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Local

Flood claimants question 'like-for-like' replacements

Victims of this year’s record-breaking floods are increasingly asking insurers to help make their properties more resilient as they rebuild – but policies usually specify like-for-like replacements.

The Insurance Council of Australia (ICA) says insureds are consistently asking about the issue at community forums. But it says insurers are “contractually obliged” to replace like with like.

ICA COO Kylie Macfarlane tells insuranceNEWS.com.au insurers may need to consider how products evolve in future.

“Is there the opportunity to think about different terms of contract that may allow customers to engage their policy terms in a way that allows them to remediate or rebuild their property outside of the traditional like-for-like terms?”

The major insurers say that while they do broadly follow the like-for-like principle, they also try to be flexible where there is an opportunity to improve a home’s resilience.

See Analysis.

BOM sees above average winter-spring rainfall, despite La Nina end

Sea surface temperatures are currently warmer than average for much of the Australian coastline, a pattern increasing the chance of above average winter-spring rainfall for Australia, the Bureau of Meteorology says.

The Bureau last week declared an end to the La Nina weather event that brought Australia’s costliest ever floods earlier this year, with most climate indicators currently reading neutral.

However, some of its modelling suggests the ocean-atmosphere phenomenon may form again later this year. Rainfall across eastern and southern Australia is typically above average during winter and spring during a negative Indian Ocean Dipole – which the Bureau says is likely to form in the coming months.

The Bureau now has La Nina at “watch” status, meaning there is around a 50% chance of it forming again in 2022 – around double the normal likelihood.

“The Bureau's long-range outlook remains wetter-than-average,” BOM head of long-range forecasting Andrew Watkins said.

The new La Nina watch stance “does not change the outlook of above average rainfall for most of Australia over coming months”.

La Nina occurs when equatorial trade winds become stronger, changing ocean surface currents and drawing cooler water up from below. The last significant La Nina was in 2010/11.

La Nina, Spanish for “little girl,” is the colder counterpart to “little boy” El Nino. These two forces have the strongest influence on year-to-year climate variability for most of Australia.

Floods 'severity' adds to rate pressure: S&P

Australian gross written premium (GWP) is expected to grow 7.5% this calendar year, reflecting the impact of the NSW/Queensland floods, past catastrophes and claims inflation facing the industry, according to S&P Global Ratings.

The rating agency’s assessment of the industry says it expects primary property and casualty (P&C) insurers to experience continued upward pressure on reinsurance prices for property lines in particular, and across aggregate excess of loss protection covers, following the floods.

The floods have resulted in record insured losses in excess of $4.3 billion, adding to the insurance industry’s rising claims costs from bushfires, storms and other extreme weather events since February last year.

Material shortages leading to higher prices have also added to the claims cost burden facing the industry.

“It is fair to say the severity of the February/March floods has extended the premium rate hardening cycle through 2022 for affected lines,” Insurance Analyst Michael Vine told insuranceNEWS.com.au.

“This is from the ongoing review of risk exposure in catastrophe regions, along with the broader impact of claims inflation on repair and replacement costs, and pressure from hardening reinsurance rates on renewal.”

S&P says the NSW/Queensland floods, combined with previous catastrophes starting with the Perth Hills bushfire in February last year, have resulted in losses of more than $5.5 billion.

“The catastrophe intensity has heightened in recent years, most notably the February 2022 south-east Queensland and New South Wales floods that caused extreme and unprecedented losses,” the S&P report says.

S&P says in the year ended March, insurers reported premium increases across all lines except compulsory third party with householders, fire & industrial special risk (commercial lines), professional indemnity, and domestic motor classes recording the strongest increases.

“Higher premiums predominantly reflected higher rates, supplemented with moderate volume growth, although the latter was similar to the prior year – the strongest in the past five years,” S&P says.

“Higher rates were also in response to rising claims costs in these classes. We expect effective risk management and appropriately structured reinsurance arrangements to moderate the impact of future large claims and catastrophic events.”

S&P in its report also outlined the strengths and weaknesses of the sector, as well as risks facing P&C insurers.

The strengths include strong historic operating performance, sophisticated pricing and risk controls and favourable economic and regulatory operating conditions.

Rising exposure to natural catastrophe claims and moderate growth prospects are the key weaknesses.

“We have recognised the emerging potential impact of natural perils and catastrophe risks in product risk,” S&P says.

“These risks could affect P&C insurers over the coming years, but the impact should remain manageable.”

Victorian earthquake responsible for third-most AFCA complaints

The Australian Financial Complaints Authority (AFCA) says last year’s Victorian earthquake generated the third-highest number of insurance complaints in the past 12 months.

The dispute resolution body says complaints relating to Covid and the NSW and Queensland floods are ahead of the 5.9 magnitude quake that hit the state on September 21.

As of June 22, AFCA has received 373 complaints relating to the quake, compared to just over 400 from the floods and more than 3700 covid-related complaints.

It says 150 quake complaints have been concluded, resulting in $297,000 in payments to policyholders who successfully challenged their claim.

The Insurance Council of Australia (ICA) reports that 16,387 claims have been made relating to the earthquake, with an estimated loss cost just short of $120 million.

Homeowners have felt the brunt of the earthquake, with 13,807 (84.2%) of all claims relating to damage to domestic properties, according to ICA data.

AFCA says the majority of complaints are related to insurers denying coverage due to policy exclusion, at a figure close to 60%, delays in claims handling account for 20% of claim, outright denial of claims approaches 12%, and disputes of claim amount account for 7%.

“Disputes can arise over insurance claims for earthquake damage if the parties disagree about the cause of the damage,” AFCA Lead Insurance Ombudsman Emma Curtis said.

“The insurer might consider that it’s not earthquake damage but is due to other factors – for example, the damage is pre-existing damage, or the property is too far from the epicentre of the earthquake for it to be the cause.

“If the cause of damage is not clear, we’d expect the insurer to have an engineer’s report supporting their decision.”

Proving damage relating to the earthquake can be difficult. A recent AFCA ruling features a homeowner who won’t be covered for cracking to her home after a dispute ruling determined that an insured event did not cause the damage.

She held a home insurance policy with Suncorp and lodged a claim on September 22, saying the earthquake caused cracking to her veranda, driveway, and porch.

The insurer denied the homeowner’s claim, saying that the damage was pre-existing to the earthquake and that the policy did not cover it.

The homeowner confirmed the cracking but said that the earthquake exacerbated it.

A consultant appointed by the insurer observed deterioration in the affected areas but said it was most likely due to movements in the foundation over an extended period of time, not the tremor, but they recommended a specialist review to confirm.

Suncorp employed engineering consultants, referred to as M, to investigate the property on October 5, and they provided a report on October 27.

The report concluded that the cracking was not caused by the earthquake, saying that given the distance between the property and the earthquake’s epicentre it was improbable that it could have caused damage.

M noted other construction issues as potential causes for the wear over time, saying the cracking on the pergola resulted from a lack of control points generally required for concrete pavements.

M’s report also said the location of cracking near the driveway indicated that the paving was completed with different materials, one of which was observably weaker than the other that didn’t have any cracking.

M also said that some areas had cracks beside crack control joints in the driveway, which indicated that the joints were not installed correctly.

The complainant disagreed with M’s analysis, saying they were only on the property for five minutes to conduct their report. She did not provide any information to rebutt the evidence provided by the insurer’s experts.

AFCA admitted that the experts’ qualifications were important factors in the determination, given noted flaws in their procedure, and pointed out that the complainant failed to offer a contrary expert opinion.

It said that the cracking did appear to get more prominent after the earthquake, but the complainant had already acknowledged the issue and that they should have made sure it was fixed before the event.

AFCA concluded that the insurer was entitled to deny the claim on the probabilities of evidence provided by the insurer’s expert.

Click here for the full ruling.

RACQ reveals flood-related settlement figures

RACQ Insurance says it has settled 90% of motor claims relating to severe floods that impacted Queensland earlier in the year.

The organisation says it has paid out more than $100 million in total claims, with the bulk of its 2667 car insurance claims settled with total loss cash reimbursements.

