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Industry profits fall as COVID, natural disasters dent earnings

Bushfires and other costly natural disasters from last summer plus the fallout from COVID-19 on financial markets have significantly affected general insurance earnings, the Australian Prudential Regulation Authority (APRA) says.

APRA’s latest prudential update shows the industry recorded an annual 73.3% fall in net profit after-tax to $900 million for the year to September and a 2.8% decline on a quarterly basis to $836 million during the three months to September.

“This was due to lower underwriting results from the catastrophic bushfire and storm events in late December and early 2020, and large falls in investment income mainly from the negative impact of the COVID-19 pandemic on investments markets in the March quarter,” APRA says of the year to September earnings fall.

Underwriting profit dropped 16.4% to $1.6 billion and investment income fell 68.2% to $1.2 billion during the 12-month period while gross claims expense increased 11.4%.

“Within the underwriting results, insurers reported increases in gross earned premium in most classes of business,” APRA says. “This was particularly evident in the householders, fire and [industrial special risk] and professional indemnity classes as premiums increased in response to rising claims costs.”

Householders’ gross earned premium increased to $9.88 billion from $9.3 billion a year earlier, fire and industrial special risk to $5.46 billion from $4.86 billion and professional indemnity to $2.46 billion from $2 billion.

For the September quarter underwriting profit grew 9% from the preceding quarter to $1.1 billion but investment income slumped 8.3% to $626 million and gross claims expense increased 7.7% to $9 billion.

APRA says domestic motor underwriting profit of $514 million held up earnings during the quarter.

Actuaries call for government action on affordability issues

The Actuaries Institute says “temporary and targeted government intervention” is needed to help manage the issue of insurance affordability, with households in up to 12% of Australian postcode areas facing pressure in meeting annual premiums.

A research paper says any measures to address affordability should take into account the needs of the vulnerable, sending correct economic signals to consumers and identifying what changes in behaviour are needed.

“The overall goal should be to improve the risk profile of the population to maximise insurability of properties and minimise the need, in the longer-term, for ongoing government intervention to promote resilient communities," the paper states.

“We need to future-proof Australia in a cost-effective manner to make affordable insurance available to as many people as possible.”

The report, Property Insurance Affordability: Challenges and Potential Solutions, says there is a compelling case for public policymakers to provide some support for those facing unaffordable premiums.

The transition to address level risk assessment rating has led to some properties seeing “price dislocation”, with moves upwards hitting lower socio economic groups in highest risk areas the hardest.

“Currently, we lack a clear and widely accepted measure of affordability, which is necessary to target relief to those who need it,” the report says.

Efforts to address problems through mitigation and revisions to building codes will take many years and sustained funding, and the current effort is “nowhere near enough” to address the issue rapidly.

The report says the Actuaries Institute strongly supports cost-effective mitigation but is “generally agnostic” towards which other methods should be adopted to address affordability, while suggesting certain guiding principles.

Robust private markets and risk-based pricing support long-term public policy goals, but policymakers must also consider how much economic pain is acceptable for consumers or households to bear, and how much exposure the government can afford to mitigate such pain.

The report also looks at whether losses should be funded before or after events, and in what proportion and to what extent costs should be pushed out and thus borne by future generations.

The paper is available here.

Key managers leave ICA after restructure

Several key executives will leave the Insurance Council of Australia (ICA), following a strategic review.

The Government and Stakeholder Relations and Communications teams have been combined into one Public Affairs group.

As a result, the roles of Head of Communications Campbell Fuller and Head of Government and Stakeholder Relations Richard Shields have been made redundant.

Mathew Jones has joined ICA as GM Public Affairs. He was most recently the Executive Director Communications and Engagement for the NSW Department of Premier and Cabinet for more than three years.

Prior to that he held senior roles in the state’s Department of Planning and Environment, and was a Chief of Staff to a former NSW Treasurer. He has also been MD of the public affairs agency Parker and Partners.

ICA’s Head of Regulation Policy John Anning, who joined in 2007, will retire from his full-time position next month. He will work on a part-time basis next year on ICA special projects.

As reported last week, ICA Head of Risk and Operations Karl Sullivan has also left after 14 years.

ICA CEO Andrew Hall says the restructure “will better align our skills and capabilities” to the delivery of ICA’s strategic plan.

“After 10 years in his role … Campbell Fuller has stepped down and is moving to the next phase of his career,” Mr Hall said.

“ICA thanks Campbell for his advice, guidance and support over an extremely challenging decade for insurance and financial services.

“Richard Shields will be stepping down in early 2021 after assisting the team with the transition of major pieces of legislation currently before the Parliament.

“Richard has played a fundamental role in re-building the government relations function for the ICA and supporting members through several years of important reform to insurance and financial services.”

Head of Strategy Kylie Macfarlane is managing the Risk and Operations directorate while a review of member requirements takes place.

ICA has started an “internal and external search” for a replacement for Mr Anning.

BI claims certainty ‘some time’ away: AM Best

Clarity over business interruption claim impacts as a result of the COVID-19 pandemic is likely to be “some time off” as legal battles continue over wordings and other considerations, AM Best says.

Insurers are yet to decide if they will appeal an initial NSW Court of Appeal test case decision which found insurers could not rely on wordings citing the repealed Quarantine Act 1908 to exclude cover for COVID-19 disruptions.

“This test outcome remains only one piece of a much larger puzzle, with a number of other BI contract triggers yet to be evaluated ahead of understanding the full liability for insurers,” AM Best says.

“In particular, outstanding policy matters include proximity and prevention of access triggers, which are expected to also face a legal test cases in the same manner as the first.”

AM Best says there’s also further uncertainty on how any claim settlements for COVID-related shutdowns would be calculated.

“This is also likely to be a highly complex area for determination given that disruption borne by prevention of access, for example, would only be to the detriment of the business in the context of the pandemic operating environment, which in itself may be at a far weaker level as compared to the pre-pandemic position,” it says.

Insurers have announced provisions for business interruption claim exposures and some have launched capital-raisings to boost solvency positions.

AM Best says the ability to make recoveries from reinsurance programs will be a key factor and overall a mixed impact is expected for insurers in the Australian commercial segment.

Loss exposures are likely to be most significant for the largest insurers in Australia in absolute terms, but they are also the type of companies typically best placed to raise additional capital.

smaller commercial insurers’ exposure is likely to correlate to their market share.

“However, this could still be significant for earnings and in some cases could drive solvency deteriorations,” AM Best says.

“Unlike the largest participants, some smaller insurers exhibit limited financial flexibility due to their ownership structures and therefore may have less ability to raise significant additional capital if required.”

NSW on bushfire alert as above-normal fire potential looms

Several bushfires have broken out in parts of NSW, prompting the Rural Fire Service (RFS) to issue advice alerts in a number of areas, including two that are burning west of Sydney today.

Over the weekend heat records in parts of the state set new peaks for November, with many areas recording temperatures of over 40 degrees.

NSW Police Minister David Elliott has urged against complacency, warning “what we are seeing this weekend is pretty consistent with what we will potentially see over the course of this fire season”.

“We cannot fall into a false sense of security. The community out there, unfortunately, thinks after the last season we are not at risk of bushfire,” he said. “The reality is 90% of the state is still untouched by bushfire.”

