupture, possibly reducing the impact on people and property.

NZ brings in tougher asbestos laws

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Stricter laws to protect workers from asbestos took effect in New Zealand this month.

Companies, business owners or any “persons conducting business or undertakings” (PCBUs) that have management or control of a workplace must ensure there is a written asbestos management plan, which must contain information about the identification of asbestos and asbestos-containing materials, and decisions on the management of risk.

It must also detail who can carry out work involving the material, including training that has been provided or will be given, roles and responsibilities and health monitoring.

The changes are contained in the Health and Safety at Work (Asbestos) Regulations 2016, which took effect on April 4.

Businesses must keep the plans up to date.

The regulations apply if a PCBU knows or ought reasonably to know there is a risk of exposure to respirable asbestos fibres in the workplace.

Failure to comply could result in fines of up to $NZ10,000 ($9445) for an individual and up to $NZ50,000 ($47,227) for an organisation.

Gallagher Bassett-owned workplace health and safety group TriEx says companies must act to identify and manage asbestos risk.

“As the new… regulations begin to be enforced, it’s important to ensure businesses are performing their duties as a PCBU by then,” Asbestos Manager Rob Acutt said.

Tathra clean-up making progress

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Up to 20 properties affected by the Tathra bushfires in NSW last month have been cleared as recovery efforts continue, the Insurance Council of Australia (ICA) says.

ICA held a policyholder forum last week for householders and businesses to meet insurers and other stakeholders.

The event aimed to “reduce the chance of misinformation and misunderstandings, and provide clear, concise guidance that helps reduce stress and worry”, CEO Rob Whelan said.

NSW Premier Gladys Berejiklian has announced a clean-up package worth up to $10 million.

ICA says insured losses from the Tathra fires and recent Victorian bushfires add up to about $45 million.

What’s in Insurance News (the magazine)

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Financial Services Minister Kelly O’Dwyer was lost for words on television yesterday, so it’s fortunate she was a bit more forthcoming in an interview with Insurance News (the magazine).

Our latest edition, which will hit letterboxes over the next few days, features Ms O’Dwyer’s views on everything from insurance in northern Australia to the industry’s place in the economy.

You can also read about how the major local insurers are looking again at their growth strategies, how Lloyd’s is dragging its brokers and underwriters into the present and why SME buying habits are becoming more complex.

Meet leaders and thinkers from across the industry, check out the social scene and gather so much more from Insurance News (the magazine) – the industry’s largest and most popular news publication.

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Corporate

Doubts surround Cunningham Lindsey brand

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The future of the Cunningham Lindsey brand in Australia is unclear following completion of claims manager Sedgwick’s acquisition of the loss adjuster.

An official statement says the merger of the two US-based global companies will operate – with “select exceptions” – under the Sedgwick name.

Cunningham Lindsey regional CEO Damon Bennett told insuranceNEWS.com.au he cannot comment, and a US spokesman declined to confirm whether the Australian operation will switch to the Sedgwick brand.

Asked about the merger’s impact on staffing, the spokesman said: “There will be no changes in the Australian business.”

The acquisition brings the Sedgwick group’s headcount to more than 21,000 employees worldwide.

The global operation has about 6000 staff in 65 countries, while Sedgwick has about 15,000 in the US, Canada, the UK and Ireland.

Cunningham Lindsey in Australia was formed in 2009 from the acquisition of UK-based loss adjuster GAB Robins in all countries outside the US. There are now about 700 Cunningham Lindsey employees in Australia.

“The close of this transaction brings a wealth of talent to Sedgwick, broadens our international footprint and reinforces our position as the leading global provider of technology-enabled business solutions in the risk and benefits space,” Sedgwick President and CEO Dave North said.

IAG top of the Australians in S&P biggest insurers list

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IAG has risen two places on S&P’s “top 20” list of insurers for the Asia-Pacific, becoming the biggest Australian insurer and 15th-largest in the region in the first quarter.

The ratings agency’s Global Market Intelligence Top 20 is based on market capitalisation, and says IAG’s $US13.59 billion ($17.48 billion) value was up 3.3% on the preceding quarter, pushing it above Suncorp on the list.

Suncorp, valued at $US13.27 billion ($17.06 billion), dropped to 16th from 14th place, while QBE slipped out of the Top 20 after ranking 19th at the end of last year.

Life insurer AMP remained in 18th position with a value of $US11.05 billion ($14.21 billion) at March 29.

China’s Ping An Insurance (Group) Co had a market capitalisation of $US189.93 billion ($244.27 billion) at the end of the quarter, leaving it unchallenged in first place.

China Life Insurance, AIA Group, China Pacific Insurance and Tokio Marine Holdings rounded out the first five, unchanged from the preceding period. Great Eastern Holdings from Singapore entered the Top 20 at 19th position, rising from 24th at the end of last year.

JLT defends council program over class action threat

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JLT has defended its track record providing insurance for councils through mutual schemes, as a law firm continues to call for councils to sign up for a class action.

“Every scheme produces an audited set of accounts that clearly define the significant surpluses sitting in those schemes for the benefit of members,” JLT Global Head Public Sector Leo Demer told insuranceNEWS.com.au.

“Mutual schemes were created because councils in Australia could not buy any cover in the open market. The suggestion that councils have paid excessive premiums is unsupported by the facts.”

JLT provides insurance services to more than 500 councils across Australia.