RACQ says the figures are “important milestones” in its flood response as affected communities continue to recover.

“We’re processing claims as quickly as possible to help members get back on the road following one of the largest flooding events in Australia’s history,” GM Claims Trent Sayers said.

“Of the more than $100 million in total payments, $84.5 million has been paid out as cash settlements and there has been $14.3 million in supplier payments.”

RACQ says car owners affected by the flood will be entitled to additional support in receiving replacement vehicles as part of the organisation’s partnership with prominent Queensland car dealerships.

“RACQ flood-affected car owners can also take advantage of our exclusive agreement with dealerships including Eagers, Autopact and Motorama, making the search for a replacement vehicle a little easier,” Mr Sayers said.

RACQ says 83.7% of flood-affected home assessments have been completed, with almost 5000 homes rebuilt or undergoing repairs.

Mr Sayers says the high quantity of claims and rising repair costs provided additional challenges to the recovery process.

“We have more than 2500 builders and other personnel working on claims, however the sheer volume of claims, as well as the significant strain on labour and materials prior to this event, means it’s going to take longer than usual for repairs to be completed,” Mr Sayers said.

“The building boom and covid have contributed to driving up demand for trades and materials, and this extends wait times and increases costs. Overall, construction material costs have risen around 20% in the past two years, with steel prices jumping 60% since 2020.”

Mr Sayers says it has prioritised assessing home repairs in at-risk and vulnerable communities. RACQ recently pledged $2.1 million in grants to assist community and sports groups in south-east Queensland.

“We understand this is a challenging time and we’re committed to being there for impacted members during this process, as well as continuing to serve those with existing insurance claims outside of the flood event.”

In Insurance News magazine this month

The June/July issue of Insurance News magazine is out now, featuring must-read articles and interviews on some of our industry’s most important issues.

The print version has been mailed out to magazine subscribers, and the online version – which features a completely new format – is now available here.

In this edition AUB Group believes it’s onto something big with the acquisition of Lloyd’s wholesale broker Tysers, and Chief Executive Mike Emmett explains why.

It’s all about giving clients better access to complex risk solutions – and who better to turn to than Lloyd’s?

This edition also includes an in-depth chat with Lloyd’s Chief of Markets Patrick Tiernan, who talks market modernisation, innovation and commitment to Australia.

Meanwhile, the impact of this country’s worst flood disaster on record continues to unfold, and we look at how and why we need to build back better, plus an exciting initiative to push more weather-resilient homes.

The other issue on everyone’s minds at the moment is talent – or lack of it – and our team has spoken to ANZIIF and others about possible solutions.

All this and lots more in Insurance News, the most-read magazine circulating in the Australian and New Zealand insurance industries.

Landlords, brokers warned to be clear on meth cover

New Zealand’s Financial Services Complaints Limited (FSCL) advises landlords and insurance brokers to ensure that policies cover all risks appropriately, as complaints about methamphetamine damage rise.

The FSCL has noted a rise in complaints from property owners after finding out their insurance does not cover methamphetamine contamination.

In recent years, insurers have introduced caps and exclusions to their home insurance policies for methamphetamine-related damage.

The FSCL highlighted a recent dispute ruling where a landlord was shocked to find he could not claim $NZ20,000 ($18,123) repair costs after one of his rental properties was contaminated with methamphetamine.

The man held a home insurance policy with additional landlord cover advised by his insurance broker.

In 2016, the complainant asked his adviser if his property was covered for methamphetamine contamination, noting an increase in incidents.

His broker said the policy held no specific coverage relating to methamphetamine damage but that his policy would cover the event.

Throughout 2018 and 2019, the landlord’s insurer updated the policy, including changes towards methamphetamine damage cover and guidelines for contamination testing.

The claimant’s broker alerted him to the changes but did not specifically highlight the methamphetamine policy changes he had previously inquired about.

In 2020, after tenants moved out of one of his properties, he conducted testing that found parts of the house were methamphetamine-contaminated.

The complainant asked his insurer to cover the costs of the testing and decontamination work but was denied because the contamination levels did not meet the required threshold to be covered.

He believed that his adviser acted negligently by recommending him a policy with a high requirement to be covered for methamphetamine contamination. The broker said he informed the landlord of the conditions and provided him with a document detailing the changes made in 2019.

An FSCL determination required the broker to pay for parts of the damage, saying that he did not directly address the landlord’s concerns regarding methamphetamine contamination and only referred him to a document summarising policy changes.

“These cases highlight how important clear communication is and that both the policy holder and adviser are on the same page when it comes to understanding what is and isn’t covered and whether or not the level of cover is appropriate,” FSCL CEO Susan Taylor said.

Ms Taylor advised proprietors to remain aware of differences in individual insurer policies and seek expert advice if unsure.

“For landlords in particular, damage caused by methamphetamine contamination may be something they want to be insured for. In New Zealand, there are two sources of information which have different views about what level of contamination creates a health risk – which means that insurers follow one of the two standards,” Ms Taylor said.

“When looking at taking out a policy, it is a good idea for a policyholder to check which contamination standard the insurer uses, so that they are aware of the level of coverage they will have.”

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Corporate

Suncorp reviewing options for banking operations

Suncorp has responded to speculation that it is looking at a potential divestment of its banking division by saying it is reviewing “strategic alternatives” for the business.

“As previously advised, Suncorp, from time to time, reviews its strategic alternatives in relation to all of its businesses and is currently doing so in respect of its banking operations,” the company said in a statement released to the Australian Securities Exchange this morning.

The Australian Financial Review reported today that the company had asked investment bank Barrenjoey Capital Partners to look at options for the bank.

Banking contributed a profit after tax of $419 million last financial year, while Australian insurance earnings were $547 million and New Zealand contributed $200 million.

Suncorp sold its life operations in February 2019 for $725 million and last year exited its wealth business as the company continued to simplify its portfolio and hone its focus.

Speculation around a separation of the banking businesses has often swirled in the past, given that Suncorp is the only major Australian underwriter to combine banking and insurance operations.

RACQ launches hunt for new insurance chief

RACQ Insurance has begun an internal and external search for a new insurance chief after last week confirming the exit of Group Executive Insurance Tracy Green.

GM Claims Trent Sayers will take on the role in an acting capacity until a replacement is found, the insurer said.

Ms Green – who is also on the Insurance Council of Australia board – has held the position for two years, and worked with RACQ for more than four. Previously, she held senior positions at IAG and Suncorp.

“After what’s been a challenging year across the insurance industry, [Ms Green] is leaving the organisation to take a well-earned break,” an RACQ spokesperson told insuranceNEWS.com.au.

“Following some of the worst weather events in Australia’s history and continuing Covid-19 and supply chain impacts, as well as implementing significant regulatory change, Ms Green has decided now is the right time to step back.”

RACQ says Ms Green is “immensely proud of the way RACQ has responded to these unprecedented challenges”.

“With the insurance strategy firmly in place, RACQ is in a strong position to meet the future head on,” the spokesperson said.

NRMA Insurance unveils carbon offset program

NRMA Insurance announced today the launch of its Carbon Offset Program, an initiative aimed at mitigating the impact of emissions from vehicles.

The IAG-owned insurer says the program is currently available only to passenger vehicle customers, who will receive an estimate on the amount of carbon produced by their car and the cost to offset it each year based on their car make, model and mileage driven annually.

The program’s website will crunch the numbers and payments collected will go specifically to projects that involve bush regeneration in Australia, investing in renewable energy and rainforest protection.

Carbon offsetting involves projects that help to draw carbon or greenhouse gas emissions from the atmosphere, such as through land restoration or planting trees.

A medium sized car that clocks 10,000km each year would produce about 1.87 tonnes of carbon over that time, which is equivalent to the amount of carbon that is absorbed by 84 trees in a year. The cost for a customer to offset this would be $41.05 each year.

“We are proud to launch this program to help our customers reduce their own carbon footprint – with all funds going to important projects that will help to capture carbon in the atmosphere,” NRMA Insurance Group Executive Julie Batch said.

“It forms part of our commitment as a business to work towards net zero emissions by 2050.”

