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Clarity on second BI test case issues not expected this year

The Insurance Council of Australia’s (ICA) second test case on business interruption cover may not bring clarity until well into next year given legal timelines and likely appeal processes.

The case involving nine separate small business claim disputes lodged with the Australian Financial Complaints Authority (AFCA) was filed in the Federal Court last Wednesday. Insurers represented are Allianz, IAG, Chubb, Guild, and Swiss Re Corporate Solutions.

Berrill & Watson Principal John Berrill says the single-issue first test case is still working its way through legal avenues, with an application seeking leave to appeal before the High Court, and the second case involves more issues and greater complexity.

Mr Berrill says ICA may seek to go straight to the Federal Full Court, which would speed the appeals process, but an initial hearing may be months away and it’s likely the decision will again lead to a High Court appeal application.

“There will be no final decision on this second test case this year,” he told insuranceNEWS.com.au. “That process will probably take one to two years to play out. Probably closer to the end of next year.”

The length of hearings and the timing of decisions will depend on the questions asked in statements of claim, and there will still be wording questions on individual policies to be decided after the test case result, he says.

“We are not even getting remotely close to the end of the controversies here and getting people paid,” he said.

An industry source also told insuranceNEWS.com.au that clarity on the issue may not be provided until the end of next year.

“There are nine claims, and about 20 points of law, and it will be virtually impossible for all 20 issues to be found for one side or the other," the source said.

“It’s likely to be appealed as far as it can be. The initial case could easily run for six months, and that’s just stage one.”

ICA says the second test case will determine the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate, as well as policies with a hybrid of these types of wordings.

“Insurers want this second test case brought to the court as quickly as possible so the process can be started to give certainty to policyholders and the insurance industry,” CEO Andrew Hall said.

“Once final rulings have been obtained, insurers are committed to applying the relevant principles in an efficient, transparent, and consistent way when assessing customer claims.”

Hearing dates set for casino group’s BI lawsuit

The Federal Court has set aside two days of hearings in April for the business interruption lawsuit that The Star Entertainment Group launched last year against Chubb and other insurers.

A hearing on April 28 and part hearing on April 29 will take place before Chief Justice James Allsop in Sydney.

The listed casino group and its subsidiary, The Star Brisbane Car Park Holdings, filed their affidavits this month with the court.

They are suing Chubb as the lead insurer of the industrial special risks policy and other insurance partners for breach of contract after their claim for BI losses allegedly suffered during the pandemic shutdown last year was declined.

The insurers say in their concise statements to the court that COVID-19 is excluded in the policy issued to the casino group.

The other respondents in the lawsuit are AIG Australia, XL Insurance, Zurich Australian Insurance, Allianz Australia, Swiss Re International, Assicurazioni Generali, Liberty Mutual, HDI Global, Allied World Assurance and PICC Property and Casualty.

Class action letters sent to 750,000 CBA customers

Slater and Gordon says more than 750,000 people will today receive a Federal Court notice advising they may be eligible to be part of a consumer credit insurance class action against Commonwealth Bank.

The action alleges that many people were sold “junk” credit card and personal loan insurance that was of little or no value and that many customers would not have been eligible to make successful claims.

The firm has also commenced similar class actions against ANZ and Westpac, while a suit against NAB in 2019 secured a $49.5 million settlement.

Slater and Gordon says Commonwealth Bank had said it would provide refunds as part of a remediation program, but only a small portion of customers had been compensated, despite sale of the products ending in March 2018.

“This move to return only a small portion of its customers premiums seems to have been a tokenistic effort to protect the bank’s brand, rather than a genuine attempt to make good its past wrongdoing,” Practice Group Leader Andrew Paull said.

Consumers may be eligible to join the action if they were issued with a consumer credit insurance policy since January 1 2010, have paid a premium and have not been paid back in full.

More than two million people have now received court-ordered notices advising they may be eligible to participate in one of the four class actions, which is part of the Get Your Insurance Back campaign.

Industry warned of ‘bumpy’ year ahead

Australia’s property and casualty (P&C) sector has been warned it faces a “bumpy” year as the industry attempts to address a raft of pressing challenges such as uncertainties stemming from two business interruption test cases.

S&P Global Ratings, which sounded the warnings last week, says rising reinsurance costs and heightened market volatility are the other potential risks that could materially affect the industry.

“It’s going to be a bumpy year,” Credit Analyst Craig Bennett told insuranceNEWS.com.au. “They have been affected both in heightened claims and they have also been affected by investment earnings.

“On the flip side though, it is a hardening market and they are getting good premium rates. That is a positive.”

As was reported last week, proceedings have commenced in the Federal Court of Australia for a second business interruption test case. The second case will look at the application of “further issues” in relation to pandemic coverage in business interruption policies.

In the first test case launched last year, the NSW Court of Appeal ruled insurers could not rely on exclusions that referenced the now repealed Quarantine Act. The insurance industry is seeking leave to appeal that decision.

Mr Bennett says the industry has been “proactive” in addressing potentially adverse BI claims exposure, referring to the actions taken by major insurers - IAG, Suncorp and QBE - to set aside significant provisions.

“The sum total is about $2.5 billion which is quite meaningful in size,” Mr Bennett said. “It has had a bigger impact on the earnings profile and they have put aside reserves for that. Their biggest exposure has been to business interruption.

“I think they have been proactive in terms of setting up provisions where there is that uncertainty.

“In terms of whether they are realised in terms of payouts, I guess that is a second question.”

In the February/March edition of Insurance News magazine

While 2020 was a year to forget, 2021 should be the year for finding answers. That’s the theme of the latest edition of Insurance News magazine, which is due to be mailed out later this week.

We have assembled views on the industry’s future with heavy-hitters who are working to keep ahead of the ever-evolving issues this year and beyond.

Broking and industry group leaders highlight key challenges and opportunities, ICA CEO Andrew Hall explains why he wants to implement change and not just talk about it, and we feature an illuminating Q&A with IAG’s new CEO Nick Hawkins.

Another must-read article examines the shifting broking landscape which has enabled powerful new entrants to emerge, with the money and influence to change the Australian market even further.

We also run the ruler over the ACCC’s final report from its three-year inquiry into the availability and affordability of insurance in northern Australia, and ask: What does it say that hasn’t been said before?

And 10 years after the devastating Canterbury earthquakes that tested New Zealand – and Australian-based insurers – like never before, we look in detail at the lessons learned over a decade of recovery.

It’s all in the latest edition of Australia’s most popular print publication, Insurance News magazine, available soon in hard copy and online.

Property worth $277 billion faces climate risk in Victoria: CoreLogic

Almost 9% of households in Victoria are at “very high” risk of climate hazards, with another 8% exposed to high risk – equating to $277 billion of property under threat, CoreLogic says.

CoreLogic’s analysis found climate change is likely to affect many parts of Victoria under extreme future scenarios even as the Victorian Government already provides funding to tackle erosion at beaches such as Apollo Bay, Lakes Entrance and Mallacoota.

“Our research shows that rising sea levels are likely to exacerbate coastal erosion in many parts of the state,” CoreLogic’s Head of Consulting and Risk Management Solutions Pierre Wiart said.

Victoria’s diverse landscape is vulnerable to both severe bushfire and flood and both these risks are likely to be on the rise due to both drier environments, and separately, increasing precipitation, he says.

CoreLogic’s research analysed over 2.5 million Victorian residential properties to assess climate hazard ratings and scenario outcomes at property level. The research outlined Victoria’s hazard profile and overall risk level for properties exposed to bushfire, drought, precipitation and sea level rise.