As reported in a Breaking News bulletin last week, law firm Quinn Emanuel Urquhart & Sullivan (QE) says investigations into a class action over the services and level of premiums paid by councils are well advanced, with litigation funder Harbour Fund willing to provide financing if a case proceeds.

The firm says it is already acting for Mornington Peninsula Shire Council, which last year took Federal Court action to gain access to documents.

QE Managing Partner Michael Mills says “a number of local councils” have made substantial savings on premiums since leaving the JLT-administered mutual schemes.

But Mr Demer says of the 54 councils going to public tender or obtaining other quotes during the renewal season last June, only four changed their cover, while 50 continued to receive insurance through the schemes at rates lower than the alternatives.

Last week the Australian Financial Review said the City of Ballarat made more than $600,000 in savings after putting its insurance out to tender in 2014. The assertion was repeated verbatim in a bulletin published the same day by a competitor publication to insuranceNEWS.com.au.

insuranceNEWS.com.au understands this allegation was made by one person two years ago and was found at that time to be inaccurate. 

A council spokesman confirmed to insuranceNEWS.com.au today that the $600,000 figure is not accurate, and the council still uses JLT.

Mr Demer says last year four councils that left a mutual scheme in one state returned to it a few weeks before the renewal date “because the broker providing the lower terms could not actually place the insurance at the premiums it offered”.

QE has invited councils to register their interest if they were advised by JLT on insurance, or were members of schemes from June 30 2006.

Mr Mills told insuranceNEWS.com.au there has been a “high level” of preliminary interest from councils and a decision on whether to proceed is likely soon.

Ensurance flags capital raising

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Broker and insurance technology group Ensurance says its shares will be suspended from quotation pending a capital raising announcement.

The company provided no further details in today’s brief statement. Ensurance lost $5.58 million in the six months to December 31.

Ex-Westpac director steps up as Switkowski leaves Suncorp

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Suncorp director Christine McLoughlin will become Chairman after the annual general meeting in September, as Ziggy Switkowski steps down after seven years in the role.

Ms McLoughlin has worked in financial services for more than 20 years and joined the Suncorp board three years ago. She is the remuneration committee chairman and a member of the risk committee.

“It continues to be a time of great change, and some stresses, for financial institutions and I look forward to embracing both the opportunities and challenges this brings,” Ms McLoughlin said.

“As incoming chairman, I will be continuing the conversation on how best to create long-term value for all our stakeholders.”

Dr Switkowski joined the board in 2005 and as Chairman has overseen a number of changes, including the appointment a new CEO, a corporate restructure and the launch of the group’s contentious Marketplace strategy.

“In her three years on the board, Christine has demonstrated a broad range of skills relevant to financial services,” he said. “This includes having an informed view with regards to innovation and disruption of traditional business models, as well as bringing a contemporary focus to governance processes within the group.”

A Suncorp spokesman told insuranceNEWS.com.au the chairman role comes up for re-election every three years and the change is part of the normal board life cycle.

Ms McLoughlin was the inaugural non-executive chairman of the Australian Payments Council and is a former director of Westpac’s life insurance, general insurance and lenders’ mortgage insurance companies.

Suncorp brand and marketing EGMs depart

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Suncorp EGM Stores & Specialty Banking Lynne Sutherland has left the group while EGM Brand & Marketing Kristi Woolrych is set to depart in July.

Ms Sutherland has recently driven the opening of two Suncorp concept stores as part of the group’s marketplace strategy and was previously responsible for growth and performance at the group’s banking branch network.

Ms Woolrych has overseen the delivery of Suncorp’s new branding and establishing a partnership with Netball Australia.

She has held a range of executive positions with Suncorp since joining the group in 2002, according to her LinkedIn page.

Chris Fleming is taking over from Ms Sutherland on an interim basis, with the group currently seeking to recruit for both roles, according to a message sent to Suncorp staff from Customer Marketplace CEO Pip Marlow.

iSelect chief out as results fall short

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iSelect CEO Scott Wilson has resigned – with immediate effect – after disappointing third-quarter results in the health insurance, and energy and telco divisions.

Both divisions have been badly affected by market volatility and lower than expected leads following marketing changes, particularly search engine marketing.

Leads in health insurance declined by 17% in the last two weeks of last month, with a further drop of 21% in the first three weeks of this month, the online comparator says.

March is typically the second-best month for health insurance performance.

No improvement in the health market is expected until the fourth quarter of next financial year.

iSelect has now lowered its earnings before taxation forecast for the financial year to $8-$12 million, from a previous forecast of $26-$29 million.

General insurance and life insurance are performing slightly above year-to-date expectations, the company says. Lead numbers are low, but this is offset by higher than expected revenue per sale.

Mr Wilson’s resignation was announced earlier today and is effective immediately. iSelect director Brodie Arnhold has been appointed Acting CEO, and the search for a replacement has begun.

Chief Marketing Officer Warren Hebard is undertaking a strategic review of the marketing strategy, to address lead-generation underperformance.

Start-up Edmund opens with SME cyber cover

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Insurtech Edmund began commercial operations last week and launched a digital cyber cover for SMEs.

The cyber insurance is underwritten by Lloyd’s Munich Re Syndicate.

“Edmund is a dedicated cyber-insurance specialist and has developed a simple and smart way for SMEs to protect their business and its reputation,” founder Richard Smith said.

“We continue to see growth in threats such as ransomware and malware attacks in Australia and there are a number of security measures businesses should have in place to protect themselves. Edmund was developed to fill the vacuum that existed in the Australian market for customer-focused cyber insurance.”