Click here for the program website.

AMA parts business opens distribution centre

AMA Group’s parts business has opened a new Victorian distribution centre in Somerton, allowing the consolidation of two smaller sites and an expansion of total capacity.

Group EGM Supply Adam O’Sullivan says the facility increases overall network capacity to more than 40,000 square metres across Melbourne, Sydney, Brisbane and Perth.

“This increased capacity will allow us to help ensure parts availability to fulfill the needs of our customers nationwide,” he said.

The 19,500 square metre ACM Parts Somerton site provides access to the Western Ring Road, Tullamarine Freeway and the Hume Highway interchange, as well as the planned North-East Link.

The site also has significant solar power generation capabilities.

Insurer partners with SASES to improve weather resilience

NRMA Insurance has partnered with the SA State Emergency Service (SASES) to bolster community readiness against increasingly severe weather events.

The insurer will be SASES’s first principal collaborator as the emergency service reports a volatile increase in response requests.

“Our partnership with NRMA Insurance is a significant milestone for the SASES that will enable us to amplify localised and targeted community preparedness programs in high-risk areas,” SASES CEO Chris Beattie said.

Since July 2021, the SASES has responded to over 10,000 requests for help, a 60% increase from the year prior, with the bulk of requests coming from weather-associated events.

“The climate is changing so severe weather events such as floods and storms are increasing in frequency and severity, resulting in more requests for assistance to the SASES,” Mr Beattie said.

“In the first two weeks of winter alone we have received more than 750 calls for assistance, with the vast majority directly weather related.”

Mr Beattie says the increased prevalence of dangerous weather events is prompting the emergency service to focus on proactive measures addressed at vulnerable communities.

“We are the first to respond when extreme weather strikes but it’s just as important for us to raise awareness of the risks South Australians face so they can be better prepared for these events before they happen,” Mr Beattie said.

The latest NRMA Insurance Wild Weather Tracker says SA residents’ preparedness and concern for severe weather are among the lowest in Australia.

The tracker revealed that 47% of South Australians say they do not feel prepared for severe weather events, and only 24% took action to improve preparedness last season.

NRMA Insurance Group Executive Julie Batch says community preparedness is an essential step in mitigating damaging weather events.

“We can make a bigger difference when we work together so we are looking forward to collaborating with the SASES to develop tangible programs that will help South Australians understand the risks they face and help them prepare for, and respond, to severe weather events.” Ms Batch said.

“As an insurer, we play a critical role when it comes to supporting our customers following a disaster, but like the SASES we know that helping communities be better prepared for severe weather has a real impact when it comes to safety and reducing damage.”

The insurer’s collaboration with SASES adds to its long-standing partnerships with the NSW SES, Australian Red Cross, and GIVIT to contribute toward stronger community resilience.

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Regulatory & Government

'Unfair': NSW budget ignores ESL

The NSW budget missed the opportunity to tackle unfair insurance taxes and levies, the Insurance Council of Australia (ICA) says.

ICA wants the Emergency Services Levy (ESL) on insurance products, which adds to affordability issues in the state, scrapped.

A previous attempt to ditch the levy and replace it with a broad-based property tax was abandoned in 2017, and ICA says NSW insurance customers now pay the most expensive premiums in the country. It says the levy adds 30-50% to the cost of premiums.

“No other mainland state taxes insurance customers with the cost of delivering emergency services, and Tasmania is currently in the process of removing its levy,” ICA said.

Budget papers show that NSW insurance customers will pay more than $1 billion in ESL in 2022/23 to fund measures associated with the 2020 NSW Bushfire Inquiry and in response to the 2021 and 2022 floods.

Including council contributions, ESL payments over the forward estimates will be 10% higher, or $520 million more, than forecast at last December’s mid-year review.

“This increase has a direct impact on insurance affordability for policyholders all over the state,” ICA says.

“The Government’s own 2020 Review of Federal Financial Relations chaired by former Telstra CEO David Thodey found that insurance taxes like the ESL ‘drive up premiums and discourage consumers from adequately insuring [with] serious human and social consequences’.”

ICA says it welcomes budget action on renewables and climate change, as well as funding measures previously announced to meet the requirements of the 2020 Bushfire Inquiry.

It previously called for $232 million to be jointly invested by the state and federal governments to better protect NSW homes and communities from extreme weather, which it predicts would deliver a return on investment of $5.6 billion by 2050.

“We support the NSW Government’s positioning as a driver for major reform to the state’s budget, but one of the most inefficient and punitive taxes being levied on insurance customers remains untouched,” ICA CEO Andrew Hall said.

“NSW will soon be the only state to require those who insure to pay for the cost of delivering emergency services.

“This is not only unfair, it also has terrible public policy outcomes that discourages adequate insurance coverage.

“In a state that is recovering from the worst flood and bushfire events in modern history, and with extreme weather events only getting worse not better, we can’t afford not to include insurance levies and taxes in the government’s reform agenda.”

ICA endorses Queensland Government's flood relief fund

The Insurance Council of Australia (ICA) praised the Queensland Government’s budget commitments to address community resilience to extreme weather events.

The State Government announced that it will provide $741 million in additional funds to help protect Queenslanders, addressing concerns across the state after severe flooding earlier this year.

The funds, which will be co-funded by the Federal Government, match the amount called for by the ICA in its “Building a more resilient Australia” report released in February.

The budget also extended the Queensland Government’s $13.1 million Resilience and Risk Reduction Fund to aid disaster prevention projects and improve protections against increasingly costly weather events.

“The ICA commends the Palaszczuk Government for this very significant increase in resilience funding, made in response to the devastating floods experienced in South-East Queensland in February and March this year,” ICA CEO Andrew Hall said.

The ICA also welcomed a $170 million commitment to rectify public infrastructure damaged by flooding and a $900 million boost to fire and emergency services resources.

Mr Hall says he’s delighted that the Queensland Government has heard the calls of the ICA and other insurance groups.

“Last year the ICA was critical of the Government’s budget for its lack of funding in this area, but it’s clear that this has now been reversed,” Mr Hall said.

“Queensland is now leading the nation in terms of resilience and mitigation funding which is critical given the state’s exposure.”

SIRA imposes conditions on Racing NSW workers' comp licence

NSW’s State Insurance Regulatory Authority (SIRA) has imposed special conditions on Racing NSW’s workers’ compensation insurance licence after performance issues were found.

SIRA carried out an audit late last year using powers under section 202A of the Workers Compensation Act 1987.

Issues were found with Racing NSW’s claims handling practices and records management.

Racing NSW must develop a corrective action plan to improve claims management compliance and implement SIRA’s Standards of Practice.

It must implement the plan as approved by SIRA and monitor its effectiveness.

Racing NSW must also implement a plan to improve its record management system.

“SIRA is closely supervising Racing NSW’s performance and compliance with the licence conditions,” the regulator said.

New Queensland law bans 'insidious practice' of claim inducement

Queensland has banned the “farming” of personal injury claims, with new laws prohibiting anyone soliciting another person to make a claim, paying for details of potential claimants, or receiving payment for a claim referral.

The state already banned the practice for motor vehicle compulsory third party claims in 2019 as it aims to prevent potential claimants from being “incentivised, harassed and induced” into seeking compensation by someone who will receive payment for the referral.

The new laws "break the nexus between claim farmers and legal practices” by requiring law firms to certify the claims they are representing have not been farmed, Attorney-General Shannon Fentiman said.

The Personal Injuries Proceedings and Other Legislation Amendment Bill 2022 will stamp out this “insidious practice” of claim farmers cold calling or otherwise approaching individuals to coerce them into claims to attract a fee, she said.

The new laws “remove the financial incentive for claim farmers to harass Queenslanders and ensure the justice system is not burdened by the cost of unnecessary personal injury and workers’ compensation claims”.

NSW Parliament floods inquiry seeks questionnaire input

The NSW Parliament Select Committee inquiry into this year’s floods has invited community feedback through an online questionnaire that closes on Thursday.

The inquiry has held hearings on six days and has received 59 submissions, including from the Insurance Council of Australia, IAG, Floodplain Management Australia and the Business Council of Co-operative and Mutuals and Northern Rivers Co-operatives Alliance.