“Phenomena like rising sea levels, coastal erosion, bushfires and floods can present a major risk, with potential impacts likely ranging from reduced asset value and credit losses to financial losses due to damaged property and infrastructure,” Dr Wiart says.

Bushfire risk is highest around Melbourne’s north-east between Melbourne and the Yarra Ranges, from Ballarat to the border of the Lerderderg and Wombat State Parks, and the Great Otway National Park.

Flood risk is significant from Swan Hill to Echuca and Shepparton due to the Murray River, while Dr Wiart says the flat landscape of Melbourne creates a flood risk from the Yarra, Maribyrnong and Werribee Rivers.

“Accurate future flood projections can be tricky due to conflicting forces at play, namely the relative impacts of drought and precipitation,” he says.

NZ records costliest severe weather year

New Zealand has experienced its costliest year for severe weather insured losses, with claim payments hitting a record $NZ248 million ($238.1 million).

Customers made more than 13,600 weather-related claims to private insurers last year, with the total elevated by events in late November and December, the Insurance Council of New Zealand (ICNZ) says.

The estimate includes preliminary figures from storms and floods across the Greater Wellington region from November 29 to December 1 and a freak hailstorm that hit the Nelson-Marlborough region on Boxing Day.

ICNZ CEO Tim Grafton says the country can expect extreme weather events such as droughts and floods to become more frequent due to climate change, highlighting the need to insure adequately.

“Conversely, we must adapt to our changing climate and take steps to reduce risks where possible, building more resilient communities,” he says.

“This could mean improving infrastructure such as stormwater systems, no consenting new properties in higher risk areas, as well as building more resilient residential and commercial buildings.”

The full-year figure includes a provisional $NZ73 million ($68 million) from the November floods and $NZ41 million ($38.2 million) from the hailstorm, as well as $NZ44 million ($41 million) from Upper North Island flooding in July.

The Lake Ohau fire in October caused losses of around $NZ35 million ($32.6 million), with 180 house and contents claims, 15 business and commercial claims and 31 motor claims.

Significant loss events also include $NZ30 million ($28 million) from the Southland flooding in February and $NZ17 million ($15.8 million) from a June Upper North Island storm and tornado.

House and contents accounted for $NZ118.6 million ($110.5 million) of the annual total, while commercial contributed $NZ78.3 million ($73 million) and business interruption $NZ11.1 million ($10.3 million).

ICA to host forum to appease frustrations after Halloween hailstorm

The Insurance Council of Australia (ICA) will host a community forum in Brisbane’s Springfield Lakes this week as it acknowledges frustration over repair delays following severe hail on October 31.

During the afternoon, severe thunderstorms with large hail struck surrounding areas of Brisbane, the Gold Coast and the Sunshine Coast. Hail up to 14cm in diameter was recorded in some suburbs and the storm was the first catastrophe declaration for the 2020/21 natural disaster season.

Dubbed the Halloween hailstorm, it has produced more than 33,500 claims so far, with losses estimated at $805 million, the ICA says. More than 90% of claims are from householders.

Local policyholders can attend the forum on Wednesday at 6pm at the Springlake Hotel and hear broad insurance guidance. Two days of one-on-one consultations will follow, giving policyholders an opportunity to speak directly with their insurer about individual claims.

ICA CEO Andrew Hall says the initiative offers an opportunity to learn more about the claims process and also to meet with representatives of a particular insurer or the ICA to discuss individual cases.

“The Insurance Council of Australia acknowledges community members’ frustration with repair delays following last year’s destructive hailstorms,” Mr Hall said.

Register for the forum and consultations here, or call 1800 734 621.

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Corporate

Steadfast emerges strongly after COVID uncertainty

Steadfast says it has emerged from the uncertainty created by the coronavirus pandemic in a strong position and expects the full-year result to be at the top of a previously released guidance range.

CEO Robert Kelly says the company pulled guidance last March as the extent of the threat posed by the COVID-19 pandemic became clear, but much had changed over the past year.

“When we pulled guidance, we went to quarterly updates and throughout the whole of 2020 our business thrived, and we are pleased to report the position we are in today,” he told a first-half results briefing with analysts.

Steadfast underlying net profit rose 19.3% to $60.4 million in the six months to December 31, while earnings before interest, tax and amortisation (EBITA) gained by the same percentage to $125.4 million. Revenue increased 6.6% to $437.8 million as premiums strengthened.

Morningstar says its full-year net profit forecast for the company is now $128 million, slightly above the guidance range of $120-127 million.

“Insurance brokers continue to outshine the general insurers,” analyst Nathan Zaia says. “With insurers generating poor returns on capital, they are driving through premium rate increases which Steadfast say averaged around 6%-7% (double-digit in some lines) across its business. This is a direct benefit to Steadfast as commissions are tied to premiums.”

Mr Kelly says the pandemic has accelerated robotics automation to boost efficiency in routine tasks in underwriting agencies, while costs will likely remain lower as the pandemic and technology “shatters” previous ideas about the level of travel required for business.

Premium rates are expected to continue rising given pressures on insurers to improve loss ratios in a number of lines of business, while compulsory third party is also not “the money spinner” it has been in the past, Mr Kelly says.

Steadfast is seeking to expand its equity holdings in brokerage businesses within its network and has launched Project Trapped Capital to highlight the advantages of partial sales.

Broking underlying EBITA rose 22.9% to $106.7 million in the half, with Steadfast Network gross written premium (GWP) growing 13.9% to $4.5 billion.

Steadfast Underwriting Agencies EBITA increased 15.6% to $56.8 million and GWP rose 8.9% to $733 million on rate rises and higher volume in existing operations.

Statutory net profit was $73.4 million for the first-half compared to a year-earlier loss of $71.9 million, which included accounting actions related to an acquisition and rebate offer.

See ANALYSIS.

AUB sets higher bar as December half earnings surge 44.2%

AUB Group says the business is enjoying good momentum as it again raised its earnings outlook for this financial year following a strong set of first-half results.

The revised guidance projects underlying net profit after-tax of $63-65 million, which if achieved, would mean a rise of 17.9-21.7% from a year earlier. Last November the listed broker network raised its guidance to $60-62 million from $58.5-61 million after the business reported robust trading conditions in the first quarter.

Underlying net profit after tax in the six months to December 31 rose 44.2% to $30.7 million from a year earlier. Reported net profit surged 44.5% to 24 million.

“The reality is this is a cracker of a result,” CEO and MD Mike Emmett told analysts last week in an earnings call. “We’re really pleased with it.”

He says the first-half result “was important” to the group as it proved the strategy to grow the business was working.

These include actions taken in recent months such as the acquisition in December of 360 Underwriting Solutions and investment of a majority stake in August in Experien Insurance Services, a brokerage that specialises in general and life insurance products for the medical profession.

The decision to invest $132 million for a 40% stake in online distribution platform BizCover in February last year is also paying off.

“Our acquisition approach is delivering strong benefits to the group, adding not only profits but also enhancing our capabilities,” Mr Emmett said. “We are pleased with this result and specifically with the performance across our Australian broking businesses together with exceptional revenue and profit growth in BizCover since acquisition.”

In the December half, the Australian Broking unit grew its underlying pre-tax net profit by 60.1% to $39.3 million as revenue surged 24.2% to $233.4 million. The increase was underpinned by strong organic and acquisition-related growth.

Average premium increases of 7.4% in commercial and cost reduction measures supported organic growth while contributions from investments such as the ones made last year in Experien and BizCover gave added support.

Mr Emmett says anticipated rate increases of 5-6% will contribute about $2.9 million to second-half underlying net profit after-tax. The estimated profit contribution from acquisitions of $3.4 million is primarily from 360 Underwriting and Experien.