The insurtech says it takes less than 10 minutes to buy a comprehensive cyber-protection plan.

The product is pitched at SMEs with annual revenues of up to $20 million, a spokesman for Edmund told insuranceNEWS.com.au.

British entrepreneur sets up motor agency

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UK managing general agency (MGA) Pukka Insure is to launch in Australia, with a focus on customers who have struggled to obtain cover elsewhere.

Pukka was established less than two years ago by entrepreneur Sam White, and now it aims to take on the Australian private motor market with “an innovative and client-centric approach”.

Ms White told insuranceNEWS.com.au Pukka will target the whole private car market, but niche pockets, including commercial van drivers, will be identified using data analytics. 

Customers with criminal convictions and complicated claims history will also be a priority.

“We have a wealth of experience dealing with people who have had a history of difficulty getting insurance,” she said. “We’ve been exploring the Australian insurance automotive landscape for nearly two years now and everything we have learned so far has indicated there is a gap in the market an for an ethical, forward-thinking MGA in Australia.

“We are looking at multiple lines of business at the moment, starting with private car insurance.

“The concept of giving people second chances is relatively alien in the insurance world, but it’s one of Pukka Insure’s specialities – we fundamentally believe drivers deserve a second chance and our experience in the UK and further afield has proven us right.”

Pukka says it uses the latest technology to keep down claims costs.

It is yet to announce its capacity provider, and should start operations in Australia in the third quarter of this year.

Last year Ms White announced the launch of motor claims management service Claim Mate, and further developments are expected.

“[Claim Mate] launched in the second half of last year and we are currently working with a handful of smaller insurers,” Ms White told insuranceNEWS.com.au.

“We are also very close to going live with a separate and very exciting claims initiative with a large household-name insurer in Australia.”

Aon announces senior appointments

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Aon has redefined two senior roles as it looks to strengthen its SME/mid-market leadership team and growth capability.

Kevan Johnston, currently Chief Commercial Officer, will become MD Commercial, while Scott Willmot’s role as Chief Growth Officer will be expanded to incorporate Mr Johnston’s previous responsibilities.

Incoming CEO James Baum says the appointments will build on gains made in the SME/mid-market sector. Both appointments are effective from the end of the second quarter.

Austbrokers taps into CoreLogic data

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Austbrokers has partnered with CoreLogic to give brokers real-time access to property data and analytics systems.

Brokers can use a range of CoreLogic tools – Cordell Commercial Estimator, Cordell Sum Sure and RP Data Professional – at the touch of a button, helping them to provide clients with accurate estimates for replacement costs of commercial and residential properties.

“Using CoreLogic systems means we can add more value to our clients based on real data, to give them a more accurate cost to rebuild and thus a more robust insurance cover that better meets their needs,” Austbrokers Countrywide director Mark O’Reilly said.

“It also helps us stay ahead of trends in the market.”

Allianz offers travel cover through airport website

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Allianz Worldwide has partnered with Brisbane Airport Corporation to provide travel insurance direct through Brisbane Airport’s website.

The insurer says the three-year deal is the first of its kind.

Allianz Worldwide says 39% of its customers buy travel insurance the week before departure, while 19% arrange it the day before or day of their departure.

Kogan begins pet insurance sales

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Listed online retailer Kogan.com started selling pet cover last week, expanding the range of general insurance products on its website.

Kogan Pet Insurance is underwritten by PetSure, a subsidiary of Hollard Insurance Company.

The retailer has also introduced Kogan Life Insurance, issued by Hannover Re and distributed by Greenstone Financial Services.

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Regulatory & Government

Councils’ flood data ‘can bring down’ northern premiums

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Sharing flood data between councils and insurers can help address the higher premiums facing consumers in the north, Floodplain Management Australia (FMA) says.

Most councils have databases of flood studies and mapping information that can help insurers improve risk analysis at specific locations, the FMA says in a submission to the Australian Competition and Consumer Commission’s northern Australia insurance inquiry.

“FMA holds the view that when insurers have access to high-quality flood data, premiums can be set to more accurately reflect the real risk,” it says.

“Importantly, there is evidence that premiums for many properties with risk of flood often go down after local governments provide insurers with more up-to-date or sophisticated data. 

“FMA encourages its members to enter into dialogue with insurers and share their flood risk information to the greatest extent possible and appropriate.”

Consumer groups want tougher response on add-on sales

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Consumer advocates have called for an end to the sale of some add-on insurance products.

They say the Productivity Commission’s proposal for a deferred sales model is an important first step towards improving consumer outcomes but does not go far enough.

The joint submission from the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre says it’s not clear that a deferred sales model “would resolve the widespread problems of add-on insurance mis-selling in every case”.

“In many instances, withdrawal of this product from sale would be the preferable approach.

“It is low-value, sold to many people who are ineligible to claim and/or replicates cover people have under other insurance, such as life insurance in superannuation.”

The Consumer Action Law Centre’s DemandARefund.com website has helped about 400 customers claim back more than $1 million on mis-sold add-on products.

The Productivity Commission’s draft report on financial system competition suggests the Australian Securities and Investments Commission should mandate a deferred sales model for all add-on insurance at car dealerships.

After that, Treasury should establish a working group to extend the deferred sales model to all add-on products, it says.

Reform forces builders to fix cladding ‘defects’

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NSW has changed home building laws to classify unsafe external wall cladding as a major defect, requiring builders to pay for rectification work.