The questionnaire asks for input on coordination between various levels of governments, agencies and private sector operators and invites comment on the preparation of the NSW Government to the western Sydney and North Coast floods.

It also seeks feedback on the role, composition and resource allocation of Resilience NSW, the State Emergency Service and other relevant agencies.

The Select Committee, which began its inquiry in April, will report by August 9.

Separately, an independent expert inquiry announced by the State Government is also continuing to examine the flooding catastrophe, looking at issues from preparation through to causes, the response and recovery.

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Life Insurance

Life insurers move to set up new peak body

Australian life insurers have made a “collective” decision to set up a dedicated peak body to advocate on their behalf, following a “significant change” in the industry before and after the Hayne royal commission.

The Council of Australian Life Insurers (CALI) hopes to be “up and running” by the start of the October quarter, as staff recruitment is already underway including for a CEO, a spokesperson says.

The spokesperson says CALI will be the first dedicated life insurance industry peak body in Australia.

Life insurers backing the new group believe the time is right for a peak body to focus solely on matters affecting the industry and its customers, given the changing landscape in both regulation and structure.

“Throughout a continued period of policy reform in the lead-up to and following the [Hayne] royal commission, the life insurance industry has undergone significant change, including structural changes via industry consolidation and specialisation,” the spokesperson says.

Life insurers have until now been represented by the Financial Services Council (FSC), which also owns the Life Insurance Code of Practice.

“The decision to establish a new peak body is one that was made collectively by the life insurance industry members, through a consultative and collaborative process,” the spokesperson told insuranceNEWS.com.au.

“That process was led by a working group of life insurance CEOs.”

The spokesperson says AIA Australia, Challenger, ClearView, General Reinsurance Life, Hannover Re, HCF, Integrity Life and MetLife Australia have indicated an intention to become CALI members.

MLC Life Insurance, Munich Re, NobleOak, Pacific Life Re, QInsure, RGA Reinsurance, Resolution Life Australasia, Scor Life & Health, Swiss Re, TAL and Zurich Financial Services have also expressed similar plans to join.

The spokesperson says CALI will be seeking to take over future responsibility of the Code as part of the transition arrangements with the FSC.

insuranceNEWS.com.au understands there is no agreement as of now between the FSC and CALI in relation to the transfer of the Code.

FSC announced last week the Code has been updated to include more than 50 new consumer protection provisions and will take effect on July 1 next year.

New life code carries $100,000 penalty for 'significant' breaches

The Life Insurance Code of Practice has been updated with more than 50 new consumer protection measures, including a financial penalty of up to $100,000 for some significant breaches in the form of a community benefit payment to a charity, the Financial Services Council (FSC) said.

As part of the code changes, the Life Code Compliance Committee will have increased powers giving it the authority to decide if a breach is significant enough to warrant a financial penalty or other sanctions such as putting out corrective advertising.

Other key improvements relate to pressure selling, premium disclosure, support for vulnerable customers, surveillance and medical definitions.

The new Code also bans blanket mental health exclusions in the standard terms and conditions on all newly designed contracts.

FSC says the new Code will take effect on July 1 next year, with a 12-month transition for subscribers to make the necessary system changes.

The changes to the Code, its first since the FSC introduced it in 2016, follow a public consultation last year with stakeholders including submissions from consumer advocacy groups.

“The Life Code introduces a range of improved consumer protections, especially when Australians need to claim on their life insurance policy, such as ensuring claimants are supported if they need to be interviewed and further restrictions on the use of surveillance,” FSC CEO Blake Briggs said.

The finalisation of the new Code comes as a number of life insurers – who are also FSC members – announced they will set up a new peak body called the Council of Australian Life Insurers (CALI) to advocate on their behalf.

FSC says the Code is mandatory for all of its life insurance members and a spokesperson says it will “work collaboratively with the life insurance industry to ensure the important consumer protections in the Code continue to apply” across the industry.

“Whilst it is open to every individual insurer to determine what representation arrangements best suit their organisation, there is universal agreement that the important consumer protections in the Life Code continue to apply to the whole sector, and this is the FSC’s priority,” the spokesperson told insuranceNEWS.com.au.

Here are some key Code improvements:

  • Pressure selling - ending a sale when appropriate; ban on refusing a quote
  • Cooling off - extending 30 days cooling off to all sales of long-term policies
  • Mental health - no blanket mental health exclusions in new contracts
  • Surveillance - stopping surveillance on the advice of any medical practitioner; surveillance for no longer than four months; new restrictions on business premises not open to the public
  • Medical definitions - new approach to obsolete medical definitions in older policies
  • Greater clarity - Code undergone independent plain English re-write

Click here for more about the new Code.

Upfront life commissions should be raised: The Advisers Association

The Advisers Association (TAA) says the upfront life insurance commission rate, set at 60% presently, should preferably be raised to 80% or higher in a submission to the Quality of Advice review.

TAA says the current arrangement is “too low” to cover the costs of providing insurance advice, which is reflected in the number of its members who have ceased providing it.

“Access to insurance advice for consumers has deteriorated with the exit of many risk specialists,” the submission says. “We will leave it to others to argue what the upfront commission should be but our starting point is it should not be less than the current 60% and preferably be 80% or above.”

Since January 2020 the upfront commission rate has been capped at 60% of the premium in the first year of a policy, under gradual changes brought in by the Life Insurance Framework. In 2018 the cap was set at 80% and in 2019 at 70%.

The TAA submission also addressed other questions raised in the review, which is a recommendation from the Hayne royal commission. The review is examining a range of advice-related matters including the remaining exemptions to the ban on conflicted remuneration, impact of life insurance reforms, compliance costs and role of technology.

TAA says it believes there are significant benefits to consumers and the broader Australian economy to continue to allow commissions on insurance, especially where the commission percentages are prescribed.

“The current mandated commission rates applicable to all providers go a long way to manage and minimise the risk of conflicts – as the adviser gets the same percentage and remuneration no matter which product provider they choose for their client,” TAA says.

“We have a strong view of the need to continue with commissions for life insurance products as this helps consumers have access to accessible, affordable and quality advice.”

TAA, which advocates on behalf of AMP Financial Planning and Hillross Financial Services financial advisers, also made a joint submission with 11 other financial services associations including the Financial Services Council, the Financial Planning Association and Association of Financial Advisers.

The joint submission focused on five key areas: consumer-first focus, recognition of professionalism, regulatory certainty, open data and innovation, and sustainability.

“Our joint associations believe in the value of financial advice and we wish to see an outcome where quality financial advice is both accessible and affordable for everyday Australians,” the submission said.

But the submission says the government and regulators, until recently, “appear to have taken the view that financial advice should remain a highly regulated environment that relies on black letter law, legislative instruments and regulatory guidelines”.

“This has led to a complex, inconsistent, costly and difficult to comply with environment with licensees and advisers being very fearful of making even the most minor error,” the submission said.

“The cost to serve consumers, customers and clients has increased significantly, with even simple advice or a simple review taking between 10-20 hours to ensure that all regulatory and compliance requirements are satisfied.”

Click here for the TAA submission and here for the joint submission.

Adelaide adviser charged with falsifying company books

The corporate regulator says Adelaide adviser Tai Thanh Nguyen, whom it banned permanently in 2019 for dishonest conduct including allowing incorrectly witnessed binding nomination forms to be submitted to insurers, has been charged with seven counts of alleged falsification of company books.

He was charged in the Adelaide Magistrates Court last Friday following an investigation by the Australian Securities and Investments Commission (ASIC).

This matter is being prosecuted by the Commonwealth Director of Public Prosecutions following a referral by ASIC.

ASIC alleges that on seven occasions, between about February 2010 and December 2018, he falsified company books while carrying out his financial planning and advice business.

The regulator further alleges that he inserted signatures and dates and altered documents relating to two of his clients, to look like he was compliant with his obligations as an authorised representative (AR) of the Australian financial services licensees.