He says starting in August the business will report the results of BizCover and other related investments as a separate division. The move is an acknowledgement of the “strategic importance” of these new earnings drivers, he says.

Union pledges to support QBE staff facing axe

The Finance Sector Union (FSU) says it will work to support about 40 QBE employees who have been told their roles are being made redundant.

insuranceNEWS.com.au understands that at least one quarter of affected staff will be redeployed in other roles, with the remainder set to leave the business. It is believed the job losses are not focused on any one sector or location.

“The FSU is here to support staff affected by these decisions,” the union said in a statement on its website.

“QBE has stated ‘there are number of redeployment opportunities across the business, and QBE will be working closely with employees to maximise these opportunities’.

“The FSU is aware there will be a four-week redeployment period following the redundancy announcement.”

A spokeswoman for the insurer declined to confirm any details, saying only that “these changes have impacted less than 2% of QBE’s Australia Pacific workforce and did not affect all teams across the business”.

GFI sells majority stake in Genworth, board members depart

Genworth Financial Inc (GFI) has sold its 52% stake in Genworth Mortgage Insurance Australia and no longer owns any shares in the company.

NYSE-listed GFI, which is preparing for a partial IPO of its US mortgage insurance business, sold around 214 million Genworth shares on the Australian Stock Exchange at $2.28 a share. GFI had listed Genworth in 2014.

“This transaction will help enhance our holding company liquidity ahead of our near-term obligations, including our debt due in September 2021 and upcoming AXA liabilities due in 2022," GFI President and CEO Tom McInerney said.

As a result of GFI’s departure from the share register, Rajinder Singh and Stuart Take have resigned as Genworth board members.

Commercial agreements between Genworth and GFI will cease in 90 days and a number of other commercial agreements will also terminate, including a Trademark Licence Agreement, IT Services Agreement and Shared Services Agreement.

“Genworth has prepared a disengagement plan in respect of the services provided under these agreements and will be putting in place alternative arrangements,” a company statement said.

Genworth CEO and MD Pauline Blight-Johnston says management is pleased with interest in the share sale and welcome new institutional investors.

Genworth’s earnings took a hit last year from delinquency reserving of $109.1 million and a large $181.8 million writedown, sending it to a full-year underwriting loss of $234 million.

The company has warned of “sustained pressure on claims throughout 2021,” as assistance such as JobKeeper and mortgage deferrals granted by lenders taper off, leaving many homebuyers exposed and poised to make Lender Mortgage Insurance (LMI) claims.

Nib Travel earnings collapse under pressure from COVID curbs

Nib Holdings expects conditions to remain challenging for its travel insurance business as the division suffered a steep decline in first-half earnings due to border closures caused by the pandemic.

The listed group says Nib Travel, the third largest travel insurer in the Australian market, continues to be “materially affected by COVID-19 restrictions on travel” although there has been a “small improvement” in sales.

“COVID-19 has had many malign consequences across the Nib group,” MD and CEO Mark Fitzgibbon said. “It’s… caused uncertain market conditions and totally disrupted parts of our business such as… travel insurance.”

Nib Travel’s operating income in the six months to December 31 plunged 90.8% to $4.4 million from a year earlier. It reported gross written premiums of $2.8 million, down 97.2% from a year earlier as the number of polices sold dived to 25,450 from 605,635.

A non-cash impairment charge of $7 million against the division’s intangible assets has been made to reflect the “more difficult outlook for travel,” Mr Fitzgibbon said.

“It’s all a bit gloomy at the moment yet COVID-19 will pass and our travel business is well positioned for recovery and growth when travel restrictions are relaxed or borders re-open,” he said.

“The hiatus is actually providing us with an opportunity to recalibrate and modernise the business.”

Insurance arm powers Johns Lyng’s first-half earnings

Building services group Johns Lyng has raised its outlook for this financial year after a strong first-half performance, powered by its insurance-focused division.

The new forecast projects group operating earnings before interest, tax, depreciation and amortisation (EBITDA) of $47.4 million, a 15% increase from the previous estimate provided last August while the guidance for sales revenue has been revised to $524.1 million, up 8% from the original target.

Johns Lyng says a strong pipeline of work-in-hand in the group’s core business, Insurance Building & Restoration Services (IB&RS), will carry through the second half, while recent contract wins during the first half are expected to begin to contribute.

The IB&RS division, which accounts for 95.9% of EBITDA, provides building fabric repair and contents restoration services after damage from insured events such as natural disasters. It also offers strata management and property/facilities management services.

In the first-half period to December 31, the division achieved a 41.4% rise in EBITDA to $26.6 million from a year earlier. Coronavirus restrictions have had a “limited” impact so far as the IB&RS unit is involved in “essential services” works, Johns Lyng says.

Group EBITDA improved 38.8% to $27.7 million while sales revenue climbed 18.9% higher to $277.8 million.

“It’s pleasing to report another period of very strong earnings growth, which continues our consistent upward trajectory since we listed in 2017,” CEO Scott Didier said.

“These results are a fantastic achievement in the context of the COVID-19 pandemic, and again highlight that our business is generally insulated from broader economic and other external conditions.

“Organic growth was also very pleasing during the period, as we announced six new contract wins with major insurers in another great representation of our standing in the market.”

He says the recent contracts with RACQ, Chubb and other key insurance providers “are very important partnerships that bode well for further growth”.

The group’s Commercial Construction division is expected to perform well too, having won 17 large scale contracts to carry out rectification works in high-rise buildings in Victoria as part of the state’s $600 million cladding repair scheme.

Going forward Johns Lyng is looking to scale up its presence in the strata management sphere, building on recent moves to expand this side of the business.

Ensurance flags moves to grow UK business

Underwriting agency Ensurance plans to expand its offerings in the UK to support the continued growth of the business.

The agency’s business is concentrated mainly in the UK following the $1.1 million sale last year of its Australian underwriting arm to 360 Construction.

In the past three months to date, UK operations have been cashflow positive and have required no liquidity from the Australian head office.

“This is the first time since the establishment of the UK operations five years ago that this has been achieved,” Ensurance says in an investor update last week.

“Growth is expected to continue for the UK operations with new product lines to be added to the portfolio in 2021.

“Investment in specific underwriting IT systems is also leading to greater efficiencies as the underwriting team has been able to focus less on administration and more on renewals and new business development opportunities leading to significantly improved customer service and response levels.”

Ensurance UK achieved a profit of $480,000 in the six months to December 31. It’s the first time the division has made a half-year profit since its incorporation.

The results are driven by the continued growth of the portfolio, which is 18% larger in gross written premium terms than in December 2019. The business also received the first two profit commission payments relating to the 2017 underwriting year.

In the December quarter, a new capacity agreement was signed with Axa Insurance UK, replacing its partnership with Swiss Re. The deal with Axa takes effect this month.

Huddle enters partnership with Telstra

Insurtech Huddle will offer personal insurance products such as home and motor to customers of Telstra as part of a partnership agreement between the two entities.

The partnership enables Telstra Plus members to earn reward points when they insure with Huddle. Telstra Plus is a rewards program that has been running for 18 months, offering members a range of benefits and rewards.

“To say we’re excited about this partnership is an understatement,” Huddle co-founder Jason Wilby said.

“Huddle and Telstra share a mutual drive to innovate and solve real customers problems. By combining Huddle’s revolutionary insurance and Telstra’s incredible rewards program, we’re enabling customers to get great cover with Huddle and new tech such as Google Nest, wearables and tablets with Telstra Plus.”

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Regulatory & Government

ASIC to offer immunity for misconduct informers

The Australian Securities and Investments Commission (ASIC) will offer immunity to people who inform the regulator about misconduct they have engaged in with others and are prepared to co-operate on investigations and court action.