Anyone who buys a unit or townhouse with unsafe external cladding can now make the responsible builder repair it for up to six years after the building is completed.

The state’s home building laws provide safeguards to owners of new properties with major defects.

Minister for Innovation and Better Regulation Matt Kean says this is the latest in a series of reforms regarding the use of cladding.

NSW Fair Trading Commissioner Rose Webb recently called for public submissions on a possible ban on certain cladding types.

At the end of last year, the Victorian Building Authority was dealt a blow when the Supreme Court of Victoria decided the regulator does not have power to order builders to fix apartment blocks after residents have moved in.

Canberra toughens up corporate crime penalties

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Penalties for corporate misconduct will be strengthened and the Australian Securities and Investments Commission (ASIC) given enhanced powers to investigate and punish white-collar crime, the Government says.

Canberra has agreed, or agrees in principle, to all 50 recommendations made by the ASIC Enforcement Review Taskforce.

Individuals face up to 10 years in prison and/or fines that are the larger of $945,000 or three times the benefits of crimes. Corporations will pay the larger of $9.45 million, three times benefits or 10% of annual turnover. Civil penalties will also be increased.

ASIC will be allowed to receive intercepted material to investigate and prosecute serious offences, ban individuals and refuse, revoke or cancel licences where appropriate.

“These stronger new penalties will ensure those who do the wrong thing will receive appropriate punishment,” Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly O’Dwyer said in a joint statement.

“The Turnbull Government is committed to ensuring ASIC is armed with greater powers to effectively deter, prosecute and punish those who do the wrong thing, to improve community confidence and outcomes for consumers and investors.”

The Enforcement Review Taskforce reported to the Government in December.

The Financial Services Council has backed stiffer punishment.

“It is entirely appropriate that penalties for civil and criminal misconduct are as strong as possible,” CEO Sally Loane said.

QBE defends LMI’s role helping home-buyers

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Lenders’ mortgage insurance (LMI) enhances competition for high loan-to-value ratio (LVR) customers, which includes many first-time home buyers, QBE says.

“It is important to understand that LMI is not mandatory in Australia,” it says in a submission regarding Productivity Commission criticisms of the cover.

“LMI is efficient and cost-effective for both lenders and borrowers and is the choice of the market. We strongly believe alternative mechanisms to address high LVR risk are inferior.”

The commission’s draft report on financial sector competition identified LMI as a highly concentrated market in which consumers have little power to exert pressure on providers, and raised questions about its cost to borrowers.

QBE, one of the main LMI providers in Australia, says LMI cover is lower-cost than an interest rate loading, based on overseas examples, and borrowers can enjoy “very significant returns” on their investment due to house price growth and the gearing level.

The insurer says lenders have every incentive to obtain the lowest price and best deal possible from their LMI providers as they seek to win customers and manage their risks.

It rejects a suggestion that the Government should require lenders to offer LMI refunds when customers choose to refinance or pay out their loan.

“The cost of LMI is not an arbitrary fee like an exit fee, but is charged for the risk that is assumed by the LMI. Expressed in another way, a farmer could not get a refund for the delivery cost of a load of feed if, six months later, she chose to graze her cattle on neighbouring land.”

WA bushfire defences gain budget boost

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WA will allocate $80 million to its new Rural Fire Division – funded through a rise in the emergency services levy (ESL) on council rates – and take further steps to reduce risks as it continues to respond to deadly bushfires two years ago.

Other funding includes $34.6 million for mitigation, which adds to the Mitigation Activity Fund announced in November, $18 million for a Bushfire Centre of Excellence and $15 million to extend a risk management plan program.

“The Rural Fire Division is a major part of the broader changes and will not only recognise the skills and experience of volunteers, but provide them with even greater support,” WA Premier Mark McGowan said.

The division will sit within a revamped Fire and Emergency Services Department and will not change the operational and management structure of Bush Fire Brigades, which remain with local governments.

The Bushfire Centre of Excellence will be developed to enhance fire management practices across the state and provide a specialised facility for volunteer training.

The Government says the metropolitan ESL will rise by $28 from July, while regional ESL categories will increase by $8-$17.

The changes will be included in the state budget, to be delivered on May 10.

Changes to bushfire strategy were recommended by an inquiry into the January 2016 Waroona-Yarloop blaze, which left two people dead and destroyed 181 homes. Insurance losses totalled $71.3 million.

ASIC steps up co-operation with jobs department

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The Australian Securities and Investments Commission (ASIC) and Department of Jobs and Small Business have signed a memorandum of understanding to foster closer co-operation.

“This agreement acknowledges the benefits obtained from sharing information and resources, while maintaining proper information and privacy protections,” ASIC Commissioner John Price said.

“This formal arrangement will allow ASIC and [the department] to engage more co-operatively in administering programs that assist employees affected by company insolvencies.”

ARPC streamlines its leadership structure

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The Australian Reinsurance Pool Corporation has made changes that will see two members of its senior executive team leave.

The team is now comprised of CEO Chris Wallace, COO Michaela Flanagan, CFO John Park and Chief Underwriting Officer Mike Pennell.

GM Governance Risk and Compliance Joshua Everson and GM Insurance Audit and Claims Michael Stallworthy will leave the terrorism reinsurance scheme administrator.

Dr Wallace says the changes will streamline the corporation and increase collaboration.

ACCC appoints Deputy Chairman

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The Australian Competition and Consumer Commission (ACCC) has appointed Mick Keogh as Deputy Chairman for a five-year term, starting from the end of next month.