The RFS advice alerts come as the latest outlook from the Bushfire and Natural Hazards Co-operative Research Centre predicts large parts of NSW west of the Great Dividing Range faces above-normal fire conditions this summer.

Grasslands in the ACT and north-eastern Victoria as well as some southern parts of SA and WA are also at risk, having missed out on recent heavy rainfall and leaving huge forested areas in “very, very dry conditions”.

The arrival of La Nina, a climate event that brings with it higher-than-usual rainfall, is not enough to reduce the fire threat in coming months, the research centre says.

“With La Nina climate conditions reached in mid-September, the rainfall outlook through to the end of summer suggests above average rainfall is likely over much of the country,” the centre’s Australian Seasonal Bushfire Outlook: December 2020 - February 2021 says.

“However, these months are a drier time of the year for much of southern Australia. Satellite monitoring of vegetation health suggests some areas that have experienced above-average rainfall in recent months are now observing a significant increase in grass vegetation growth.”

The outlook says the long-term warming trend means that above-average temperatures now dominate most years, and recent months have generally followed this pattern.

“The tendency for fire seasons to become more intense and for fire danger to occur earlier in the season is a clear trend in Australia’s climate, reflecting reduced and/or less reliable cool season (April to October) rainfall and rising temperatures,” the outlook says.

“Fire season severity is increasing across much of Australia as measured by annual (July to June) indices of the Forest Fire Danger Index, with increases tending to be greatest across inland eastern Australia and coastal WA.”

In Sydney and other population centres there is a need to monitor fire danger associated with prolonged heatwaves that can occur during La Nina years as a result of more heat being retained in the atmosphere.

In Victoria the outlook suggests above-average rainfall across much of the state. It is likely this will lead to soil moisture that will persist in many areas and lead to normal fire potential, with the exception of the far north-east region.

Click here for the outlook.

Insurance News launches podcast service

Detailed discussion of the NSW Court of Appeal ruling on the COVID-19 business interruption test case is featured in the first edition of INsight, the new Insurance News podcast.

In the episode we discuss what the ruling means for insurers, and hear from leading lawyers on whether there’s any hope for getting the decision overturned.

As reported last week, our weekly podcast was launched as a response to industry demand for a broader range of content following this year’s coronavirus-inspired lockdowns and restrictions.

Each 15-minute episode is hosted by our Managing Director Andrew Silcox, and features the opinions and expert analysis of Publisher Terry McMullan, Editor John Deex, our team of journalists and occasional expert guests.

“COVID-19 has changed the way we work, with technology coming to the fore, and we’re adapting along with the rest of the industry,” Mr McMullan says.

“INsight will give our readers a window into the stories behind the stories, and a chance to get to know our team a little better.”

You can find a new episode of INsight published here every Wednesday.


Natural disasters? No worries, say Kiwi SMEs

Small businesses in New Zealand are more concerned about cyber attacks, managing cashflow and retaining staff than natural disasters, even after a decade of destructive earthquakes and floods.

A Vero NZ survey of 900 SME businesses reveals natural hazards rank well down the business risk concerns, at 15th place.

EM Business Insurance at Vero NZ Chris Brophy says SMEs may be so relaxed about the imapct of natural disasters because they are insured.

“This research shows insurance is really doing its job of delivering peace of mind to SME owners,” Mr Brophy says. “Natural disaster is one major risk that SMEs can mitigate with insurance cover.”

The potential impact of a disaster garnered only 16% of responses. Small businesses are more worried about cost increases (33%), an economic downturn (30%), workplace accidents and political instability (both 18%).

Almost half the SMEs surveyed were confident their business was covered for natural disaster. SMEs insured via a broker were 67% confident, compared to 39% for those who bought insurance directly.

Businesses in earthquake-ravaged Canterbury were most likely to feel confident about their natural disaster cover (68%), with 42% of those in Wellington surveyed saying they are “confident”. Auckland residents were the least confident, with only a third believing they are adequately insured against natural disaster risks.

“Perhaps the lower risk of certain disasters in that region means they are less likely to have engaged with their insurance cover and are more likely to be unsure of how well they’re covered,” Mr Brophy said.

Accommodation and food services and agriculture and farming were the industries most worried about natural disasters – but also the most confident that they are covered – at 62% and 66% confident respectively.

Vero’s customer data shows 97% of the SMEs on its books have natural disaster cover.

Sustainability Roadmap seeks to cut emissions

A “roadmap” developed by the Australian Sustainable Finance Initiative (ASFI) has called on members to facilitate a transition to net-zero emissions by 2050 and to take steps to boost resilience.

Institute members should collaborate through ASFI to establish interim science-based targets as they look to make “net-zero-aligned” decisions on lending, insurance and investment, the roadmap released last week says.

A regular report is also recommended to examine whether markets are functioning efficiently to support delivery of the 2050 target.

The ASFI Roadmap reflects the contribution of more than 140 participants from at least 80 organisations. Insurers represented on the steering committee include IAG, QBE and Swiss Re.

IAG CEO Nick Hawkins says the plan provides practical recommendations to help guide financial institutions.

“It is imperative that the Australian finance sector, government and communities continue to work together to find solutions that ensure a prosperous economy while also delivering a sustainable future for our communities and environment,” he said.

The roadmap’s 37 recommendations include a 2023 deadline on an “if-not, why not?” basis for listed companies to report in line with the international Task Force on Climate-related Financial Disclosures proposals.

The report says climate change financial risk vulnerability assessments being undertaken by the Australian Prudential Regulation Authority (APRA) should be expanded to include small and medium financial institutions as well as the superannuation and insurance sectors.

APRA has previously said it will begin with the largest banks, with other industries to follow.

The roadmap backs updating the National Construction Code to improve residential building resilience and proposes a First Peoples Financial Services Office that would encourage access to suitable insurance products and disclosure processes.

Swiss Re regional property and casualty head Mark Senkevics says the bushfire and pandemic experiences this year have provided a reminder on why it’s necessary to focus on resilience.

“Insurance plays a crucial role in this. It frees up capital, mitigates against financial loss, provides long-term financial stability and can be a substitute for government programs,” he said.

“This roadmap could not come at a more pertinent time in shaping a sustainable future for Australia.”

ICA holds inaugural building code roundtable in Canberra

The Insurance Council of Australia (ICA) hosted the first of a series of Building Stronger Homes Roundtables last week, exploring the role of construction standards in national natural disaster resilience.

ICA and the Master Builders Association are inviting senior leaders to participate and help kickstart development of national property resilience policies.

The meeting called on the Government to make its building code compliance and enforcement system fit for purpose, including the establishment of a central body.

“This must include establishing a better process for providing tools to facilitate compliance, audit, surveillance, information sharing, training and interpretation of standards and codes,” Master Builders CEO Denita Wawn said.

The roundtable called on the Government to also include natural hazard resilience as an objective of the National Construction Code, and enable better access to regulated Australian Standards in the National Construction Code.

Appearing at the first roundtable were senior representatives of the Australian Building Codes Board, the National Bushfire Recovery Agency, IAG, Suncorp, the James Cook University Cyclone Testing Centre.