Since August 5 2015 he has been an AR of Interprac Financial Planning and before that he was an AR of GWM Adviser Services from December 6 2011 to August 4 2015. And prior to GWM, he operated Financial Wealth Advisers from around July 2005.

The maximum penalty for each charge is two years’ imprisonment and/or 100 penalty units. When dealt with summarily the maximum penalty is 12 months’ imprisonment and/or 60 penalty units.

AFCA rules 90-day 'elimination' clause applies in trauma claim dispute

A complainant whose claim for trauma benefit was declined on grounds that his malignant cancer occurred during the initial 90-day exclusion period of the policy’s commencement date has lost his dispute with Zurich.

He insisted the “90-day elimination” trigger did not apply as he was not diagnosed with nodular sclerosing Hodgkin’s disease until May 17 2010, more than three months after the policy commenced on February 2 that same year. The exclusion period expired on May 3.

A report of an ultrasound requested on May 14 and collected and reported three days later on May 17 recorded “right neck lump for four weeks with associated tenderness”. The report also noted multiple enlarged right supraclavicular lymph nodes.

But the Australian Financial Complaints Authority (AFCA) says the “weight” of medical evidence provided shows the condition “occurred” during the exclusion period and that the circumstances leading to the diagnosis also became apparent during the 90-day period, meaning the restriction applied under the terms of the policy.

The complainant had visited his GP on May 10 about a neck lump that he had noticed for two weeks and also gave a similar timeline in visits with other medical specialists who attended to him.

His GP referred him for blood tests, an ultrasound and a cytology report to determine the cause of the lump.

A fine needle aspiration test performed on May 25 came back inconclusive and a cytology report dated June 4 following the examination on May 24 said there were multiple large lymph nodes and a well-defined mass with features “suspicious” for lymphoma or malignant thymoma with secondaries.

Another doctor identified as Dr MB sent a letter to the GP dated June 18 that the complainant had noticed swelling in his neck about two months ago. On examination Dr MB found there were some hard masses in the base of the neck and he performed a biopsy on June 15.

Dr MB suspected the complainant may have a lymphoma but would review him again when the test results were received and on June 24 he sent another letter to the GP that the biopsy revealed the complainant had nodular sclerosing Hodgkin’s disease.

In a report to the insurer dated September 17 2010, Dr MB said he first saw the complainant on June 14 2010 where he gave a history of noticing swelling in the right side of the neck “which was gradually increasing over several weeks”.

Dr MB’s opinion was that the condition would have started as a very small lump in the base of the neck which could easily have been missed for several weeks and would only have become more evident as it became larger.

The GP provided a report to the insurer dated October 22 2010 that the complainant presented on May 10 that year about the lump he had noticed two weeks previously.

“The medical evidence supports the view that during the 90-day elimination period (ie before May 3 May 2010) the complainant’s cancer occurred,” AFCA says in its ruling of the dispute.

“I am also satisfied the circumstances leading to the diagnosis of cancer became apparent during the 90-day elimination period.

“This is because when the complainant saw Dr JC on May 10 2010 he said he noticed a neck lump for two weeks. This means the lump, which led to the cancer diagnosis, became apparent during the 90-day elimination period.”

Click here for the ruling.

Resolution Life makes key leadership appointments

Resolution Life Australasia has announced two key leadership appointments, aimed at supporting its goal to be the “leading” in-force specialist life insurer in the region.

Paul Tarlinton will be Chief Customer and Operating Officer for Australasia, having been acting in the role since last December. He was previously Chief Human Resources Officer and Chief of Staff.

In his new role, he will manage the design and implementation of strategic customer offerings, claims management and operational performance. He remains on the executive leadership team reporting to Resolution Life Australasia CEO Megan Beer.

Graeme Edwards will take up the roles of GM New Zealand and Customer Experience Lead Australasia. He will be a key member of Mr Tarlinton’s team and joins the business from Southsure Assurance.

“These appointments will play an important part in the ongoing evolution of our customer offering and will set us up well as we pursue our ambition to be the leading in-force specialist life insurer in Australasia by being a data driven, digital and customer focused business,” Ms Beer said.

The business, owned by global financial group Resolution Life, became a major player here following its purchase of AMP’s life insurance business in 2020.

In February this year it announced a deal to acquire AIA’s Superannuation & Investments business for an undisclosed amount, describing the move as one that will “strengthen” its market presence.

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The Professional

Insurers should ditch hiring rule book, recruiter says

Insurers must rethink how they build teams or they will struggle to fill roles and create “massive holes” in servicing clients, Kona Recruitment says.

Kona MD James Toth says the most in-demand role at the moment is companies looking for senior account managers to manage large portfolios and to train staff. The salaries of experienced professionals have jumped substantially since the start of covid, he says, after they demanded “30-40-50%” pay increases to move roles.

“Companies started to say yes because they were so desperate,” Mr Toth tells insuranceNEWS.com.au. “It’s beyond anything I’ve experienced before. It’s just jumped in the space of two years, their salaries are insane, I have never seen salaries being thrown around like they are right now.”

He says a senior account manager with five years commercial ASX experience who might have been on $120,000 is now earning “$160-180,000-plus" a year.

Part of the problem was poor succession planning by the industry a few years ago which is coming home to roost, and Kona recommends considering hiring less experienced staff and a junior alongside to be mentored, creating a pipeline.

“There is an opportunity to have two people on the (pay) roll rather than one,” Mr Toth said, recommending insurers be more creative, drop “rigid” hiring expectations and "become a lot more self aware”.

“Promote internally and bring in juniors,” he says.

Companies are having to make more compromises around how experienced and qualified candidates must be to move into a senior role, he says, forgoing demands for “someone with ten years' experience to manage a professional indemnity portfolio of $1.5 million”, for example.

“This person isn’t going to be out there in the market looking for a new role, and if they are, the remuneration required would be beyond ridiculous,” Mr Toth said.

“What we've observed within the insurance industry right now is that it's particularly challenging. Candidates going for Senior Account Manager and Divisional Manager positions are usually expected to have about 10 years of industry experience.

"The talent just isn't there right now.”

Insurers could instead recruit a candidate with five years’ experience who “may need significant upskilling but who is ambitious and motivated” and then task the administrative duties of a portfolio to a junior staff member.

Allianz and SSI partnership celebrates refugee and migrants' education scholarships

Allianz Australia and Settlement Services International (SSI) announced 37 new recipients of its refugee scholarship program at ceremonies as it expanded the initiative’s reach.

The program began in 2016 to provide educational and career opportunities for migrants and refugees who face financial barriers.

This year’s ceremonies, held in Sydney, Brisbane, and Melbourne on June 15, received additional funding from Allianz that allowed the program to support recipients from Queensland and Victoria for the first time.

Allianz Australia MD Richard Feledy says the investment provides opportunities for underprivileged groups to offer a diverse voice in future workplaces.

“The more we can bring together people with different experiences, ideas, and backgrounds, and create environments in which people can use their unique skills and perspectives, the stronger both businesses and societies will be,” Mr Feledy said.

“Quality education is a critical step in the journey of all young Australians to establish rewarding careers, however, many young people of refugee backgrounds are facing significant financial barriers to accessing that education. I am so proud of the work that Allianz and SSI are doing together to support these deserving young people in their journey to learn and achieve their goals.”

Roaa Ahmed from NSW received a scholarship at this year’s ceremony. Her family settled in Australia after being forced to leave Egypt and China.

She says she intends to study journalism to speak up against gender inequality and human rights issues.

“As a refugee and as a person who didn’t have basic human rights such as the right to live and express my opinions freely, I am strongly determined to study journalism,” Ms Ahmed said.

“Our world is full of injustices and it’s now the time to give humans and specifically women and children the ability to practise their basic human rights, including access to education and living.”

Since its inception, the partnership has delivered 214 refugee education scholarships, totaling over $400,000 in relieved costs.

The scholarships have supported 36 refugees into permanent employment in various industries, including Finance, Human Resources, Claims, IT, Underwriting, Workers’ Compensation, and Marketing.

SSI CEO Violet Roumeliotis says the boosted investments from Allianz highlight the insurer’s dedication to providing opportunities for those in need.