Mr Keogh is an ACCC commissioner, and will now oversee the regulator’s small business work. He will work alongside Delia Rickard, who is also Deputy Chairman.

Cristina Cifuentes and Sarah Court have been reappointed as commissioners for a further five years.

The announcements come as the competition watchdog prepares to farewell Deputy Chairman Michael Schaper on May 30.

WA seeks feedback on injury scheme

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The Insurance Commission of WA will hold a forum with service providers to discuss ways to improve the Motor Vehicle Catastrophic Injuries Support scheme, which started in 2016.

Service providers will hear about the scheme’s performance and the challenges it faces.

The commission is also conducting an online survey for service providers before the June 6 forum in Perth, with results to be presented at the event.

For more information on the forum, click here

For the survey, click here.

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Life Insurance

Meller goes as AMP acts to repair battered brand

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AMP has vowed to clean up its act after years of corporate deception by senior executives was exposed during the royal commission on financial services misconduct.

As reported in a Breaking News bulletin last week, CEO Craig Meller quit on Friday with immediate effect.

Former IAG CEO Mike Wilkins, an AMP non-executive director, will take up the role while the embattled wealth manager searches for a replacement.

The company has announced a raft of actions, including an immediate review of its regulatory and governance processes, and a committee to assess issues around the advice business.

“AMP apologises unreservedly for the misconduct and failures in regulatory disclosures in our advice business,” Chairman Catherine Brenner said.

“We have been driving much-needed change and improvement in our advice business, which has undergone significant leadership and governance renewal over the past year, but we know we have much more to do. The board is determined that we will meet these challenges head on, accelerating changes in both culture and performance at AMP.”

The royal commission last week heard AMP lied to the Australian Securities and Investments Commission (ASIC) for almost a decade to cover up charging customers for advice that was never delivered.

AMP is now under investigation for providing false information to ASIC, the regulator says.

The probe is part of a wider investigation of the “fees for no service” evidence.

“Making false or misleading statements to ASIC can result in civil and criminal sanctions.” ASIC says.

“ASIC has, as part of its investigation, received many thousands of documents and undertaken 18 examinations of AMP staff. ASIC is also ensuring compensation is paid to affected AMP clients.”

Treasurer Scott Morrison says such behaviour may warrant jail terms.

“They have said they basically charged people for services they didn’t provide and they have admitted to statements that were misleading to ASIC and to their own customers, and this is deeply distressing,” Mr Morrison said.

“This type of behaviour can attract penalties that include jail time.

“That’s how serious these things are. I am very reassured by the fact these matters were already being pursued by ASIC and will continue to be pursued by ASIC.”

AMP faces shareholder class action

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An international law firm is preparing a class action for shareholders against AMP over its $1 billion stock price plunge since early last month.

Shareholders have also been affected by AMP’s admission to the Hayne royal commission that it deceived customers and the Australian Securities and Investments Commission for years, which forced the resignation of CEO Craig Meller last week.

Quinn Emanuel Urquhart & Sullivan’s lawsuit will be filed in the Supreme Court of NSW.

The law firm is also trying to recruit local councils to mount a class action against major broker JLT, alleging the councils paid overpriced premiums. [See article in CORPORATE.]

“We are going ahead with the [AMP] action,” partner Damian Scattini told insuranceNEWS.com.au. “We are preparing it, which will take a couple of weeks.”

The law firm is still calculating the compensation amount to be sought, and it may be a “very significant figure”, Mr Scattini says. “The share wipeout has been extraordinary… people have lost as a result of inactions in failing to update the market.”

BOQ sells life business to Freedom

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Freedom Insurance Group will buy the Bank of Queensland (BOQ) St Andrew’s life and loan protection business in a $65 million deal.

St Andrew’s had an inforce book of $70 million, more than 147 customers and 64 employees at August 31, and contributed about $8 million to BOQ’s after-tax profits last financial year.

Freedom CEO Keith Cohen says the purchase will add capability and management resources and accelerate product diversification, and makes sense for shareholders of the company, which listed in 2016.

“It would take years for us to replicate the St Andrew’s infrastructure,” he said.

The deal includes an exclusive three-year distribution agreement, with an additional two-year option, for Sydney-based Freedom to provide life products to BOQ customers.

BOQ CEO Jon Sutton says St Andrew’s has made a strong contribution since its acquisition in 2010, but industry and business dynamics have shifted dramatically.

“These changing conditions now mean St Andrew’s is a better long-term strategic fit for Freedom,” he said.

Commonwealth Bank, National Australia Bank and ANZ have also put life insurance interests up for sale in the past couple of years. 

Completion of the deal, which involves a $35 million quota reinsurance arrangement and cash proceeds of $30 million, is expected in the second half of the year.

ASIC bans adviser for four years

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The Australian Securities and Investments Commission (ASIC) has banned former Suncorp financial adviser Gerald Grubwinkler from providing financial advice for four years.

He failed to act in clients’ best interests when advising on superannuation and insurance, the regulator says.

ASIC found the Queensland adviser failed to adequately identify the scope of advice sought by clients, did not make reasonable inquiries into their financial circumstances, failed to adequately investigate alternative strategies and products, and did not provide statements of advice before recommending establishing self-managed super funds.

REI Super adopts insurance code

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REI Super has adopted the Insurance in Superannuation Voluntary Code of Practice.

The code has been developed to improve insurance offered to members and the processes by which benefits are provided.