The meeting identified initiatives the insurance and building sectors can pursue, including sharing reliable data, development of best practice standards for builders, helping homeowners mitigate insurance risk and continuing to identify and pursue joint pilot initiatives.

The next roundtable will be held in February.

Victoria, Queensland join cladding class actions

Litigation funder Omni Bridgeway says the Victorian and Queensland governments have given their consent to join two separate cladding class actions it is pursuing in the Federal Court.

The lawsuits against the makers of Alucobond PE and Vitrabond core cladding products are seeking damages for alleged product liability, false or misleading representations and misleading conduct.

Omni Bridgeway says section 33E(2) of the Federal Court of Australia Act states that “certain persons are required to give their consent to be a group member in a representative proceeding”.

The consent from Victoria and Queensland means they now join owners’ corporations, commercial building owners and public bodies in all states and territories seeking compensation from Alucobond makers 3A Composites GmbH and Halifax Vogel Group Pty and Vitrabond manufacturer Fairview Architectural.

There are likely to be more than 1000 group members that are the subject of the class actions.

Omni Bridgeway says the estimated total amount of the claims for compensation will likely exceed $500 million.

The Victorian Government last year unveiled a $600 million program for remediation of dangerous cladding materials in high-rise buildings, with the repairs to be funded in part via a levy on building permits.

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PSC on the prowl for new local and UK acquisitions

PSC Insurance Group has received binding commitments from investors to support its $60 million capital-raising to fund new broking acquisitions.

The Melbourne-based group made the announcement last week in a market update, where it said broking targets in Australia and the UK have been identified.

“The group has a good pipeline of acquisition opportunities,” PSC says in the update. “In particular, we are considering acquisitions of UK and Australian commercial broking businesses, with a number materially progressed.”

Chairman Brian Austin told shareholders at the company’s recent virtual AGM that the business expects to make further purchases in the UK, a market where it has invested significantly by acquiring complementary broking firms.

MD Tony Robinson told the UK has been a source of “great contribution” to PSC.

“We believe it’s a solid, sensible strategy and we’re executing it well,” he said of the business plan for the UK.

PSC’s market update says the group has made a strong start to the new financial year.

In the four months to October, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 40% from a year earlier, boosted in part from the strong performance of its London-based broking business Paragon International. PSC acquired the Lloyd’s broker for £42 million ($76.2 million) last year.

The company expects underlying EBITDA in this financial year to fall at the top end of its $65-70 million guidance. In the last financial year, the business reported a 32.7% rise in underlying EBITDA to $57.4 million.

Trading conditions have been good despite the economic fallout from COVID-19, PSC says.

Mr Robinson says this is “more of a reflection of the nature of the industry because insurance is an essential spend for businesses”.

“The fact that they have continued to trade is a tribute to all of those businesses,” Mr Robinson told “It’s those efforts that they put in to make those businesses continue to operate through this difficult period that means that essential spend continues.

“Are we delighted and thrilled with the resilience of the economy and particularly our customers? Of course.”

Blue Zebra rolls out SME offering

Underwriting agency Blue Zebra has completed the full-scale launch of its new SME Insurance product, following a successful test run.

The product is now available on the underwriting agency’s platform to its 11,000 broking partners. Capacity is being provided by Youi and claims will be managed in partnership with specialist provider ProCare.

“The feedback during the short pilot has been fantastic,” MD Colin Fagen said. “That means that over 11,000 Zebra Lounge users will be able to access the SME product with comprehensive policy wording for business liability, property protection, business interruption, portable property, crime and equipment breakdown.”

He says the agency has plans to introduce more products next year, having enjoyed success with its recent new offers such as Commercial Motor and Blue Point Insurance, a new personal accident and sickness brand that it partnered with Point Insurance to launch in October.

“We’re focusing initially on the industries that are least impacted in the current level of economic uncertainty,” Mr Fagen said.

“In the future we will have a broad appetite to meet the needs of our brokers.

“Additionally, we expect to see lots of new business opportunities as brokers gravitate towards easy to use options with an insurance business that is focussed on building out a leading SME offering in the market.”

IAG cuts motor claims processing time with AI tool

IAG says using artificial intelligence has rapidly reduced the time it takes to process a claim for a total motor loss to just a few days from three weeks previously.

The introduction of the technology to assess if a vehicle is a total loss after an accident has eliminated the need for it to be towed to a repairer to do the job.

This has led to improved experience for the customers of its NRMA Insurance, SGIC and SGIO brands.

IAG Director of Analytics Hannah Sakai says the predictive total loss technology was developed internally and designed to help reduce the emotional impact of a car accident by providing customers with more clarity and certainty sooner in the claims experience.

“A car accident can be a traumatic and challenging time for our customers, so we turned to artificial intelligence to help improve this experience,” Ms Sakai said.

“Our predictive total loss solution leverages machine learning to detect a potential total loss with more than 90% accuracy, using information provided by the customer when they make a claim on the phone with a consultant or online.”

Suncorp speeds up claims with commitment to virtual assessments

Suncorp announced today it will permanently use virtual assessment technology following severe weather events to support claims processing.

The insurer says the decision follows the successful deployment of the technology during the recent coronavirus lockdown, when restrictions on public movements limited assessors from physically inspecting property and contents damage at insured sites.

“When COVID-19 first became a reality in Australia, many customers were still recovering from devastating bushfires and hailstorms,” Head of Disaster Response and Event Claims Cath Stewart said.

“The virtual assessment technology allowed us to progress claims and support customers while abiding by social restrictions and lockdown measures.”

Suncorp says the technology was most recently utilised to manage claims arising from last month’s hailstorm in Queensland. Around one-third of home assessments were completed virtually, with positive feedback from customers.

“Virtual assessments have allowed us to quickly scale up our team and kept things moving for our customers,” Ms Stewart said.

“COVID-19 forced us to think differently and respond quickly to support our customers, and virtual assessments will remain a key element of how we respond in the future.”

IAG joins Suncorp and Tower to settle quake claims with EQC

IAG has reached an agreement with New Zealand’s Earthquake Commission (EQC) to settle the division of claims costs resulting from the 2010 and 2011 Christchurch earthquakes.

The settlement follows similar accords announced recently by Suncorp and Tower with the state agency.

“We are pleased to have negotiated a settlement with EQC in a constructive and timely manner which has avoided the need for costly and protracted court proceedings,” IAG New Zealand CEO Craig Olsen said.

“Both parties can now move forward with certainty, and we look forward to continuing our collaborative efforts with EQC to further strengthen the critical insurance frameworks that underpin New Zealand’s ability to recover from natural disasters.”

Cost allocations became an issue because of a series of earthquakes that struck the region in-between the 2010 and 2011 disasters. The situation resulted in complexities in calculating building and land damage plus the cost of repair between the different earthquake events.

Tower says its settlement with the EQC will see the insurer receive $NZ42.1 million ($40 million) after disbursement to reinsurers and costs. The write-off of the residual amount will result in an impact of approximately $NZ9.5 million ($9 million) on Tower’s FY20 reported net profit.

The insurer says the settlement enables it to turn its “full focus to the future.”

“The Canterbury earthquakes remain a significant event in New Zealand’s history and will have a lasting impact on the community,” Tower Chairman Michael Stiassny said.