“Allianz understands that supporting individuals who have a refugee experience is not just about providing material aid and assisting people to survive,” Ms Roumeliotis said.

Ms Roumeliotis says the Covid-19 pandemic highlighted refugee students' digital barriers and exacerbated existing difficulties.

“As schools and other education institutes moved online over the last two years, we saw how a lack of access to technology or digital literacy was negatively affecting newly arrived students,” Ms Roumeliotis said.

“With the help of organisations like Allianz and other partners in the community, we hope to close that divide and support students as they continue their education.”

icare delivers workplace peer mental health training

NSW state insurer icare’s Injury Prevention Manager Jen Cameron has been delivering mental health training in workplaces aimed at sparking early intervention that reduces mental health pressures on staff.

Government data shows 45% of Australians encounter a mental health issue during their life, and workplaces can provide vital early support.

A team of junior “Rainbow Resident” medical officers at Sydney’s St Vincent’s Hospital are stepping forward to offer mental health support to their colleagues, following the training with icare.

Peer support programs in workplaces offer people at risk of a mental health problem a way to connect with colleagues and seek the support that they need, Ms Cameron says.

“Having trained peer supporters in a workplace can help individuals to identify pressures and take action,” Ms Cameron said. "It can deliver the first step in seeking help and to create a safe space to feel supported.”

Dr Jessica Green says the mental health training will make the Rainbow Resident team more aware of colleagues who may be struggling at work and then help them access support. They are trained to identify a range of psychological indicators that suggest a workmate might be struggling and the best ways to approach them and seek support.

Trouble sleeping, feeling constantly flat or fatigued, or a lack of appetite can point to psychological risk.

"The peer-to-peer mental health training from icare will ensure our junior doctors can thrive at work, by breaking down stigmas and holding positive discussions about mental health,” Dr Green said.

Clyde & Co announces new Partner in Melbourne office

Law firm Clyde & Co says Matthew Ellis has joined as Partner in its Melbourne office.

Mr Ellis is a corporate and regulatory lawyer focused on the insurance sector and he will work to grow the advisory and regulatory disputes practice and further strengthen the corporate and regulatory practice alongside Avryl Lattin and Dean Carrigan.

He was previously with Norton Rose Fulbright.

“The regulation of insurance products has increased and will continue to do so, leading to greater demand for these services, across both front end, corporate and regulatory advisory work, and litigation and regulatory investigations,” Partner and Head of Insurance Lucinda Lyons said.

“[His] addition to the team ensures that our leading practice is set up well to meet this increasing demand.”

Prince of Wales attends Ansvar owner's thanksgiving service

The Prince of Wales joined hundreds of beneficiaries at Westminster Abbey as the charitable owner of Ansvar Insurance, Benefact Group, celebrated giving more than £100 million ($177 million) to good causes.

Ansvar CEO Warren Hutcheon was pictured flying the flag on behalf of the Australian business as he entered the famous abbey in London.

The charity-owned financial services group, formerly Ecclesiastical Insurance Group, is the fourth biggest corporate donor in the UK. It has supported The Prince’s Foundation for some years among its 10,000 charities.

“Our Service of Thanksgiving at Westminster Abbey was a wonderful celebration of our achievement ... which has helped to change thousands of lives for the better in the UK and abroad,” Group CEO Mark Hews says, adding that Westminster Abbey was “one of our most precious and prestigious clients”.

"We have played our part in great Abbey events over the years, including insuring the Coronation of Her Majesty Queen Elizabeth ll, now celebrating her Platinum Jubilee.”

Benefact Group distributes donations through a range of programs – employee giving, business giving and programs such as its Movement for Good Awards – as well as giving all available profits to its charitable owner, the Benefact Trust.

"We are driven by how much money we can give away,” Mr Hews said. “This gives us real purpose.”

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Insurtech

Blair Nicholls leads tech underwriting agency Clover

Blair Nicholls has taken a new role as CEO at startup Clover Insurance Australia, a technology-led insurance underwriting agency focused on simplifying the placement of insurance for brokers which is set to go live late next month.

Business packs will be rolled out first, followed by home and motor, Mr Nicholls – who co-founded insurtech Blue Zebra and was most recently CEO at Red Tiger Australia – tells insuranceNEWS.com.au.

“It’s a $55 billion gross written premium market, if we get just a small portion of that I'll be happy,” he says.

Mr Nicholls spent around 18 years at QBE, finishing as Chief Actuarial Officer and Head of Reinsurance, and also formerly held the role of CEO Australia and New Zealand at Berkshire Hathaway. He says he enjoyed “lots of surfing” at his base in Manly after selling out of Blue Zebra and being subject to a year-long non-compete clause.

Joining him at Clover are Aaron Gavin as Chief Underwriting Officer Commercial, who was GM SME at QBE for several years until earlier this month, and Jeromie Weatherburn as Chief Underwriting Officer – Personal Lines. He was formerly pricing manager at IAL.

Former Zurich Head of IT Grant Barrington takes the role of CIO, and Rachel York, who until recently was Head of Funding at QBE, will be COO. Travis Dale will be Head of Claims.

The team say “watch this space” as they prepare to launch the platform, which offers instant quoting and tools for ease of us and will be digitally efficient, agile and tailored, work in partnership with stakeholders, and be partnership based for distribution and advice.

“It’s great to be part of such an innovative team, so watch this space as we will be launching our first product very soon,” Mr Dale said.

Research examines robotics help for older drivers

Emerging vehicle assistive technologies and the experience of older drivers is being investigated as part of a project that could help improve safety.

The three-year project, led by Scientia Professor Kaarin Anstey, brings together expertise across transport innovation, the psychology of ageing and robotics and involves industry partners Suncorp and National Seniors Australia.

Researchers will draw upon an analysis of insurance claims databases, a large consumer survey and a naturalistic driving study to gather evidence on how ageing and cognition interact with assistive technology in cars.

“This study aims to enhance safety for older drivers by promoting optimal driving in cars with new technology,” Professor Anstey said. Keeping older adults mobile for longer also provides wellbeing benefits.

How drivers adapt from their old cars to new vehicles with semi-automation is being examined, while the study will also consider factors such as whether drivers respond better to flashing lights, sound alerts or voiced commands.

The work is supported by the Australian Research Council.

Koba takes out 2022 Finnie award

Pay-per-kilometre car insurer Koba has won this year’s Excellence in Insurtech category, which is sponsored by IAG Firemark Ventures, at the FinTech Australia Finnie Awards.

Koba Founder Andrew Wong tells insuranceNEWS.com.au the win was a pleasant surprise.

“It is amazing to be recognised amongst our peers. There were so many great nominees, I truly didn’t think we had a chance of winning,” he said.

“This award shows that the data revolution is coming to insurance. Customers want more from their insurance company and insurtechs are leading the way.”

Also vying for the award were Coverhero, Digital Agriculture Services, claims manager FreightSafe, Hollard-backed Open Insurance, uBind, delivery rider insurance upcover and online insurance broker UpSure.

“We’d like to congratulate all of the winners but equally celebrate all of the finalists as the calibre of entries was high across the board,” FinTech Australia CEO Rehan D’Almedia said.

FinTech Australia is a national association for the Australian FinTech Startup community and works with government and industry to create a supportive environment.

Click here for a full list of winners.

Howden creates springboard for insurance start-ups

UK-based Howden Group is creating an end-to-end platform to accelerate the launch and growth of insurance start-ups by bringing funding, capacity, expertise, governance and distribution together in one place.

The initiative, to be led by Tom Hoad, will create an investment and risk “incubation hub” and proliferate new product development in the London market, Howden says.

Combined with Howden’s underwriting platform, multi-channel distribution, access to capacity, and culture of innovation, the new springboard will be a preeminent platform for entrepreneurs to launch and scale their businesses, it says.

“With volatility higher than ever and the risks of tomorrow very different from those of today, we need to innovate to remain relevant, and we need to do it quickly,” CEO David Howden said. “It is crunch time for the insurance industry.”

Mr Hoad was formerly Head of Innovation at Tokio Marine Kiln and worked on Lloyd’s Production Innovation Facility and the Lloyd’s Lab.