CEO Mal Smith says adoption of the code reflects REI Super’s commitment to provide high-quality and cost-effective cover. REI Super will start to implement the code from July.

FPA survey reveals well-educated membership

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More than 3200 Financial Planning Association (FPA) members have responded to a questionnaire on the most recent Financial Adviser Standards and Ethics Authority (FASEA) industry education proposals.

The results indicate about 60% of FPA members have a degree, compared with 35% across the industry.

The FPA has again raised concerns about FASEA’s lack of recognition for the FPA’s Certified Financial Planner designation and advanced diplomas.

The Certified Financial Planner designation is the FPA’s highest educational standard, recognised in 26 countries worldwide.

The FPA is concerned the FASEA proposals are “over-engineered” and will reduce access to financial advice and increase costs.

It will discuss the proposals during its national roadshow, which began last week.

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The Professional

Foresight needed as change accelerates: AIMS GM

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Clarity and foresight are critical as brokers adapt to rapid technological change and shifting customer expectations, Austbrokers & IBNA Member Services (AIMS) GM Glenn Schultz says.

Insurance and risk management faces four simultaneous innovation narratives, including re-examination of every part of the value chain, he told the AIMS annual conference in Perth last week.

“Distribution has been a particular focus for innovators, but underwriting, claims, operations and everything else are also under the microscope,” he said.

Innovators are finding new ways to manage risk and prevent and treat losses, rather than just compensating after events, while automation is taking over routine tasks.

“Probably most importantly, customer expectations are being reset in ways that are shocking many within our industry.

“When our customers begin asking ‘Hey, Google’ for a quote on their home and contents insurance, the train will have long since left the station on a stellar experience coming from within the industry.”

Mr Schultz says brokers are moving towards an enhanced role as risk advisers, but the transaction of traditional insurance products remains paramount.

He warns that insurers focusing on risks that have a “very tiny” probability of claims could lead to premium decline and other consequences.

“Not only does this lead to frustrated customers as those with real risk struggle to find risk transfer solutions but, more importantly, these very actions are opening doors for alternate competition.”

Industries and companies facing transformational change will reach an inflection point where they begin to uncouple from old ways and only invest in the new, Mr Schultz told the conference.

Mansfield Awards set for July 5

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Claims professionals and senior industry executives will gather in Sydney on July 5 for the second Mansfield Awards for Claims Excellence.

The awards were conceived and are managed by Insurance News and claims services specialist LMI. The initial event last year attracted a large number of industry executives to see four awards handed out for SME, Specialty and Corporate, and Chubb Insurance was the overall winner.

Categories and the number of awards will be unchanged this year.

Insurance News Publisher Terry McMullan says the organisers decided to make the awards an annual event on the insurance calendar following a “very positive” response from industry professionals.

“We didn’t really know how they would be received, but we believe in the need to recognise claims excellence and it turned out a lot of other people do too.”

He says there have been calls for the awards categories to be expanded, “but we won’t until we can work out accurate ways to measure companies’ performance in other classes”.

The Mansfield Awards, which are named after the English Lord Chief Justice who introduced the concept of utmost good faith to the insurance process in 1766, are calculated using official reports and surveys conducted by LMI, with the results weighted to ensure all insurers are viewed equally.

Steadfast and NSW Insurance and Care (icare) have again announced their intention to sponsor the awards, and additional sponsors are being sought.

Mr McMullan says this year’s program will be based on last year’s successful event, with the emphasis on being “short and sharp with time left over to network”.

Sunny shines in new Suncorp ad drive

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Suncorp has launched a national marketing campaign to attract new customers outside its home state of Queensland.

It is fronted by a 10-year-old girl called Sunny, who represents the group’s message of keeping financial matters simple.

Australians lack the confidence and knowledge to take control of their finances, and the campaign will help them make better choices, Suncorp says. It will be rolled out across the banking, insurance and investments divisions in the next 12 months.

Swans sponsor QBE helps girls break into footy

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QBE and AFL club Sydney have established an elite training program for 130 girls aged 12-13.

The QBE Sydney Swans Academy Youth Girls Program follows last year’s inaugural season for the AFL’s Women’s competition.

“As a proud partner of the Sydney Swans for the past 32 years, we’re excited to nurture the skills of our female athletes at this grassroots level,” QBE Australia and New Zealand Chief Customer Officer Bettina Pidcock said. 

The 12-week program will run across training hubs in Moore Park, northern Sydney and southern Sydney from the end of this month.

icare in to bat for children’s hospital

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Insurance & Care NSW (icare) took part in an annual cricket challenge last month that raised more than $75,000 for the Sydney Children’s Hospital Foundation.

The Procare Charity Cricket Challenge will help fund paediatric care, research and new equipment.

“The event is a wonderful opportunity for the insurance industry to come together through a love of cricket and competition for an important cause and raise funds for seriously ill children in need,” Agent Relationship Manager Paul McIntyre said.

icare scheme agents EML, GIO and Allianz also took part.

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International

Capacity spikes before mid-year renewals

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Global reinsurer capital is at peak levels ahead of the mid-year renewals in June and July, says reinsurance broker Aon Benfield’s latest report.

Its latest report says major losses are below average so far this year, and capital market conditions are relatively benign.

Japan, India and South Korea dominated the April 1 treaty reinsurance renewals.

“Traditional reinsurers continue to show strong appetite for this business and buyers in these markets found ample capacity to meet their risk transfer needs and support geographic and product growth aspirations,” Aon Benfield says.