“The board determined that reaching this settlement agreement dealt with any remaining unpredictability and gave certainty to our shareholders.”

EQC CEO Sid Miller says the settlement means that both businesses can “draw a line under the past, and continue to focus on helping sort out any remaining claims for customers.”

Tower says business is strong despite headwinds

New Zealand’s third-largest general insurer, Tower, achieved a 23% jump in annual underlying profit to $NZ34.7 million ($32.98 million) and plans to launch new marine and pet products soon.

Including the impact of large events, profit rose 3% to $NZ28.4 million ($26.99 million) in the year to September 30. The combined operating ratio was steady at 88.5% while Tower improved its loss ratio to 46% from 48%.

The listed insurer’s topline profit was dented by a $NZ9.5 million ($9.03 million) write-off after it entered a $NZ42.1 million ($39.98 million) settlement with the Earthquake Commission resulting from the 2010/11 Canterbury earthquakes.

“Tower’s results this year are good and at the top end of expectations,” says Tower CEO Blair Turnbull, who joined the company in August. “We’ve achieved this despite some unprecedented headwinds and challenges.”

Tower says customer numbers rose 11% to 300,000 over the year, driving 8% growth in gross written premium (GWP) to $NZ385 million ($365.94 million), of which the Youi NZ portfolio acquired in January contributed around $NZ12.6 million ($11.98 million). Market share in personal lines rose to 9.1%, from 8.3% a year earlier.

Next year underlying net profit is expected to grow 5%, assuming the same large event experience as this year.

In the coming weeks, Tower will launch a new marine product and following that, an “innovative” pet product. Risk-adjusted pricing is being expanded to tailor quotes for individual risk, and Tower will include flood risk by July.

Mr Turnbull says two-thirds of new business is now coming through online channels and 45% of claims are lodged online, up from 27% at the same time last year. The company’s year-old portal MyTower has had more than 50,000 people register.

“Digital and data also allows us to reduce our operating ratios, by giving us the tools and insights we need to manage our claims expenses closely,” he says.

Rationalisation of Tower’s products from hundreds of variations to a core set of 12 is complete for New Zealand and a similar process is underway in the Pacific Islands business.

Tower refunded $NZ7.2 million ($6.84 million) to customers who paid car insurance premiums during the pandemic lockdown.

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Regulatory & Government

ASIC information sheet sets out claims handling reform details

Applications for claims handling licences will be accepted by the Australian Securities and Investments Commission (ASIC) from January 1, if the Bill for the Hayne royal commission proposal is passed in Parliament before the end of this year.

A draft information sheet from the regulator urges insurers, brokers and others involved in claims handling and settling to begin their preparations to transition to the new regime, when claims handling will be regulated as a financial service under the Corporations Act.

The Bill covering the claims handling reform and other royal commission proposals such as add-on sales and hawking was introduced into Parliament earlier this month.

The ASIC draft information says an Australian Financial Services (AFS) licence will be mandatory for anyone who is involved in claims handling and settling from January 1 2022.

The licensing requirement will apply to insurers, insurance claims managers, tradespersons who can reject claims on behalf of an insurer, brokers, financial advisers and claimant intermediaries who are defined as “people that run a business representing customers to pursue insurance claims for reward”.

Entities that already have an AFS licence will need to apply for a variation to their licence so it covers the new financial service of claims handling and settling.

The ASIC draft information sheet says AFS licensees must handle and settle insurance claims in a timely way; in the least onerous and intrusive way possible; fairly and transparently; and in a way that supports consumers, particularly those experiencing vulnerability or financial hardship.

On transparency and fairness, it says claimants must be kept regularly updated about the progress of their claims and given an explanation when a claim is rejected. They need to be informed of their rights to make a complaint and how to access internal and external dispute resolution avenues.

The regulator will issue the final information sheet and proof document, incorporating any changes to the legislation during passage of the Bill, ahead of the commencement of the reforms.

Consumer advocate the Financial Rights Legal Centre has commended ASIC for moving quickly to provide guidance to the insurance industry.

Director of Casework Alexandra Kelly also backs the move to regulate so-called storm-chasers, telling bringing them into the fold “should also give vulnerable communities hit by the next natural disaster some protection against any egregious behaviour by this small but growing sector.”

Click here for the ASIC draft information sheet.

ASIC sends warning on claims with Youi court action

The Australian Securities and Investments Commission (ASIC) has sent a warning that firms must handle claims fairly after the Federal Court last week ruled Youi breached utmost good faith requirements under the Insurance Contracts Act on five occasions.

ASIC launched the action against Youi earlier this year over its handling of a Broken Hill hailstorm claim that was the subject of a Hayne royal commission case study.

“The value of an insurance policy is in the promise, so that a consumer can feel confident and secure that they will be looked after when something goes wrong,” ASIC Commissioner Sean Hughes said.

“The community expects their insurer to be there when something does go wrong, to be treated fairly and with dignity and respect.”

The Insurance Contracts Act didn’t impose monetary penalties at the time of the Broken Hill claim dispute, but that has changed for offences taking place since March 13 last year.

The Federal Government has this month also introduced legislation into Parliament that makes claims handling a financial service, bringing it under Corporations Act obligations to act efficiently, honestly and fairly.

The Broken Hill claim examined by the Federal Court was lodged in January 2017 after a hailstorm caused extensive damage to the policyholder’s property. After continual delays, repairs were not completed until some 22 months later.

Chief Justice James Allsop says the insurer failed to act with utmost good faith in relation to the property repairs and in responding to policyholder complaints and Youi failed to exhibit “decency and fairness”.

Youi says it acknowledges its response to the claim was inadequate and accepts the Federal Court judgment. The insurer has since reviewed its service provider network and the management of repair quality, and has improved temporary accommodation and customer complaints processes.

“Youi has made significant changes to the way claims are managed to ensure repairs occur in a timely manner and all customers consistently receive outstanding service,” a spokeswoman told

NSW workers’ comp tender set for next year

NSW state insurer icare will conduct a workers’ compensation claims services tender next year after extending the contract of current provider EML for 12 months, while making changes to improve performance.

The extension for EML includes a $20 million program to improve the way claims are handled, while icare has also established a Nominal Insurer Advisory Committee, including unions, industry groups and government bodies, as part of a consultation process.

Group Executive of Personal Injury Rob Craig says the tender for providing claims services is expected in the middle of next year and the extension of EML in the meantime provides continuity and stability.

“The tender will be informed by the outcomes of the consultation period, which will include an assessment of the appropriate number of agents in the NSW scheme,” he said.

“While we are improving our processes, delivery and transparency, our aim is to also ensure minimal disruption to our customers.”

EML was appointed the sole workers’ compensation agent for new claims under a contract starting January 2018, when icare controversially moved from five scheme agents to one.

The contract, due to conclude at the end of December, included options for one-year extensions.

Mr Craig says the renegotiated extension reinvests $10 million of the potential variable remuneration pool from icare, with EML contributing a further $10 million in mutual benefits.

Claims services changes include reduced caseloads and team sizes, training resources, moving decision rights and management of some legal matters to EML, and triaging to ensure claims needing more support have a dedicated case manager.