The immunity would apply for market manipulation, insider trading and in cases of dishonest, misleading and deceptive conduct in connection with financial products and services.

“This policy is based on a recognition that it may be in the public interest to provide an incentive to individuals who have combined with others to break the law, to reveal misconduct that may otherwise have remained undiscovered,” the policy released last week says.

Immunity will only be available to the first person to report the misconduct and who meets the criteria, before the start of an investigation. Individuals who don’t meet the requirements will still be given “due credit” for co-operation received.

ASIC has powers to grant civil immunity and will work with the Commonwealth Director of Public Prosecutions to provide input on criminal immunity.

Individuals who breach Part 7.10 of the Corporations Act can face up to 15 years in prison, can be fined almost $1 million or made to pay three times the value of an illegal benefit received.

“ASIC continues to develop and implement new tools to combat and detect misconduct,” Commissioner Sean Hughes said. “The immunity policy enhances ASIC’s ability to identify and take enforcement action against complex markets and financial services contraventions.”

Approaches to the regulator under the immunity policy can be made through an online form, a hotline or a dedicated email address.

ASIC says it will use its best endeavours to protect any confidential information provided, including a person’s identity, except as required by law.

The policy is available here.

ASIC files charges against Allianz, subsidiary

The corporate regulator has pressed ahead with criminal proceedings against Allianz and its subsidiary AWP for allegedly making false or misleading statements to customers who were sold travel insurance products between 2016 and 2018.

A spokesman for Allianz says as the matter is now before the court, it will not provide any comment.

But the spokesman told insuranceNEWS.com.au the insurer has “acknowledged the shortcomings in relation to the sale of travel insurance products on some websites” that were identified during the Hayne royal commission in 2018.

“A review undertaken by Allianz in 2018 highlighted issues relating to the identification or description of the limits, sub-limits and exclusions that would apply to particular policies,” the spokesman said. “The website content has since been addressed.

“Since the royal commission, Allianz has undertaken a comprehensive program to strengthen our organisational governance, including further investing in risk and compliance and refining our product offerings with the aim of achieving the best outcomes for our customers.”

Last week the Australian Securities and Investments Commission (ASIC) announced it has filed charges against Allianz and AWP, accusing them of engaging in misconduct to sell travel insurance products.

Allianz was the underwriter of the products and AWP the distributor that sold the policies to customers. The insurer faces seven counts of false or misleading representations and AWP has one similar charge against it.

The charges allege that Allianz and AWP “published information online, including on Allianz’s domestic, basic and comprehensive travel insurance web pages, that misrepresented the characteristics or level of coverage of travel insurance on sale to consumers,” according to a statement from ASIC.

“In some instances, ASIC alleges that Allianz’s website advertised the maximum travel insurance benefits payable to customers, but failed to state that particular sub-limits, terms, conditions or exclusions could operate to limit those benefits.”

The case is listed for further mention on April 20 after the two companies appeared last week at the Downing Centre Local Court in Sydney.

The criminal proceedings come after the regulator announced last October it had secured $10 million in remediation from the insurer and AWP for travel insurance products that were “potentially mis-sold” to some 31,500 customers. The products were sold through Allianz’s own website and its distribution partners including Expedia.

The remediation is not an admission by either Allianz or AWP that they have breached the law.

ASIC says the criminal charges are part of its regulatory responses after the Hayne royal commission referred the insurer’s alleged misconduct to the regulator. The charges are separate to the civil proceedings lodged in the Federal court against Allianz and AWP for allegedly misleading consumers on Expedia travel websites.

Wivenhoe class action members secure $440 million partial settlement

The Wivenhoe and Somerset class action has been partially settled for $440 million after a compensation agreement was reached with the Queensland Government and its statutory body, SunWater, law firm Maurice Blackburn announced last week.

The settlement comes more than a year after the NSW Supreme Court ruled in November 2019 that negligence by operators of the Wivenhoe and Somerset dams exacerbated the 2011 Brisbane floods.

Maurice Backburn filed the class action in 2014, alleging negligence on the part of Queensland Bulk Water Supply Authority (which trades as Seqwater), Sunwater and the State of Queensland contributed to the extensive flooding disaster.

The class action, which includes a number of insurers, claimed the three defendants are legally responsible for the actions of four flood engineers who were in charge of running flood operations at the two dams from January 2-11 in 2011.

Maurice Blackburn calls the $440 million compensation a “record” and one that will offer some closure for its clients after a long and arduous legal battle.

“It has now been ten years since the Brisbane and Ipswich floods, so this settlement is a very welcome development that we hope will bring some much-needed closure to our clients, who have had to endure significant uncertainty and frustration while the defendants fought this case at every turn,” Principal Rebecca Gilsenan said.

Maurice Blackburn says Seqwater, which is 50% liable for the damage, is not a party to the settlement and will continue to appeal the NSW Supreme Court ruling.

“Of course, complete closure can only happen for our clients when Seqwater also settles or Seqwater’s appeal is finalised,” Ms Gilsenan said.

“The class will continue to vigorously fight Seqwater’s appeal, buoyed by today’s substantial settlement reached with the other two defendants.”

The settlement is subject to approval by the NSW Supreme Court and agreement on terms, with an approval hearing likely to take place before the Seqwater appeal starts in May.

Personal Injury Commission begins operation

The NSW Personal Injury Commission has officially started operation, creating a new tribunal and “one-stop shop” for disputes related to the workers’ compensation and compulsory third party (CTP) insurance schemes.

“The last thing injured workers need is to be burdened with unnecessary paperwork and bureaucracy,” Attorney General Mark Speakman said today.

“The Personal Injury Commission will harmonise processes for thousands of claimants each year, saving them time and giving them better access to dispute resolution.”

The new body takes over functions previously provided by the Workers’ Compensation Commission and State Insurance Regulatory Authority (SIRA) Dispute Resolution Service, the Motor Accidents Claims Assessment (CARS) and the Motor Accidents Medical Assessment Service.

In another change effective today, the Independent Review Office will receive complaints about CTP insurers in the claims process from both injured road users who are claimants and their representatives.

SIRA will continue to undertake regulatory investigation and enforcement action in relation to complaints in both schemes.

RBNZ publishes Canterbury quakes study

A detailed study of the ten years since the Canterbury earthquake sequence that devasted New Zealand a decade ago has revealed insurers struggle to accurately estimate claim costs and to quantify uncertainty.

A newly published “Funding and reserving Canterbury earthquake insurance claims” research paper by Robert Cole, senior adviser at the Reserve Bank of New Zealand (RBNZ), says existing reinsurance funded 72% of best estimate claim costs in Canterbury.

Insurers’ best estimate claim costs have doubled since 2011, with most of that increase occurring by December 2016.

“The size and persistency of increases in estimates for almost all insurers indicates they have, with hindsight, struggled to accurately estimate claim costs,” Mr Cole says in the paper, which reviews the funding and reserving of claim costs by 20 property insurers after the earthquakes.

Increases in best estimate paid plus outstanding claim costs have been large relative to both estimates and reserves for uncertainty for almost all insurers, which Mr Cole says “indicates insurers have also, with hindsight, struggled to quantify uncertainty.”

The 2010-11 Canterbury earthquakes are the most costly insurance event in New Zealand’s history with estimated property insurance claims costs of around $NZ38 billion ($36 billion).

Insurers in New Zealand are required to reserve for the best estimate cost (an unbiased mean) plus a risk margin for uncertainty, which increases the probability that total reserves are sufficient to meet the actual costs.

After 2011, claim costs exceeded the limit of existing reinsurance for eight insurers, who were not subject to solvency requirements at the time of the Canterbury earthquakes. Ten insurers required post-event funding – half for at least 30% of their claim costs – which was provided via “after the event” reinsurance and additional capital.