Global reinsurer capital was $US605 billion ($779 billion) at the end of last year, up 2% from 2016. Traditional capital made up $US516 billion ($664 billion) of the pool and alternative capital the remaining $US89 billion ($115 billion).

The Aon Benfield Aggregate, which tracks 21 major reinsurers, says the sector recorded gross written premium of $US249 billion ($321 billion) last year.

Net natural catastrophe losses of $US23.6 billion ($30.4 billion) contributed 16.4 percentage points to the combined operating ratio of 107.4% last year.

Pre-tax profit fell 75% to $US5.1 billion ($6.6 billion).

In the alternative capital segment, further growth is expected this year after strong momentum from last year continued into the first quarter.

London is emerging as a mainstream onshore alternative, while Singapore is bidding to become a hub for insurance-linked securities in Asia, Aon Benfield says.

Lloyd’s flags coverage gap in sharing economy

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Lloyd’s is encouraging insurers to play an important role in growing the sharing economy by offering new types of cover to participants.

The London market’s Innovation report says the lack of insurance for different risks in the sharing economy is inhibiting its growth.

Lloyd’s surveyed 5000 people across the US, UK and China: 70% of those not in the sharing economy would be more likely to offer a product or service through such a channel if it was protected by insurance; 71% would use such a product or service if insurance was offered.

Only 16% of consumers report sharing a product through the sharing economy.

Differing views on whether platforms, consumers or product providers should be responsible for managing risk are a barrier to growth, the report says.

About 78% of sharing economy providers say they would get more customers if sharing platforms offered insurance solutions. Most sharing platforms surveyed say either the consumer (53%) or the provider (27%) should offer insurance.

Personal safety is considered the highest risk (52%), followed by service quality (42%), damage to assets (42%), theft (40%) and lack of safeguards if something goes wrong (38%).

The sector is dangerously exposed to these risks, according to the report. About 97% of consumers mistakenly assume they are protected by some form of insurance. However, only 28% of survey respondents report investigating the matter.

Clear regional differences emerge, with China recording the most consumers and service providers in the sharing economy. About 49% of US respondents have never used a sharing economy product or service. Some 58% of respondents in the US and UK say the risks outweigh the benefits.

Because assets are shared between multiple parties, and are often intangible, a different approach to risk management is required, based on the behavioural economics of consumer preferences and attitudes towards risk, Lloyd’s says.

It can be difficult for traditional insurance to be applied to the sharing economy, which is expected to grow to $US335 billion ($431.14 billion) by 2025.

PPI scandal drives spike in UK complaints

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The number of complaints to UK financial services businesses rose 13% in the second half of last year, the Financial Conduct Authority (FCA) says.

Payment protection insurance (PPI) complaints jumped 40% to 1.55 million, driving the overall increase. It was the highest number of complaints about PPI in more than four years.

A total of 3.76 million complaints were received in the second half.

In January, businesses paid out £415.8 million ($758.36 million) to customers who complained about PPI, the highest figure in two years.

Excluding PPI, the number of complaints received in the second half of last year was 2.21 million, about 13,000 fewer than the previous six months.

The FCA has set an August 2019 deadline for PPI complaints and is encouraging customers to make their applications as soon as possible.

Risk management off the pace as technology evolves

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Risk professionals are not keeping pace with disruptive technology impacts and need to take a broad view across their organisations, according to an annual report by Marsh and the Risk and Insurance Management Society.

About 59% of survey respondents say their organisations are using or exploring the use of the Internet of Things (IoT), 47% mention artificial intelligence (AI) and 24% blockchain.

But only 14% strongly believe they have a clear process for addressing disruptive technology risks and nearly half cannot say there is a clear process.

When asked what it means for their organisation to be “digital”, a majority cite operational improvements such as automating processes, while giving less attention to growth initiatives such as new ways of doing business and interacting with customers.

“Emerging technologies such as AI, blockchain and IoT are fast becoming the new normal, yet risk management is not keeping up,” Marsh North America Chief Client Officer Brian Elowe said.

“Only by asking questions and understanding the underlying technologies and their uses throughout the organisation can risk professionals truly appreciate their risks and respond accordingly.”

The report says risk professionals’ input will be increasingly sought on strategic decisions, with disruption rapidly becoming the new normal.

“Failure to develop the needed insights and connections could put the risk function in the background as their organisations move ahead.

“Fortunately, both the desire and the talent to play a leading part are there.”

Risk managers do not need to understand the intricacies of every new technology “coming down the pike”, but should feel comfortable talking to experts about technologies their organisations are using.

In other findings, 40% of respondents would consider switching insurers and other advisers based on their ability to provide innovations in the claims area.

The report, called Maintaining Relevance Amid Technology Disruption, is based on 450 responses to an online survey and focus groups with risk executives.

Rate rise lifts Swiss Re

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Swiss Re pushed through a 2% price rise across its property and casualty portfolio and underwrote $US8.1 billion ($10.6 billion) in premium during the renewal season.

“We achieved this 8% [premium] increase through higher prices and greater volumes in all segments and regions, as well as major transactions,” Group CEO Christian Mumenthaler told shareholders at the annual general meeting last week.

“We raised prices by 2% across the entire portfolio, which I am very pleased about given that a reversal of our pricing strategy was overdue.”

US weighs affordability options for flood insurance

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The US Federal Emergency Management Agency has unveiled options to develop an affordability program for flood insurance sold under the National Flood Insurance Program (NFIP).