“These changes are supported by a modified performance framework for EML to enable better return-to -work and customer outcomes, including a direct link between improved performance, customer outcomes and remuneration,” Mr Craig said.

The Nominal Insurer Advisory Committee membership will include representatives from Ai Group, Unions NSW, Business NSW, the CFMEU, the Australian Manufacturing Workers’ Union (AMWU), Office of the Small Business Commissioner and the Workers Health Centre.

APRA outlines new cyber strategy, flags enforcement action

The Australian Prudential Regulation Authority (APRA) has warned it will take enforcement action against insurers and other financial services providers that fail to comply with their cyber security obligations.

APRA issued the warning as it outlines a new plan to strengthen the defences of the financial system against digital attacks.

Under the new plan, boards and executives will oversee and direct correction of cyber exposures; a baseline of cyber controls will be set up; and weak links within the broader financial eco-system and supply chain will be rectified.

Executive Board Geoff Summerhayes made the announcements last week at a business forum, where he said “it’s only a matter of time” until a major incident of material consequences hit an APRA-regulated insurer, bank or superannuation fund.

While the financial industry takes cyber risk seriously, there is room for improvement.

“Our vision is for a financial system that can stand firm against cyber attacks,” Mr Summerhayes said. “To successfully implement our new strategy, APRA will need to continue to evolve and strengthen its regulatory and supervisory approach to cyber risk.

“In the face of an enemy that is constantly seeking new ways to breach our defences, we are exploring a range of innovative tools and techniques aimed at dialling up our supervision and scrutiny of financial institutions.”

The sudden shift to remote working because of the pandemic has created an increasingly hostile cyber risk environment, he says. APRA has seen no obvious signs of an increase in adversaries targetting insurers or other financial services providers, but this is not cause for complacency.

He says it can take months or years for some attacks to be detected and major financial institutions ward off attempted cyber attacks on a daily basis.

APRA plans to collect more data in new areas to better understand the cyber threat, and share that knowledge to enable industry self-assessment and benchmarking.

It is looking to partner with academia to research issues such as measuring and benchmarking cyber resilience, and exploring more formal threat intelligence sharing among domestic and international regulators to better inform its activities.

Starting next year the regulator will be asking boards to engage an external audit firm to conduct a review of their firms’ compliance with CPS 234, a prudential standard that sets out how information security threat must be addressed.

Mr Summerhayes says consistent evidence showed many entities are failing to adequately comply with the standard since it came into effect last year.

“This is one area where APRA can no longer hold off tightening the regulatory screws,” he said. “In light of evidence that boards frequently don’t understand or are not adequately informed about cyber risks, we’re no longer prepared to simply take their words for it.

“If boards are unwilling or unable to make the required changes in a timely manner, we will consider using formal enforcement action.”

Insurance customers double their complaints to ACCC

Complaints about insurance have jumped 104% so far this year, the Australian Competition and Consumer Commission (ACCC) reveals.

Insurance is now the fifth-most complained about product, with first place taken by tourism and accommodation (up 589%), passenger transport (up 358%), sport and recreation (up 134%) and fuel retailing (up 121%).

The ACCC says the “limited protections” of travel insurance policies which commonly exclude force majeure events such as pandemics, is a “complicating factor” as consumers’ only recourse is to attempt to recover funds from travel agents and suppliers directly.

“The situation with respect to travel cancellations has been complicated further by the majority of travel insurance products excluding cancellations resulting from the pandemic,” the regulator says, adding it has been liaising with the Australian Securities and Investments Commission (ASIC) regarding travel insurance.

“Concerns have been raised by consumers regarding their ability to claim on travel insurance for cancelled travel, as well as limitations in accessing non-essential services under private health insurance hospital and extras cover due to COVID-19 restrictions.”

The new figures show the ACCC received 109,446 complaints in the first 10 months of this year, with COVID-19-related issues dominating. Common misconduct complained about during the pandemic included businesses misleading consumers about their right to a refund, or deducting cancellation fees from refunds.

Australians are not automatically entitled to a refund when cancellations occur due to government restrictions, and so it is the terms and conditions of each individual booking that determines whether consumers are entitled to a refund or credit note.

“The economic disruption from COVID-19 has led to a huge volume of varied and complex consumer law issues,” ACCC Commissioner Sarah Court said.

New accounting standard triggers APRA review

The Australian Prudential Regulation Authority (APRA) is reviewing reporting and capital frameworks as part of preparations for new accounting standards.

APRA last week released a discussion paper on its plans to align the frameworks for life, general and private health insurance with AASB 17, due to take effect in January 2023.

For general insurers, proposed changes for reporting include the introduction of a new product group for cyber, while directors’ and officers’ insurance will be seperated from the professional indemnity grouping.

“Given the inherent differences between the intention and performances of these products, it is important to split the two groups in order to provide greater transparency,” APRA says.

The regulator is separately already looking at cyber reporting as part of a National Claims and Policies Database consultation process.

Current arrangements have close linkages with the existing accounting standards, Executive Board Member Geoff Summerhayes says.

“A failure to update the frameworks in a timely manner would create a divergence between the new accounting standard and APRA’s frameworks, resulting in insurers needing to maintain dual valuation, actuarial, accounting and reporting systems,” he said.

“This would lead to a significant regulatory burden with potential for those costs to be passed on to policyholders.”

APRA is reviewing the Life and General Insurance Capital (LAGIC) framework, introduced in 2013, as part of the process but anticipates little significant change.

Proposed LAGIC adjustments would reflect the potential for negative interest rates. It is also looking at amendments for whole-of-account quota share reinsurance arrangements, where a portion of the premium is ceded to reinsurers.

The discussion paper consultation will close on March 31, with updated capital and reporting standards set to be released late next year for further input.

More details are available here.

Treasury seeks submissions for 2021/22 budget

Treasury is currently seeking submissions from industries and other stakeholders on their priorities for the 2021/22 budget.

“The 2021/22 budget will contribute to the next phase of the Morrison Government’s Economic Recovery Plan designed to create more jobs and secure Australia’s future,” Assistant Treasurer Michael Sukkar said.

Closing date for submissions is January 29.

Click here for more details.

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Life Insurance

Life industry losses top $1.6 billion

The life insurance industry posted an after-tax net loss of $1.6 billion in the 12 months to September, erasing the $220 million profit it had made a year earlier, new data from the Australian Prudential Regulation Authority (APRA) shows.

APRA says the persistent poor performance of disability income products and COVID-fuelled market volatilities in the March quarter affected investment income.

“The life insurance industry’s performance continues to be challenged,” APRA says.

The industry booked a $3.3 billion deficit in investment revenue, compared with a $15.7 billion surplus a year earlier.

Losses from risk products – comprising individual lump sum, individual disability income insurance, group lump sum and group disability income insurance – worsened to $1.5 billion from $418 million.

Individual disability income insurance was the worst-performing product, widening its loss to $1.3 billion during the period from $1.1 billion last year, which resulted from reserve strengthening and adverse claims experience.

Group lump sum lost $403.2 million and group disability income $147.9 million. Individual lump was the only profitable product, making $354.8 million during the period.

On a quarterly basis the industry performed better, with $18.5 million in net profit after-tax for the three months to September although this is markedly down from $423.2 million a year earlier.