“After-the-event reinsurance,” purchased retrospectively to meet claim costs in excess of existing reinsurance, is typically expensive and may have restrictive terms. It is purchased to mitigate the risk of material increases in estimated claim costs for a disaster that has already occurred.

In the Canterbury case, some insurers failed to recover expected amounts from after-the-event reinsurance, and one insurer – Western Pacific – entered liquidation in April 2011 with 42% of claim costs unfunded.

In the case of Southern Response (formerly AMI), the government provided additional capital, and without this there would have been a very substantial level of policyholder shortfall and unfunded claim costs.

Today, the RBNZ requires insurers to have reinsurance and capital to cover the claim cost of a 1-in-1000 year earthquake and this means “there is greater assurance for funding of future disasters,” Mr Cole says.

“Estimates of expected claims costs and the uncertainty in costs could be significantly understated for long periods of time,” he says. “Consideration by insurers and the Reserve Bank of the funding and reserving experiences of the 2010-11 Canterbury earthquakes may assist dealing with any future catastrophic events.”

After the Canterbury earthquakes, residential property insurers changed the limit of their cover from replacement to sum-insured. For half the 20 insurers, existing capital and reinsurance were insufficient to meet the full claim costs.

Six insurers purchased after-the-event reinsurance for the Canterbury earthquakes. For some, the after-the-event reinsurance was provided by their parent as an alternative to capital injection.

“The success of after-the-event reinsurance has been mixed. One insurer failed to make a recovery due to not meeting the terms, despite claims exceeding both the excess and limit of their after the event reinsurance cover. Another insurer had a partial recovery due to a dispute with their reinsurer,” Mr Cole says.

In aggregate, 4% of claim costs were funded by after the event reinsurance and 14% by additional capital across six insurers, which was more than the funding by existing capital and more than a quarter of the total for three insurers.

One insurer funded a small portion of best estimate claim costs from profits while policyholder loss occurred for two insurers.

“With hindsight, reserves were not adequate and the quantified uncertainty was understated,” Mr Cole says.

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Life Insurance

Adviser body wants clarity over ‘advice’ description

The Advisers Association (TAA) says today it is “potentially misleading” to label financial product information as “advice” when it is not.

“We believe that terms such as ‘general advice’, ‘intra-fund advice’ and ‘robo-advice’ are typically financial product information services, and it is therefore potentially misleading and deceptive to call them anything else,” CEO Neil Macdonald said.

“In the interests of consumer education and transparency, it is time to call spades, spades.”

According to TAA, the term “intra-fund advice” should be renamed “intra-fund information” and “robo-advice” changed to “robo-information”.

“As we in the financial advice profession know, true personal financial advice has to consider and meet the client's best interests obligation and includes an extensive process which involves investigation of the client’s needs, detailed analysis of their circumstances, research into the most suitable products and services to meet those needs, development of a strategy and the production of a statement of advice that outlines solutions to help them meet those needs,” Mr Macdonald said.

“This extensive process is not followed by those providing general advice, intra-fund advice or robo-advice.

“It is essential that those financial product services are renamed, so that they are not mistaken by consumers for personal financial advice.”

Mr Macdonald says renaming the terms would also help level the playing field for financial advisers.

“At present advisers are subject to much stricter rules and disclosure requirements than those providing financial product information and the FASEA code makes it hard to provide scoped or scaled advice,” he said.

“In cases where financial advisers are simply providing financial product information, then in order to level the playing field, they should receive the same concessions as other financial product information providers. This would enable more everyday Australians to get their straightforward questions about a product quickly, simply and easily answered.”

Laws requiring annual advice fee statements passed in Parliament

Legislation aimed at protecting Australians from hidden advice fees and unexpected expenses passed in Parliament last week.

The new laws will require advisers to provide clients with an annual, forward-looking summary of fees and corresponding services, in addition to existing disclosures. Advisers will also need to obtain written consent from clients prior to deducting fees.

The Morrison Government says the passage of Financial Sector Reform Bill 2020 signals its commitment to implement the proposals made by the Hayne royal commission.

“These changes complement the introduction of a new disclosure obligation that requires financial advisers who are not independent of product providers to provide their clients with a clear and concise written disclaimer,” a statement from the office of Treasurer Josh Frydenberg says.

“The legislation will also prohibit the deduction of ongoing advice fees from MySuper products and increase the transparency of fees to members.

“These changes are an important step in restoring trust and confidence in Australia's financial system.”

While consumer advocates have welcomed the new laws, advisers believe the mandatory requirement to provide annual renewal statement could add to the already prohibitive cost of providing financial advice to Australians.

The Association of Financial Advisers say it does not believe an annual renewal summary is necessary.

“The legislation is another royal commission related Bill that has been pushed through the Parliament with undue haste and lack of due process,” the association says.

“The inevitable result of this is an increasing number of unintended consequences which will have negative implications for financial advice practices and flow on effects in terms of extra cost and complexity for clients. These issues will need to be fixed down the track.”

However, Choice has welcomed the passage of the Bill, calling it an important step forward in improving consumer outcomes in the financial advice sector.

“Advisers will now be required to provide an annual, forward-looking statement of fees and services to customers,” Finance Policy Adviser Patrick Veyret said. “This reform adds much needed transparency to the deduction of advice fees.

“Customers will now be much better positioned to assess value for money.”

Adviser gave client ‘inappropriate’ life insurance advice: AFCA

The Australian Financial Complaints Authority (AFCA) has ruled financial firm Your Super Life gave “inappropriate” advice when it recommended a client should set up a self-managed superannuation fund (SMSF) which would also look after his personal insurance needs.

The client, who took up the suggestion, lodged a complaint with AFCA after he made an income protection claim in August 2018 and received a benefit amount that was less than the sum insured.

The insurer that issued the policy had processed the claim based on income at that time as the insurance was an indemnity policy.

The complainant alleges Your Super Life had provided him with “inappropriate advice”. He says that because the recommended insurance policy had an indemnity benefit, he was not insured for the amount he had believed he was covered for.

He says he was under-insured and is entitled to the difference in benefit amount if he had not been on an indemnity policy. He also submitted that as a result of receiving a lower benefit amount, he has incurred considerable credit card debt and his business has been ineligible for the government’s COVID-19 JobKeeper payments.

AFCA in its ruling rejected the firm’s position that it was the client who directed it to open an SMSF account for him. According to AFCA, the advice to establish a SMSF was not in the complainant’s best interests as was the personal insurances recommendations that were provided.

The complainant held personal life insurance within his existing superannuation fund including life and total and permanent disability (TPD) cover of $616,724 before he approached Your Super Life for advice. The policy cost $2089 per annum. He also held an indemnity income protection for $4960 per month with a 30-day waiting period and a benefit period to age 65, costing $3317 per annum.

Your Super Life recommended the complainant implement the same level of life, TPD and income protection insurance held within the newly established SMSF. The advice also recommended trauma cover for $150,000.

The new insurance policies cost more for the complainant, with annual premiums now raised to $2417 for his life and TPD cover. For the recommended income protection of $4,960 per month with a 30-day waiting period and a benefit period to age 65, the premiums were $4005 per annum.

“The advice simply recommended the complainant implement the same level of insurance he previously held,” AFCA ruled.

“The advice did not explain why it is appropriate for the complainant to apply for the same level of cover he previously held but at an increased cost, other than to hold it within the SMSF, which was an inappropriate strategy in any event.

“Accordingly, I am satisfied the advice to implement new personal insurances was not in the complainant’s best interests.”

Click here for the ruling.