The agency has released the proposals in a framework, as required by the Homeowner Flood Insurance Affordability Act of 2014.

The framework provides the first data-driven analysis of policyholder and potential policyholder incomes by flood risk and home ownership status.

“For the first time, a conversation about affordability and flood insurance is supported by deep data,” agency Director Roy Wright said. “We can move forward with data that will point to more sustainable solutions.”

The NFIP aims to double the number of properties covered by flood insurance from 4 million to 8 million by 2023.

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Analysis

Natural catastrophes: an Australian perspective

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Swiss Re Property Treaty Underwriting Manager ANZ David Sinai draws some local insights from the reinsurer’s latest Sigma report

Swiss Re’s 50th-anniversary Sigma report, Natural Catastrophes and Man-Made Disasters, highlights just how damaging last year was.

Total global economic losses from natural disasters were about $US330 billion ($425 billion), almost double the 10-year average.

New annual records were set for the highest insured losses – $US144 billion ($185 billion) – the highest insured wildfire losses – $US14 billion ($18 billion) – and the highest ratio of insured losses (43%). 

Insured natural catastrophe losses of $US138 billion ($178 billion) were well above the previous 10-year average of $US50 billion ($64 billion), which highlights the inherent variability of natural catastrophe losses.

While the record ratio of insured to economic losses is considered a “good” achievement, the natural catastrophe protection gap remains significant at almost 60% of economic losses.

It is important we continue to seek new ways to close this gap through new insurance products, distribution channels and physical resilience measures.

The Sigma also includes two focus reports on the US hurricane season and the US wildfires. I find these very interesting, not only in the story they tell, but also because they allow us to draw parallels to the risks we face here in Australia and New Zealand.

Hurricanes and tropical cyclones

The focus report on the US hurricane season confirms the losses of last year are far from unprecedented, both in terms of single-event losses and aggregated annual losses.

Hurricane Katrina’s losses – $US82 billion ($106 billion) – were much larger than Maria’s – $US32 billion ($41 billion) – and our research has shown that a storm similar to Andrew in 1992 could generate losses of $US180 billion ($232 billion) today.

From an aggregate perspective, our analysis suggests we have seen seasons capable of generating aggregate losses similar to last year’s at least three other times in the past 90 years.

Return periods of about 25-30 years are hardly extreme outcomes in the world of catastrophe (re)insurance. Swiss Re’s hurricane model contains various storm clustering scenarios, where annual insured hurricane losses exceed $US250 billion ($322 billion).

Australia did not establish any new records with our cyclone season. However, Cyclone Debbie did manage to secure second place on the list of Australia’s largest insured cyclone losses – after Cyclone Tracy – estimated at $US1.3 billion ($1.67 billion).

As happens to be the case with most catastrophe events, Debbie also offered insurers and reinsurers new insights.

The slow-moving nature of Debbie meant homes were exposed to cyclone-strength winds and heavy rainfall for well in excess of 12 hours.

This resulted in significant water ingress, the extent of which was not immediately obvious.

Access restrictions to offshore resort islands have also resulted in increased claims costs.

As a result of these two issues, the claims estimates have continued to grow in the 12 months since Debbie made landfall, meaningfully exceeding initial estimates.

It is important to take learnings from these events and integrate the findings into the damage functions in our loss models.

Just as in the US, we have not seen the worst that Australian cyclones can serve up. We have been relatively lucky when it comes to the major cyclones we have experienced in the past several years.

Larry, Yasi, Marcia and Debbie have all managed to miss the largest population centres in the regions they affected. A direct hit on Cairns, Townsville or Mackay would have resulted in much larger insured and economic losses.

Our model shows a severe cyclone hitting the populated southeast of Queensland, though rare, has the potential to generate losses that are multiples of the losses we have seen since Yasi.

Similar to the US, New Zealand has also experienced a frequency of events over the past two cyclone seasons, with Cyclones Fehi and Gita this year, as well as remnants from Cyclone Cook and Cyclone Debbie last year. Which makes me think, is this a new trend or just random variability? 

Wildfires and bushfires

The focus report on the California wildfires also makes interesting reading for Australian insurers and their reinsurers.  

The loss quantum from the California wildfires surprised many, but we should use this to remind us of the loss potential we face in our own backyard.

The largest of the California fires, the Tubbs fire, destroyed more than 5600 structures, causing $US7.7 billion ($9.9 billion) of losses.

Locally, Risk Frontiers has estimated there are more than 100,000 homes in Sydney exposed to high bushfire risk, being within 100 metres of the bushland interface.

It is entirely plausible that 5-6% of these high-risk homes could be destroyed in a large bushfire event, roughly equalling the impact of the Tubbs fire. There are almost 20,000 homes in the high-risk zone in the Hornsby local government area, on the northern fringe of the metro area, and another 23,000 at-risk homes in the Blue Mountains.

Swiss Re’s bushfire pricing tool generates losses of up to $7 billion. However, in light of the Californian experience, I am starting to think this number could be insufficient for worst-case scenarios, especially given that Australian reinsurance contracts allow the aggregation of losses over a large area (indeed, multiple states) into a single reinsurance loss.

The Sigma report also reveals some increasing wildfire risk trends in the US. Looking into the future, we are likely to see similar risk trends for Australian bushfire, with climate change driving hotter, drier weather and longer fire seasons. The early start to the NSW 2017 fire season – brought forward by a warm, dry winter – may have provided us a window through which we can view the future of Australian bushfire risk.

The full Sigma report is available here.

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