APRA says the decline was primarily driven by lower investment revenue, as well as some further reserve strengthening within individual disability income insurance and group lump sum businesses.

Investment revenue fell 58.8% to $1.6 billion from the preceding quarter.

Risk products lost a combined $216 million during the quarter. Individual disability income insurance and group lump sum recorded $318.8 million and $95.5 million in net losses respectively. Individual lump sum made a $162.8 million profit and group disability income $35.5 million.

Insurer wrongly denied IP claim over mental health non-disclosure

Zurich has been ordered to assess an income protection (IP) claim from 2013 after the Australian Financial Complaints Authority (AFCA) ruled the insurer had wrongly avoided the policy.

The insured took out an IP policy in July 2012, and made a claim in November the following year after suffering a lower back injury.

When reviewing the claim, Zurich says it found three instances of non-disclosure, and if it had been given the full picture it would not have issued the policy.

The insurer was not told about conditions concerning the complainant’s back, right thumb, and mental health.

It says it would have had to include exclusions for all three conditions, and this would have exceeded the limit for the number of exclusions allowed. Therefore the policy would not have been issued.

But AFCA says the complainant was not obliged to disclose his “very limited” depression.

“The insurer was only entitled to avoid the policy if it could establish that, if the complainant disclosed everything he was obliged to disclose, it would not have insured the complainant on any terms,” the determination says.

“The doctor recorded ‘depression’ only once, three years before the policy began, and in the context of a divorce. The complainant did not take the medicine prescribed, and saw a psychologist only once.

“In those circumstances, he was not obliged to disclose depression and did not make a misrepresentation in relation to it.

“If the complainant disclosed everything he was obliged to disclose, the insurer would have issued the policy with two exclusions. The insurer was not entitled to avoid the policy.”

Click here to read the full ruling.

Two firms lose their licences over breaches

The Australian Securities and Investments Commission (ASIC) has cancelled the licences of two financial services providers over compliance failures.

The regulator says Jels Financial Financial Group, based in Victoria, failed to appoint a replacement following the death of its “key person”, as required under the terms of its Australian financial services (AFS) licence.

The group’s sole corporate authorised representative was also insolvent and the business did not lodge its audited accounts for the 2017-19 financial years.

The regulator says the licence of WA-based Selectinvest was cancelled because the business failed to maintain its external dispute resolution membership with the Australian Financial Complaints Authority. It also has failed to lodge its annual financial and audit reports since 2017.

ASIC says Selectinvest may apply to the Administrative Appeals Tribunal for a review of the decision to cancel its licence.

AIA’s Mu joins ANZIIF board

AIA Australia CEO Damien Mu has joined the board of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).

“[He] is an influential leader in driving positive change as part of the industry’s commitment to raising the professional standards in the life insurance sector,” ANZIIF CEO Prue Willsford said.

She says Mr Mu “is a longstanding ambassador of ANZIIF, actively representing our industry and is passionate about building long-term sustainable life solutions for Australians”.

Mr Mu was appointed CEO of AIA in August 2014. He has more than 20 years’ experience in the Australian financial services industry, with management experience spanning operations, claims and underwriting, superannuation, investments, distribution, product, pricing and marketing.

Kaplan plans new financial planning courses

Financial services education provider Kaplan is working to introduce new courses covering paraplanning and superannuation.

Kaplan says the new study programs are in keeping with recent moves by national regulator Australian Skills Quality Authority to roll out three new paraplanning and superannuation vocational educational requirements.

The authority announced the new Advanced Diploma of Paraplanning, Certificate IV in Superannuation and Diploma of Superannuation after the introduction of Financial Adviser Standards and Ethics Authority made some courses irrelevant.

“There is demand from licensees and the industry to introduce qualifications that represent a targeted focus towards paraplanners and superannuation specialists, so we are working on three new qualifications to reflect the changing nature of the industry and meet market demand,” CEO Brian Knight said.

“The three qualifications are designed to provide significant benefits to the industry, where individuals develop not only in-depth knowledge and technical skills, but also the ability to support practices in developing and maintaining compliant back-office procedures.”

Kaplan will provide more information if it secures approval from the Australian Skills Quality Authority to run the new courses.

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The Professional

Zurich revamps parental leave with progressive new family policy

Zurich staff in Australia are to receive industry-leading care entitlements designed to be as inclusive and flexible as possible, and more appropriately reflect modern Australian families than outdated parental leave plans.

The new Family Care Policy, effective from next month, supports each employee regardless of gender, gender identity or sexual orientation. It is inclusive of birth, adoption, surrogacy and IVF, as well as miscarriage and stillbirth.

“This is the next step in Zurich’s journey towards achieving equality for our people, as part of our wider aim to create a brighter, more sustainable workplace that puts our people first,” CEO General Insurance Tim Plant said.

The policy allows parents 16 weeks paid leave, with the ability to request up to two years. Co-parents receive six weeks paid leave plus additional unpaid leave, while all tenure requirements, including probation, are removed.

Leave and superannuation will continue to accrue during unpaid leave for primary parents, addressing the retirement savings “super gap” most often experienced by women.

Zurich Australia Head of Human Resources Sue Maher says the new policy, which was developed with the Women’s Innovation Network and PrideZ, recognises all family circumstances and supports a fair and equal workplace.

“[It] reflects the many different voices of our diverse workforce, ensuring inclusivity and better supporting the range of family circumstances we see across Australia today,” she said.

Insurance has larger gender pay gap than other industries

Insurance ranks near the top of Australian industries for allowing discrepancies in remuneration between men and women.

Across all industries, Australian men still out-earn women on average by $25,534 a year, or 20%.

In general insurance, the gap is 23.2%, the Government’s Workplace Gender Equality Agency’s latest annual survey has found.

That was narrower than in construction (26.1%) and banking (24.7%), but wider than most other industries, including agriculture, forestry and fishing (22.5%), transport, postal and warehousing (18.7%), accounting (17.5%) and metal ore mining (13.1%).

Women make up just 18% of CEOs and 28% of board members in Australia, and in general insurance the percentages are only 13.5% and 25%.

Agency Director Libby Lyons says gender balance at the top levels of leadership is still decades away, describing progress as “glacial,” and the overall survey results suggest employers are in the grip of ‘gender equality fatigue.’

“Even before the COVID-19 pandemic hit, I was concerned that Australian employers had become complacent,” Ms Lyons said. “I’m very disappointed that almost nothing has changed this year. It appears to me that Australian employers are on autopilot when it comes to improving gender equality.”

Organisations with a combined 4.3 million employees, or more than 40% of Australia’s workforce, were surveyed in the year to March 31. The General Insurance category has 48,541 employees within 40 organisations.

Ms Lyons says that without increased employer action, Australia is likely to erode gains achieved over the past few years.

The survey found 45% of all organisations took no action to address their gender pay gap.

“This trend must not continue,” she said. “Experience tells us that when employers measure their data, identify the problem areas and take action to address them, the pay gap closes.”

On a positive note, 75% of employers are promoting flexible work, and for the first time in seven years more than 50% of organisations offer paid primary carer’s leave. General insurance excelled in this area, with 83% of employers offering paid primary carer’s leave for both men and women.