Strong life earnings lift ClearView in December half

ClearView Wealth has posted higher first-half earnings, driven partly by stronger results from its life business.

Group underlying net profit after-tax in the six months to December 31 increased 27% to $13 million from a year earlier while operating earnings after-tax surged 39% to $13.1 million.

“The [first-half] is a strong result in a challenging environment, with the increase in profitability predominantly driven by a strong underlying claims performance in the life insurance segment,” ClearView Wealth said.

“This is reflective of improved claims management outcomes and limited COVID-19 claims impacts to date.”

ClearView says the overall business has proven resilient to the health and economic impacts of the pandemic to date.

The life insurance division recorded $13 million in underlying net profit after-tax during the period, up 50% from a year earlier. Gross life insurance premiums grew 7% to $133.3 million and net claims incurred declined 16% to $19.1 million. The claims experience improved to a positive $3.2 million from a $12.5 million deficit.

For the financial advice unit, underlying net profit after-tax grew 66% to $900,000 as a 30% fall in operating expenses cushioned the fallout from weaker planning fees. Net planning fees slumped 19% to $7.1 million during the period.

ClearView says the first-half results mean the business remains on track to achieve underlying net profit after-tax of $21-25 million.

“While challenging market conditions persist, this result reflects the impact of initiatives to improve claims management outcomes, boost customer loyalty and strengthen our relationships with professional financial advisers,” MD Simon Swanson said.

“Fundamental demand for the quality products and services offered by ClearView has not changed.

“Australia’s complex tax and regulatory environment, ageing population and rising debt levels underpin the need for strategic advice and fit-for-purpose products to help people achieve their financial goals, manage risk and retire with confidence.

“COVID-19 has only heightened awareness of the need for sound financial advice and relevant products like life insurance.”

CountPlus says ‘clean’ model strategy paying off for advice arm

Count Financial has posted a 74% rise in first-half earnings, a sign that the advisory practice is on the right growth path, according to CountPlus, which bought the business from Commonwealth Bank in 2019.

The network booked $1.6 million in earnings before interest, taxes and amortisation (EBITA) for the six months to December 31, up from $926,000 in the prior corresponding period.

CountPlus CEO and MD Matthew Rowe says the shift to a plan built around attracting good advisers is yielding the intended results.

“The deliberate pivot to a ‘clean’ economic model has created a logical home for quality financial advisers to join the Count Financial national network,” Mr Rowe said.

“A sustainable Count Financial value proposition and underlying economic model supports our goal of being the natural ‘clean’ licensee destination for quality financial advisers.

“The business is demonstrating its competitive strengths within a challenging operating environment, with positive signals for growth.”

Gross earnings per adviser have increased by 38% to $264,000 since CountPlus acquired the business in 2019 for $2.5 million and it now takes half the time to produce advice documents compared to 12 months ago.

CountPlus says reported net profit at the group level grew 65% to $4.08 million while EBITA, excluding JobKeeper assistance, improved 21% to $6.2 million.

“These results represent a steady improvement, bolstered by disciplined financial controls, diligent operational process, and a focus on efficiencies in our core businesses,” Mr Rowe said.

“We see opportunity ahead to invest in underlying earnings of core firms that generate revenue through the delivery of client-centric accounting and financial advice.”

Challenger appoints Westpac high flyer as CFO

Challenger has appointed Rachel Grimes as CFO, effective May 3, replacing Andrew Tobin who is stepping down after13 years.

Sydney-based Ms Grimes, currently GM Finance at Westpac, has three decades of commercial experience across financial services and accounting in Australia and internationally.

She has expertise in wealth management and the life insurance sector and formerly led product and sales for Westpac Life Insurance.

Challenger MD and CEO Richard Howes says Ms Grimes’ in-depth knowledge and experience in governance and transformation programs will support strategic growth initiatives, including Challenger’s integration of the MyLife MyFinance bank.

“Rachel brings an outstanding track record as a leader in her field with significant experience as a technical and commercial finance executive,” Mr Howes said.

Ms Grimes was appointed President of the International Federation of Accountants in 2016 and is a director on The Accounting Professional and Ethical Standards Board.

Mr Howes thanked Mr Tobin for many years of commitment and diligence.

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The Professional

Financial services ‘will see surge in gig workers’

As much as a fifth of the work of financial services firms is likely to be done by gig workers by 2026, driven by a need for digitally skilled talent at insurers and banks, a new PwC report says.

A PwC survey of more than 500 financial services senior executives across 15 countries found 52% expect to have more gig-based employees over coming years.

Gig workers add value by immediately bringing digital skills to improve functions such as customer experience institutional resilience while the full-time workforce is being upskilled, PwC says.

Currently, gig-economy talent makes up just 5% of financial services businesses workforce but PwC predicts that in the next five years, gig workers will perform 15-20% of the work of a typical institution.

“Many of the most valuable companies in the world … operate with relatively few full-time employees and an increasing percentage of gig-economy talent and skills that they can access on-demand, making the organisations far more innovative, nimble and cost-efficient,” PwC Global Financial Services Leader John Garvey said.

Insurers need new capabilities as technology solutions increasingly involve collaboration with third parties. Despite this, most institutions still rely primarily on full-time and part-time employees, with contractors comprising just 9% of the workforce and gig-economy talent just 5%, PwC says.

Obstacles to using more gig workers are confidentiality concerns, lack of knowledge, regulatory and overall risk avoidance.

Still, Mr Garvey says leaders in insurance are looking seriously at their workforces to evaluate which roles need to be performed by permanent employees and which can be performed by gig-economy workers, contractors or even crowd-sourced on a case-by-case basis.

COVID-19 and remote working have opened the door to accessing talent outside a firm’s physical location, including outside the country.

“What we are seeing now is a talent marketplace for gig workers in financial services, competing to take advantage of their specialist skill set and boost productivity,” he says.

Actuaries Institute names new President

KPMG senior partner and general insurance specialist Jefferson Gibbs has been appointed Actuaries Institute President.

Mr Gibbs, who takes over from Hoa Bui, says actuaries will increasingly expand their remit and take on greater and more diverse roles in managing risk.

“We must continue to lead in areas of public policy where we have the insight to create real change,” he said in a speech to actuaries last week.

The group should strengthen relationships with governments, the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and other regulators, as well as with a wider-ranging set of organisations, he says.

In the year ahead, the institute will complete further work on the Australian Actuaries Climate Index and expand its education program with studies on data analytics principles and added insurance-related subjects.

Mr Gibbs has been an Appointed Actuary and has worked with governments, not-for-profits and private sector clients in Australia, New Zealand and internationally.

SUA founding director Bob Page dies

Bob Page, who with his brother Frank founded Specialist Underwriting Agencies (SUA) in 1992, has died at the age of 67.

Brisbane-based Mr Page remained Chairman and SUA’s major shareholder until last year after retiring from full time work in 2016.

Despite being involved in insurance for three decades and completing insurance qualifications, Mr Page remained behind the scenes to all but SUA’s “most important affiliates,” SUA director John Iles says.

Mr Page’s funeral was held at The Lakeview Chapel in Brisbane’s Bridgeman Downs on Tuesday.

“It was Bob’s generosity, integrity, drive and belief in his employees that made SUA’s 25 plus years a possibility,” Mr Iles says in a eulogy shared with insuranceNEWS.com.au.

“It was his humour, humility and humanity that made working at SUA with Bob a joy.”

Mr Page is survived by his wife Gail and his sisters Christine and Narelle, who works in administration at SUA.

Delta appoints Lloyd’s former Asia-Pacific head to COO role

Specialist liability underwriter Delta Insurance Group has appointed Lloyd’s former Asia-Pacific regional head Kent Chaplin as COO as it expands further beyond New Zealand.