Salesforce unveils new financial services innovations

Salesforce has announced expanded digital offerings designed specifically for the financial services industry including insurance providers.

The US cloud-based software solution provider says its new Salesforce for Financial Services innovations and automation capabilities will help boost productivity and customer satisfaction.

Salesforce for Financial Services powered by new Client 360 capabilities enables financial institutions to automate common tasks, personalise service engagement, and unlock insights with artificial intelligence (AI) to anticipate customer needs, the company says.

Innovation highlights include an AI-powered chatbot solution called Virtual Assistant to automate routine requests and Analytics for Financial Services to help financial institutions understand customer data and make informed business decisions.

“Financial services institutions are trying to keep pace with the digital acceleration that occurred as a result of the pandemic,” Senior VP and GM Financial Services Eran Agrios said. “At the same time, consumers are demanding more tailored services.

“New Client 360 capabilities are designed to meet these complex needs head-on, creating more efficiency across internal teams. This gives employees and customers the time and tools they need for a better experience overall.”

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International

'Flowed into pockets of corrupt officials': JLT Specialty fined over Colombia commissions

UK regulator the Financial Conduct Authority (FCA) has fined JLT Specialty £7.88 million ($14 million) over “lax controls” that led to commissions it paid in relation to a business deal in Colombia ending up in “the pockets of corrupt officials”.

The FCA says JLT Specialty – a provider of insurance broking, risk management and insurance claims service that was part of JLT Group – failed to manage its business and risks responsibly and effectively, thereby allowing bribes of more than $US3 million ($4.35 million) to take place in one instance.

The Colombia deal, in which JLT Specialty placed business in the London reinsurance market for JLT Re Colombia – another company in the JLT group – had been introduced by a third party based in Panama.

JLT Specialty paid about $US12.3 million ($17.84 million) in commission between November 2013 and June 2017 to JLT Colombia Wholesale, the parent company of JLT Re Colombia, which in turn paid $US10.8 million ($15.67 million) to the third party.

The third party then paid more than $US3 million to government officials at a state-owned insurer in order to help retain and secure their business for JLT Specialty and JLT Re Colombia, the FCA said in a statement.

“Lax controls by JLT Specialty meant, ultimately, that money flowed into the pockets of corrupt officials,” FCA Executive Director of Enforcement and Market Oversight Mark Steward said.

“It is because of risks such as this that we are maintaining our focus on financial businesses’ financial crime systems, taking action where these firms fall short.”

FCA says it considered that JLT Specialty’s self-report in June 2017 and assistance during its investigation, including providing investigators with access to materials from JLT Group’s internal investigation, were mitigating factors when determining the appropriate level of financial penalty.

The £7.88 million fine follows JLT Specialty’s agreement to settle at an early stage of the investigation. As a result, it qualified for a 30% reduction on the original penalty of £11.26 million ($20 million).

JLT Group was acquired in April 2019 by Marsh & McLennan Companies and JLT Specialty has been non-trading since the sale of its trade, assets and liabilities in 2020.

No country immune: Australia among most vulnerable to cyber attack

Australia is among countries most vulnerable to cyberattacks, RIMS says, with an average cost of cybercrime $6.6 million.

The US is most vulnerable, with Belgium, Dominican Republic, Hong Kong, Samoa, China, Afghanistan, Tajikistan and South Africa also highly exposed, RIMS says in its Executive Report “Getting Started on Cybersecurity”.

“As the world has made dynamic strides in digitising many strategies and process, we have in turn created a much larger attack surface for cybercriminals,” RIMS said.

"It is of paramount importance that every small- and medium-sized business identifies and better understands their threat profile and vulnerabilities.”

"It may be tempting to adopt a mindset of “cyberattacks only happen to others,” and “my company is not big enough to be a target. However, this way of thinking leads to overconfidence and a false sense of security."

RIMS recommends identifying and categorising customer and employee data that may be targeted: Protected information, (ID numbers, medical data), contact information (home addresses, email) and personal financial information (employee bank accounts, tax and payroll information)

It also says to assess company data: billing information, orders, product specifications and operational information.

“If you have a cyber insurance policy, do you know how to use it? Are benefits, such as a crisis hotline, legal advice and forensic services, included? Do you know how your broker and insurer can support you and when should you consider contacting them or filing a claim?” the RIMS report said.

It also says people “are the weakest link in cyberattacks,” and a well-informed and cyberaware employee is an invaluable asset in your fight against cybercriminals.

It recommends developing cybersecurity policies, implementing security awareness training for all employees, installing spam filters, endpoint detection and response (EDR) and anti-malware software, and deploying next-generation firewalls (NGFW).

"This is the first step in putting together an appropriate cyber resiliency strategy. The next step is to collaborate with expert vendors and insurance brokers to align your strategy so that it will help to mitigate and protect your business from cyber threats.”

Brokers 'must do more' on M&A risk

Brokers should play a greater role in helping tech clients mitigate merger and acquisition (M&A) deal risk, cyber specialist CFC says.

Transaction Liability Private Enterprise Product Manager Joe Perrett says brokers can play a vital role in helping facilitate a smoother transaction and ensuring unique risks any deal presents are understood, and by helping them access suitable insurance.

“As tech M&A transactions continue to increase, claims are also on the rise,” he said, noting the tech sector saw M&A values exceed $US1 trillion ($1.45 trillion) for the first time last year, with SME businesses key targets for tech heavyweights.

“For tech businesses, M&A risks are wide ranging and can differ greatly to those of traditional businesses,” Mr Perrett said, adding the risks can be intangible and unique.”

CFC says the top three risks within tech M&A deals are intellectual property (IP), data protection and cyber security.

In a sector with IP at the core of its value, litigation will be commonplace as businesses look to protect their valuable assets and obtain competitive advantage. Representations and warranties are likely to include IP, so sellers could be liable for any problems that arise post deal, and E&O policies typically exclude patent litigation.

Tech companies are often custodians of large volumes of their customer’s data, and so are exposed to data protection regulation. In tech M&A transactions, data breach issues which surface after a deal can lead to hefty claims and lengthy litigation, CFC says.

In tech M&A, cyber security and risk exposure are analysed in detail during the due diligence process, and CFC says a breach within a tech firm is likely to have greater implications than in any other sector, affect customers and result in litigation.

Volatile US lightning claim costs decline to $1.9 billion

US insurers paid out $US1.31 billion ($1.89 billion) in lightning-caused homeowner claims last year, dropping from $US2.06 billion ($3 billion) in the previous 12 months.

The Insurance Information Institute (Triple-I) says the average cost per lightning-related claim fell 25% to $US28,885 ($41,595) despite a rise in the average cost over the five-year period ending 2021.

“The average cost per claim is volatile from year to year, but it has been particularly high in the past two years because of lightning fires throughout the country.” Triple-I Vice President Loretta Worters said.

The outsized 2020 number nationwide was caused in part by California fires sparked by lightning.

Florida, the state with the most thunderstorms, ranked highest for the number of lightning claims last year, with 5339, followed by Texas, Georgia, and California. California, which had 3381 lightning claims, had the highest average cost per claim at $US154,574. ($222,588).

Triple-I released the figures to coincide with National Lightning Safety Awareness Week, which ran from June 19-25. The week was started in 2001 to reduce the number of US lightning-caused fatalities.

Zurich report outlines systemic failures in preparation for 'Bernd' weather event

Zurich Insurance has released analysis of last year’s severe flooding in parts of western Europe, saying the catastrophic weather event showcased inadequate standards of flood preparation and resilience.

The floods from last July affected several European countries, in particular parts of western Germany, causing more than 230 deaths and estimated losses of €40 billion ($61.04 billion) to €50 billion ($76.29 billion) within a week.

Zurich’s Post-Event Review Capability (PERC) report says limiting analysis of the event to climate change impacts negates highlighting systemic flaws that worsened the crisis.

“An inadequate understanding of floods, a problematic structure for rebuilding and insufficient pre-emptive risk reduction measures played a key role in the disaster,” Zurich said.