Ms Lyons urged all employers to “redouble their efforts” in driving better gender equality outcomes, noting that only 38% of full-time workers are female.

Chubb, NTI win top IA awards

Insurance Advisernet (IA) has selected Chubb as its Insurer of the Year and NTI as Underwriting Agency of the Year.

The winners were announced to an audience of more than 400 authorised representatives and industry partners during a virtual presentation of this year’s awards late last week.

Many attendees watched on with their teams or at various IA gatherings organised to coincide with the awards.

More than $100,000 was raised for the IA foundation and IA MD Shaun Standfield says the night was a great success.

“We felt it important to recognise our partners and AR’s even though we weren’t able to hold our annual conference this year,” Mr Standfield said.

This year’s award winners are:

  • Business Development Manager of the Year – Roger Mizzi, QBE
  • Insurer of the Year - Chubb
  • Underwriting Agency of the Year - NTI
  • Employee of the Year – Theresa Holland
  • Chairman’s Award – Clarissa Mitchell
  • Funder of the Year – Elantis
  • IA Region of the Year – Southern
  • Southern Region Practice of the Year – Sound Insurance Services
  • Northern Region Practice of the Year – H2 Insurance Solutions
  • Central Region Practice of the Year – Insurance Advisernet Merimbula
  • Overall Practice of the Year – Insurance Advisernet Merimbula

Willis Re finds new director in Switzerland

Willis Re has appointed Cameron Hick as a director in its Australian business, focusing on client advocacy, strategic advice and structuring assistance and insights for Willis Re clients.

Mr Hick will relocate from Switzerland to take up this role in Sydney in February, reporting to CEO Australia John Philipsz, who says Mr Hick’s deep reinsurance experience and knowledge of the global markets will add to Willis Re’s core reinsurance structuring and placement capabilities.

“He is well known to our clients and has a strong alignment with our client advocacy model,” Mr Philipsz said. “We are excited to have him on-board.”

Mr Hick has more than 20 years’ experience in reinsurance. He has been based in Zurich since 2017 as a global accounts executive for Partner Re. He formerly held roles at Munich Re in Melbourne, Sydney and Germany, including as client manager and head of business planning.

Feel the magic: BAIS supports charity for grieving children

BAIS insurance technology has raised money to support 35 children through a Feel the Magic program for children who have lost parents.

BAIS GM David Hampton says not being able to hold physical events this year severely impacted the amount of support Feel the Magic had been able to provide.

The company’s online charity event was themed around new indigenous artwork at the BAIS office, including a piece entitled ‘Gathering and Yarning’ by Fiona Omeenyo.

“Yarning keeps communication open and ongoing and we liken this to our collaborative way of developing solutions for the benefit of the whole BAIS community and the value it places in having a locally-based team,” BAIS says in a statement.

Petplan won a piece of original artwork by Ms Omeenyo at the event, which was supported by Lockhart River Arts and Japingka Gallery.

QBE helps birdlife bounce back after catastrophic fires

QBE has made another substantial donation to support long-time partner Taronga Conservation Society Australia, a leader in wildlife rehabilitation and environmental research and education.

Following catastrophic bushfires last summer, QBE dedicated this year’s campaign to helping ‘Birdlife Bounce Back’. It is estimated more than 180 million birds were killed, including threatened species such as the Regent Honeyeater, Eastern Bristlebird and Glossy Black Cockatoo.

QBE will match $6,087 raised via public donations for the not-for-profit during October’s “Birds for Good” initiative at the QBE Free-flight Bird Show, which has run daily at Taronga Zoo in Sydney for more than 20 years.

During a 15-year partnership, QBE has contributed almost $30,000 to Taronga, not including the public donations raised.

The 2020 donation will help fund Taronga’s breeding efforts and to restore resilient landscapes for the critically endangered Regent Honeyeater, one of Taronga’s 11 legacy species which it is dedicating the next decade to help conserve.

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BI insurance set for post-COVID shake-up: Fitch

Business interruption insurance may be redefined in the wake of the coronavirus pandemic so that businesses can have more clarity about what they are covered against, Fitch Ratings says.

UK Insurers rejected many pandemic-related business interruption claims on the grounds of policy wording, arguing coverage did not apply in the circumstances, but a High Court test case largely favoured policyholders. An appeal decision is awaited.

“Given the scale of pandemics and the difficulty of precisely defining related losses due to business interruption, it may be that government-funded solutions will be developed in readiness for future pandemics, perhaps similar to those that apply in some jurisdictions for natural catastrophe losses,” Fitch says.

The ratings company says financial institutions will be exposed to long-lasting economic scars from the COVID-19 outbreak which could affect ratings in the longer-term.

“This is likely to be negative for the credit profiles of most banks and for US health insurers, but will be less significant for non-bank financial institutions and funds,” it says.

January renewals likely to be ‘lengthier, more complex’

Guy Carpenter has warned the upcoming January 1 renewal season and related negotiations will likely be “lengthier and more complex” because of COVID-19 and significant adverse developments in commercial automobile and general liability.

Medical professional liability and other liability are also showing signs of adverse developments in recent periods, adding to the pressure.

Increased loss frequency in long-tail lines is also another factor, with the losses dominating in

pre-renewal discussions. The increased loss frequency and severity is squeezing carriers’ margins, driving loss cost trends higher.

The positive trends such as rising primary rates, recovering asset values and flood of new capital entering the market are not enough to improve reinsurers’ risk appetite, the reinsurance broker says.

“COVID-19 loss development continues to be slow and highly uncertain. This will be a factor at January 1 for individual renewals and may potentially affect reinsurers’ overall willingness to deploy capital.

“Based on these various factors, January 1 renewals and related negotiations are expected to be lengthier and more complex than in prior years.”

Guy Carpenter says the average of all public COVID-19 losses are estimated at $US66 billion ($89 billion) and the reported losses attributable to the pandemic through third-quarter earnings announcements to date are slightly over $US25 billion ($33.8 billion).

UK High Court approves Lloyd’s Brexit response

The UK High Court has given final approval for policy transfer plans developed by Lloyd’s due to Britain’s exit from the European Union.

The market is transferring existing European business that will be affected by the loss of passporting rights to Brussels-based Lloyd’s Europe, with the changes to take effect from December 30.

The transfer plan has been reviewed by UK and European Economic Area (EEA) regulators and an independent expert.

“We are delighted that the UK High Court and regulators in the UK and Belgium have agreed to the transfer,” Lloyd’s General Counsel and Company Secretary Peter Spires said.

“Through Lloyd’s Europe, Lloyd’s policyholders across the EEA will continue to have their policies serviced following the end of the Brexit transition period.”

The Brussels-based operation is able to write non-life risks from all 30 EEA countries and is backed by reinsurance arrangements with Lloyd’s syndicates.

Lloyd’s Europe has been accepting risks starting from last January.

US commercial premiums surging: WTW

North American commercial insurance prices are expected to increase in every line except one next year in one of the hardest markets in decades, while uncertainty remains around final costs for insurers from the COVID-19 pandemic, Willis Towers Watson says.

“We have to look back to the defining hard market crisis of the mid-1980s to see market conditions of the proportions we are currently experiencing – one of double and triple-digit rate increases in most lines of business and dramatically reduced capacity in key lines,” Global Head of Broking Joe Peiser said.