Mr Chaplin, who was appointed to Delta Group’s Advisory Board in August 2019, spent 14 years at Lloyd’s, around half based in Singapore, and more recently held a senior sales role at NYSE-listed DXC Technology. He was also a board member of the Monetary Authority of Singapore’s Financial Centre Advisory Panel.

Auckland-based Delta grew its business almost 25% locally last year, and double that rate in the Asia-Pacific region.

“That growth has encouraged us to significantly broaden our footprint in Asia-Pacific and beyond, becoming more global in our outlook,” Group MD Ian Pollard said. “We see [Kent’s] appointment in this more direct, full-time role as a key to taking us to that next level.”

Swiss Re executive to present at Insurtech 2021 event this week

Insurtech Australia will host an industry event in Sydney on Thursday exploring challenges created by the turmoil of last year and where the capital and strategic investment opportunities now lie.

Supported by Insurtech Gateway Australia and Envest, "Insurtech 2021" will feature Swiss Re’s Senior Solutions Manager P&C Aus/NZ Alison Kelly.

“The past year has seen some big changes in the industry; from a massive shift in consumer trends to a brutal preview of future global health and climate change challenges, and the introduction of new regulations - but with change, comes opportunity,” Insurtech Australia says.

Compliance expert Paul Muir and 11eight venture specialist Ron Arnold will appear alongside Ms Kelly and experts from Envest and Insurtech Gateway Australia.

“We’ll identify the founders, product managers, and innovation agents that are reimagining the new reality, the new future and generating ideas for new products,” it says.

Register here for the event, which will be held at the York Street Fishburners in Sydney from 5.45pm on Thursday.

NTI raffles another classic truck for MND research

An electric blue 1946 “Jail Bar” is the latest classic truck to be restored by NTI as it holds a fourth raffle to raise much-needed funds for Motor Neurone Disease (MND) research.

The truck, dubbed “Jolene,” took 1500 hours to restore, NTI’s Restoration & Special Projects Lead Don Geer says.

NTI has restored three other trucks since 2016 to fundraise for MND research, undertaken with the help of transport industry partners. (The Jail Bar nickname refers to the truck’s iconic radiator grille.)

NTI has already raised more than half a million dollars in four years for MND research in honour of former CEO the late Wayne Patterson, who was diagnosed with the condition in 2015 and died three years later.

MND researchers received $200,000 in December after NTI auctioned another restored truck, with the support of the Australian Trucking Association. More than $87,000 was raised at that auction and NTI added another $113,000 to support researchers as they to continue exploring ways to treat the disease.

"The only way we will see a world without MND is via funding research for a cure. This fatal disease takes far too many dads, mums, brothers, sisters and friends from our community each year,” NTI says.

Two Australians die from MND every day and two more are diagnosed.

You can buy raffle tickets here. Due to government regulations, WA residents are not permitted to purchase tickets in the raffle and are not eligible for any prizes.

45,000 tickets available for purchase at a cost of $10 each and the draw will take place on Sunday, 16 May 2021 at 2:30pm AEST at the Brisbane Convention Centre.

Arch rehires senior property underwriter

Arch Insurance Australia has reappointed Sebastian Allison to the role of Senior Underwriter, Property, based in Sydney.

Mr Allison, who previously held the same role until July last year during four years at Arch, will be responsible for driving the property and business interruption insurance portfolio, which specialises in the hospitality, low hazard SME, poultry and retail sectors. He reports to Underwriting Manager, Property Mark Bailey.

Mr Allison has more than eight years of experience in the sector, most recently spending nine months as underwriter at Liberty Specialty Markets.

ProRisk schedules lunchtime broker education webinars

ProRisk has released a schedule of education webinars designed to build broker capability and product knowledge.

Most of the webinars will be held at lunchtime and brokers will gain CPD points for attending.

On Thursday, Kieran Doyle, Partner at Wotton + Kearney, will present “Cyber & Privacy Liability; Claims Management Masterclass” at 1 pm AEST, sharing claims examples as well as key tips to dealing with a cyber incident or privacy breach and common pitfalls to avoid.

Other webinars scheduled through to August so far include:

  • Cyber & Privacy Liability product training, March 22, 1pm
  • Management Liability product training, April 1, 1pm
  • Association Liability product training, April 15, 1pm
  • Protection is our promise (Discusses what cover ProRisk writes), May 31, 8.30 am
  • Coverage Analysis 101, June 15, 1pm
  • ProRisk Healthcare Professionals Civil Liability product training, July 5, 1pm
  • Schemes and Master Policies Master Class, August 10, 1pm

Further webinars will be posted when finalised.

“If brokers want to add value to their clients or deepen their own understanding of risks and risk management, they should be considering these quality CPD accumulating webinars,” General Counsel and Product & Technical Manager at ProRisk Jaydon Burke-Douglas said.

Brokers can register for ProRisk’s webinars here.

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International

Industry unites to address climate change threat

Industry think-tank The Geneva Association has launched a working group to develop climate risk assessment methodologies and tools for the insurance sector.

The Geneva Association Taskforce is comprised of experts from 17 of the world’s leading general and life insurers, who last week released their first report on challenges facing the industry as decarbonisation gathers pace in the global economy.

“In 2020 alone, the world witnessed massive wildfires in California and Australia, historic floods in China and a record hurricane season in the Atlantic,” Geneva Association MD Jad Ariss said.

“The societal impacts of climate change have become ubiquitous, and individuals and institutions must fully commit now to confronting the climate crisis.

“Insurers are obvious, strong leaders on global climate action, given their core functions -managing risk and investing - and our industry-led initiative demonstrates that they are proactively rising to the occasion.”

According to the report, there are several sources of uncertainty associated with transitioning to a low-carbon economy that needs to be considered in a climate risk assessment.

“Over the next decades, public policies, regulations, technological advancement, market conditions and other aspects of societal transition towards low-carbon economies will affect the level of climate change risk and the future risk landscape,” the report says.

“These factors highlight some of the inherent uncertainties that must be considered and accounted for when assessing exposure to climate change risk.”

Physical risk, the other threat mentioned in the report, is already being felt by the industry. Property and casualty insurers have been experiencing an evolution in risk exposures as a result of gradual climate change.

“Property catastrophe portfolios are in focus, but they benefit from a short-tail liability pattern,” the report says.

“With the majority of affected property insurance cover offered on an annual basis, [property and casualty] re/insurers have the opportunity to monitor gradual changes to the climate risk landscape and consider adjustments to pricing and/or product offerings.”

Click here to download the report.

Climate change to have little impact on insurer ratings: Fitch

Climate change is expected to have little impact on insurance ratings despite the serious challenge it represents for the industry and the questions it raises for cover affordability as prices increase, Fitch Ratings says.

The ratings firm says the frequency and severity of natural catastrophes is expected to increase but regulators and business partners such as modelling companies and reinsurers offer research capabilities to help the industry step up to the challenge.

“In contrast to liability claims, property losses caused by nat cats settle in a relatively short time period, rarely exceeding two to three years,” it says in a report. “This limits the uncertainty around ultimate losses and the risk of inadequate pricing.”

Reinsurance companies are also important in managing natural catastrophe exposures and can typically diversify their risks on a global scale.

The report focuses on underwriting exposure to natural catastrophe event risks rather than impacts such as heightened regulatory or public pressures to avoid investing or insuring certain industries.

“The industry has various tools at hand to manage this risk effectively,” the company says. “Fitch therefore believes climate change has a minimal impact on the ratings of most of the insurers in its portfolio.”