The report, assembled by a coalition of international researchers, economic groups, and non-profit organisations, outlines changes in disaster mitigation, early warning systems, flood prevention, and risk awareness for residents to ensure adequate safety measures exist for at-risk communities.

While noting that the event’s intensity was correctly measured, Zurich says accurate predictions of flood levels were only made for major rivers such as the Rhine and Moselle and failed to identify the overflowing of minor rivers with any degree of preciseness.

Zurich says poor collaboration between meteorological and hydrological forecasters and limited gauge stations to supply data for flood forecasting led to inaccurate models.

It also noted zoning issues and substandard flood hazard maps that were ill-prepared for the flood’s severity, saying this could continue to be a problem for future events.

“Flood maps and the zoning of floodplains must not be based on ‘average events’ alone, but should also address worst-case flood scenarios,” Zurich Chief Claims and Operating Officer Horst Nussbaumer said.

“If we work from realistic assumptions, we are able to outline the most drastic potential effects of flooding, for example those caused by saturated soils or blockages from debris. This in turn will support the risk assessment for future flood events. In the future, municipalities should consider our findings more closely when drawing up zoning and development plans.”

The insurer recommended replacing pull messages to push alerts to fasten communications lines between authorities and communities and incorporating “cell broadcasts” to relay messages in case mobile internet services are not functional.

It says early warning systems provided inaccurate or contradictory information that confused many residents and urged for more robust training in providing clear and accurate information.

Zurich’s Flood Resilience Program head Michael Szonyi says the “unprecedented” labelling of the event is not true and that authorities should learn from previous flood events.

“Records show that the Ahr Valley suffered a flood of similar magnitude back in 1804. Another flood in 1910 significantly exceeded current gauge records,” Mr Szonyi said

“Evidently, extreme weather events are forgotten only too quickly. This may be the reason why extensive flood resilience schemes from the 1920s were never implemented. Even when the Ahr Valley flooded again in 2016, there was talk of a once-in-a-century event, which the historical records show was far from true.”

Natural hazard premiums have dropped to prices before last year’s floods, outlining the general public’s complacency; Mr Szonyi says more needs to be done raise awareness of flooding events.

“The ability to deal with natural hazards has declined among the population as a whole. Awareness that floods can and do happen, and of their potential severity, therefore needs to be embedded more strongly and permanently in people’s minds,” Mr Szonyi said.

Zurich says to remove the “unexpected” perception of flood events, communities need increased exposure to the possibility of the event occurring.

It recommends regularly scheduled evacuation drills, information sessions on the dangers of floods, visible commemorations for lives lost and damage done, and increased alarm preparedness.

“Verbally dramatising an event as a singular disaster causes people to intuitively misjudge the probability of it occurring,” Mr Szonyi said

“Public discussions often focus solely on climate change as the cause of these extreme weather events and their consequences. This unhelpfully narrows the public perspective to just one of the many factors which ultimately lead to these disasters. As a result, the focus shifts away from prevention.”

For the full report, click here.

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Analysis

Like-for-like vs like-for-right

Insurers have been at the vanguard of calls to “build back better” after Australia’s record-breaking floods catastrophe – and rightly so.

If we build back the same way, in the same places, then we can expect the same devastating results.

The message is getting though, and at recent Insurance Council of Australia (ICA) forums, flood victims who want to stay put have expressed a desire to improve the resilience of their homes as they rebuild, and they want their insurers to help.

But there’s a problem. Insurers are contractually obliged to build back like-for-like – the principle is written into policies.

And while insurers may agree that additional resilience measures make sense, for the most part, they aren’t going to pay for them.

That’s called betterment, and it’s something insurance traditionally stops well short of, for obvious reasons. It’s hard to price, and even if it could be included, it would send already expensive premiums soaring well beyond where they are now.

If a customer can rebuild in a different way for the same cost, then that may be possible, but this works best for total losses, which most flood claims aren’t.

Setting a sum insured high enough to cover the cost of resilience improvements doesn’t work either. Insurers don’t automatically go up to the sum insured because over-insured properties create clear “moral hazard” risks.

A cash settlement could be explored, with the insured adding extra funds to cover the cost of improvements, but there are very good reasons why an insurer rebuild suits many claimants better, especially in the current environment.

So can anything be done? ICA says the industry is looking at the issue, and that policies may need to evolve.

The major insurers say that while they primarily build back like-for-like, they are flexible enough to include resilience improvements where possible, and Suncorp’s Build it Back Better scheme offers an additional $10,000 for insureds to increase resilience in certain circumstances.

ICA COO Kylie Macfarlane tells insuranceNEWS.com.au this issue is “top of mind” for many in Australia.

“There are a lot of people who are looking at ‘how do we actually build back better in our current location’, and that’s for those individuals to make decisions around that,” she said.

“Insurers need to comply with the terms of their contract, which are typically like-for-like.

“We have a lot of people talking to us through northern NSW and southeast Queensland saying ‘we don’t want to leave our community, but we need to raise our house’.

“And that is a different outcome to building back what they’ve got today. In that instance, they need to engage with their insurer to have a conversation about what their policy terms specify, and what options they have available.

“For many people, if that is what they want to do, the option may be that they take a cash settlement and undertake that work independently.”

But Ms Macfarlane says insurers do need to think innovatively about future products that could provide “a different array of options”.

“Is there the opportunity to think about different terms of contract that may allow customers to engage their policy terms in a way that allows them to remediate or rebuild their property outside of the traditional like-for-like terms?”

Suncorp says that, “as is standard in the industry”, its policies are designed and priced to build back like-for-like or provide customers with a cash settlement for the necessary repairs.

“If a Suncorp Insurance customer elects for us to build back like-for-like, the Build it Back Better resilience options are offered on top of this obligation, up to policy limits,” a spokesperson says.

“We are committed to working with builders and suppliers to determine what upgrades could be done to better protect the homeowners next time they are significantly impacted, particularly by extreme weather.”

IAG also says it is dedicated to helping customers become more resilient.

“Generally, the repair or rebuild of a customer’s property will be in line with their sum insured, restoring it to its condition prior to their claim. However, we also look for opportunities to increase the resilience at a customer’s property during the claims process,” Executive Manager Peril and Event Claims Craig Byfield said.

“Following Cyclone Seroja, we looked to improve the cyclone resilience of our customers’ homes by identifying opportunities to upgrade the property to a higher building standard, where possible. For example, this included installing shutters on windows to help prevent wind and water damage to the home in the future.

“And following the recent flood disaster in southeast Queensland and NSW, we looked for opportunities for customers to repair their homes to a more resilient level to help protect them in the future.

“For customers whose homes needed to be rebuilt, this included the potential redesign of their home within their sum insured, that would make it more resilient to flooding, for example, by elevating the floor level of the home.”

Chief Corporate Affairs Officer at Allianz Australia Nicholas Scofield says many claimants are keen to “build back better”, with some only realising they are in a flood-prone area following the recent catastrophe.

However, he says that the most common proposed solution is to raise entire properties off the ground, and this is a complex and expensive process. He also says as most flood-damaged properties are not total losses, it is harder to make such dramatic structural improvements.

“You’d have to essentially rebuild the whole property, and it wouldn’t be an option for insurers to cover that for a partial loss if the cost would exceed that of reinstating the property to its original state”, he said.

Mr Scofield says some policies provide an uplift on the sum insured in the case of a total loss, and this approach could theoretically be extended to partial losses in order to provide additional funds for simpler resilience upgrades to be installed.

But LMI Group Founder and Chairman Allan Manning believes policy wordings won’t change a great deal.

He says coverage is available if additional resilience measures are dictated by a council or similar authority, and there is a set of clear rules, but otherwise it’s very hard to price in the improvements.

“Who sets out what has to be done? I just can’t see it happening. The insurance industry has never covered betterment and the insured has to take some responsibility themselves.

“You couldn’t have a situation where a council approves development on a floodplain, the homes get wiped out and it’s the insurer that has to pay to upgrade them.”

Insurers are determined to do all they can to help communities build back better, but there’s understandably a limit to how much they are prepared to pay to fix the past mistakes of others.