Foundations for current conditions were laid by natural catastrophes in 2017 and 2018, years of declining prices and historically low interest rates.

A demonstrable increase in the frequency and severity of natural catastrophes around the world appears to be systemic, perhaps driven by climate change, while there has been a persistent increase in man-made property damage losses, the group’s Insurance Marketplace Realities 2021 report says.

Rising liability loss severity in areas such as product liability, directors’ and officers’ and employment practices has been “crudely attributed to ‘social inflation’,” according to the report.

“Whether one likes the term or not, the increase in losses are real and they are systemic,” it says.

The COVID-19 pandemic is hurting populations and economies, exacerbating the hard market.

In its previous report three months ago Willis Towers Watson estimated COVID-19 property and casualty industry losses of $US32-80 billion ($42-106 billion).

“At this point it looks like the upper end of that range may be where we land,” it says in the latest report. “There is cautious optimism that the final tally will not be much higher, but there remains uncertainty about the coverage litigation that is still in early stages.”

Willis Towers Watson says legal judgments against insurers that survive appeal could change a situation from a significant but manageable catastrophe into a solvency threat, and all eyes will be on the courts.

For most insurance lines, rate increases predicted for next year surpass those anticipated in the spring, while in a few cases flat renewals are now seen as the best outcome after reductions were earlier considered possible.

In the property market, increases should begin to moderate by mid-year barring another major insured catastrophe.

Mr Peiser says renewal results are not “huddled around” a mean percentage increase, with opportunities for insureds to differentiate their risks.

“Analytics and data-driven tools are increasingly changing the way both buyers and sellers approach the negotiating table when it comes to risk transfer,” the report says.

Rising reputational risks offer growth opportunity

Reputational risks offer a growth area for insurers as companies face heightened repercussions and improved products are developed, a report from Lloyd’s and KPMG says.

The report says the reputational risk landscape has changed significantly over the past few decades, amid the switch towards digitising operations, and any problems or issues are being amplified through channels such as social media.

“Insurers have an opportunity to become true end-to-end reputational risk management partners, moving well beyond traditional risk indemnity and the usual crisis management support,” Lloyd’s Head of Innovation Trevor Maynard says.

“There are huge growth opportunities for insurers and brokers to help organisations transform their reputation management.”

KPMG UK Head of Commercial and Specialty Insurance Paul Merrey says the risks are becoming increasingly complex and new products will need to be more nuanced as a “one size fits all” approach won’t work.

“Just as cyber insurance has become a core offering to reflect a changed risk landscape, we anticipate that reputation products will become a staple within the insurance industry in the next five years,” he says.

The report released last week, Safeguarding Reputation, estimates corporate brand and reputation accounts for 35.3% of the market capitalisation of the world’s 15 leading equity market indices.

The contribution is highest in areas such as technology, telecommunications, healthcare and consumer goods and services, followed by financials, oil and gas, basic materials, industrials and utilities.

Currently available reputation risk insurance products include those that focus on the cost of a crisis response, or lost revenues and profits, as well as those also offering an element of support and assistance.

“Reputational risk insurance solutions are still relatively new in the market, but a range of market players have recent made significant strides in enhancing their existing offering,” the report says.

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Broking and client service post-COVID: a guide

The time has arrived for brokers to move from “price to advice” in a greatly changed insurance market.

That’s the advice of broking and risk management veteran Stephen Hamill, who says the pandemic, climate change, a hard insurance market and a sudden shake-up of global supply chains are altering risk appetites and requiring a complete rethink by brokers as insurers adjust their risk appetites and acceptances.

Brisbane-based Mr Hamill, who is Risk Management director at Austbrokers Comsure, has worked as a broker for more than 30 years. He says brokers must help clients wade through the market changes they are experiencing to source appropriate insurance coverage, engaging in detailed discussions to help their clients ascertain their exposure and get ‘buy in’.

“During the past 10 months of global upheaval we have had a reshuffle of the attention and importance of corporate risks,” Mr Hamill says in a “white paper” he has published.

He says brokers need to get clients thinking about their risk tolerance, question why they buy certain classes of insurance and consider how risk mitigation could alter the impact of the peril.

His advice: Start the conversation by having small business clients decide what their hazard and exposure is, and using this basic “heat map,” work with the client to set the parameters.

“That provides client buy-in to the process and identifies risk management that can be implemented,” Mr Hamill says, recommending also that brokers replicate terms the business to be insured uses internally.

“If a client cannot understand the language their broker is using and how it applies to their situation, the message and the solution will fall flat.”

While the standard insurance renewal review is a “tick a box” process involving only basic information collection, he warns that clients are now facing greater scrutiny from underwriters, so brokers must “educate” their clients.

It’s no longer enough that brokers dictate what they think to clients. They must engage with them and make them feel a part of the insurance process.

“The client will soon have a substantial rating increase and will likely put their broker to tender unless the broker can change the client’s attitude to insurance,” Mr Hamill says.

He recommends brokers “expand their language and thinking” to include open-ended questions. For example, rather than asking “Do you need cyber crime cover?” they should be asking “How have the ramifications of COVID-19 changed how you deal with your customer base?”

Brokers must ask what they can do with the client’s premium dollar to protect their own business and prevent being attacked by another broker “or direct marketer purely on price”.

Health, cyber, the economy and employment-related perils are the current focus, though once the COVID risk is managed, it may revert more strongly to climate risks again, Mr Hamill says.

Brokers need to advise on managing “the intersection between climate change and company assets”. Businesses that rely heavily on water and power, or have operations subject to weather and pollution exposures, will experience rating and coverage pressure in the global insurance market. Waste removal and handling practices also threaten possible litigation.

Noting that global supply chains are under extreme pressure and it is crucial Australian businesses understand their exposure to international markets, he says the availability of capital will be key, and financiers will factor in sustainable supply chains in lending criteria. Therefore, many previous global options may be replaced with onshore options, forcing businesses to rethink how they price supply chain risk.

“What happens if you don’t rely on just one supplier for raw materials but two and in different regions? How does that change the overall consequence?”

A new challenge for brokers is the “interconnectivity between financial markets and people’s global mobility”, which Mr Hamill says is “as much a threat as an opportunity”. Business needs to come to grips with supply chain disruption.

“The speed of data and funds transfers around the world mean the nature of the hazard has changed from previous significant world events. The impact and velocity of change is faster and harder than a gradual swell of change when there was no cyber ‘real time’ connectivity.”

An analysis of losses that underwriters might not cover should include business interruption reviews, a look at supply contracts with onerous contractual conditions such as tight timeframes, asset value reviews and technology liability.

By examining these points, brokers can “build a fence around their client,” increase the client’s coverage and protect their own professional indemnity at the same time.

“As cyber crime and social engineering become the new forms of highway robbery and piracy, it is essential to underpin confidence in the supply chain and future proof cyber-trading platforms,” Mr Hamill says.

The guide urges brokers to create a risk register in which a business owner identifies their top five to 10 risks.

“It is important to recognise with clients that not all risk is insurable and brokers cannot ignore or shy away from that fact,” Mr Hamill says.

“However, what may be a risk can be modelled and managed.”