The European Insurance and Occupational Pensions Authority has published a discussion paper that looks at how to include climate change in natural catastrophe solvency capital requirement calibrations. A final report is due in the first half of this year.

Fitch says the paper shows European Union regulators are concerned about climate change risk for the insurance industry and capital charges for natural catastrophe risk exposures are set to increase in the future, with repercussions for pricing and insurability of risks.

The firm says higher capital requirements would lead to increased tariffs to meet financial return requirements, which may see insurers encountering increasing problems as clients may be unwilling or unable to pay for natural catastrophe protection.

“One answer could be the gradual withdrawal from insuring nat cat risks, triggering the need for state intervention,” it says.

“As is already the case in Florida, for example, governments may decide to provide insurance cover above and beyond what the insurance and reinsurance industry may be willing or able to offer.”

Insurers brace for ‘record’ losses from Texas deep freeze

The devastating winter storms that blanketed Texas last month could end up being the largest claims event in the state’s history, according to the Insurance Council of Texas (ICT).

The council did not provide any loss estimates but says the disaster resulted in possibly hundreds of thousands of property insurance claims from broken pipes and the resulting damage, leaking roofs, fallen trees and vehicle accidents on icy roads.

ICT says it is gathering information to assess the extent of insured losses and claims costs.

Catastrophe modeller Karen Clark & Company has estimated insured losses of approximately $US18 billion ($23.2 billion) from the disaster, including for damage in other surrounding states, a spokesman told insuranceNEWS.com.au.

The spokesman says the loss includes home, motor, commercial, industrial, and business interruption. In dollar terms, the majority of losses will be commercial, covering 20 states with more than half of the total in Texas.

Ratings agency AM Best predicts the damage in Texas and other states could leave insurers with record property catastrophe losses in the first quarter.

“AM Best believes the heaviest volume of claims will be in the homeowners, commercial property and auto insurance lines of business,” the agency said.

“Industry observers believe the ultimate damage and volume of claims stemming from insured losses will be substantial, as will the stress brought to bear on the state’s infrastructure, number of available contractors and associated resources could be substantial.”

Industry builds up capital base amid favourable investor sentiment

Insurers have been able to raise capital with relative ease, reflecting partly the absence of better investment opportunities elsewhere, according to a report from AM Best.

Hardening insurance rates have made the industry an attractive option for investors, who have suffered paltry returns with global interest rates stuck at historic lows.

“The low interest-rate environment has forced investors, particularly institutional investors, to look further afield for yield opportunities,” the ratings agency said.

“The risk and reward calculation posed by the insurance industry in a hardening market may look more attractive to existing and new investors.

“This suggests investors have confidence in the near-term prospects of the insurance industry, despite claims uncertainty in respect of COVID-19, social inflation and catastrophe exposure.”

According to the ratings agency, last year saw a slew of fund raising activities in London and Bermuda from both existing insurance players and start-ups that were looking to bolster balance sheets and to take advantage of perceived improvements in pricing and conditions.

Rates in a number of lines of business continue to harden as the market responds with increased underwriting discipline to adverse claims experience, driven by social inflation in the US, COVID-19-related losses and, in recent years, elevated catastrophe experience.

AM Best says a portion of the additional capital raised last year has already been required to absorb adverse prior-year loss reserve development and upward revisions in pandemic-related loss estimates.

It cautions the extent to which losses related to COVID-19 have been recognised by insurers going into this year remains unclear.

“The impact that the economic consequences of the pandemic will have on demand for insurance is highly uncertain and will largely depend on the length and depth of the economic downturn,” AM Best says.

“As economies shrink, so does the value of insurable risk. But when businesses come under financial pressure, their appetite to retain risk may also reduce, increasing demand for insurance cover.”

AM Best does not expect it to be busy on the mergers and acquisitions front in the near-term. Volatile equity markets have contributed to difficulties in assessing the true value of companies.

Additionally the financial and operational impact of the pandemic is likely to create uncertainty around integration and the prospects for combined businesses for some time.

US insurers play ‘pivotal’ role in economy

The Insurance Information Institute has produced a report outlining the critical role property and casualty (P&C) insurers play in supporting the US economy.

P&C insurers are major employers, investors and taxpayers, according to the latest data included in A Firm Foundation: How Insurance Supports the Economy.

“Following a record-breaking year of hurricanes, wildfires, and civil unrest, the pivotal role insurance plays in protecting and restoring the American economy through challenging times and events has become readily apparent,” Institute CEO Sean Kevelighan said.

“Our report highlights the extraordinary impact the insurance industry has from Main Street to Wall Street.”

The P&C sector has about $US1.9 trillion ($2.5 trillion) in financial assets under management in 2019. The industry’s contribution to gross domestic product, combined with that of life and annuity insurers, is about $US629.7 billion ($812.5 billion).

Click here for the report.

Munich Re expects ‘smaller scale’ COVID impact this year

Munich Re says the business remains on track for a €2.8 billion ($4.3 billion) profit this year as was forecast in December, projecting financial consequences from COVID-19 would be on a “considerably smaller scale” compared to last year.

Last week the insurer announced overall net income fell 55.3% to €1.2 billion ($1.86 billion) last year, as losses linked to the pandemic took a toll on earnings. Its reinsurance arm recorded about €3.4 billion ($5.3 billion) in overall COVID losses, including €3.1 billion ($4.8 billion) that was related to property and casualty lines of businesses.

“In spite of the tremendous challenges posed by COVID-19, Munich Re closed out 2020 with a clear profit,” Chairman of the Board of Management Joachim Wenning said.

“All the pieces are in place. In 2021, we expect to meet the profit target that we envisaged prior to the pandemic. Our reinsurance business is ideally positioned to resolutely exploit opportunities for profitable growth in the improved market environment.”

The property and casualty arm reported earnings of €571 million ($884 million), down 63% from a year earlier. The combined ratio deteriorated to 105.6% from 100.2% as losses from major events - defined as €10 million ($15.5 billion) and above - blew out last year.

Major losses widened to €4.7 billion ($7.3 billion) from €3.1 billion in 2019. Most of the losses were linked to COVID restrictions and in connection with the cancellation or postponement of major events. On a smaller scale, there were also losses in other lines of property and casualty reinsurance, including business interruption.

Major losses from natural catastrophes cost the business €906 million ($1.4 billion), significantly lower from the year-earlier bill of €2.05 billion ($3.2 billion). The costliest natural catastrophe for Munich Re last year was Hurricane Laura, at €280 million ($433 million).

The property and casualty arm increased its premium volume to €24.6 billion ($38 billion) from €22.1 billion ($34.2 billion), supported by strong organic growth across most lines of businesses.

At the January renewals, the business managed to grow the volume of business written by 10.9% to €11.6 billion ($18 billion).

“Prices, terms, and conditions improved,” Munich Re said. “Rates increased particularly in parts of the non-proportional business. Prices improved to varying degrees around the world.

“Looking ahead to the upcoming renewal rounds in April and July, Munich Re anticipates that the market environment will remain positive and offer attractive growth opportunities.”

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Analysis

Results in focus: earnings season spotlights premium gains, BI uncertainty

Rising premiums are set to remain a positive for insurance companies for some time yet while business interruption claims uncertainty is still a cloud over the industry as legal battles continue and COVID-19 concerns persist, the latest earnings reporting season shows.

When it comes to the major insurers, QBE’s full-year result and half-year reports from Suncorp and IAG show the industry is still coming to grips with last year’s expensive natural catastrophes as well as impacts from previous years of low pricing, while the economic and business outlook is improving but uncertain.

“Premium rate rises are going to have to continue for these insurers to get back to making a respectable return on shareholders capital,” Morningstar analyst Nathan Zaia tells insuranceNEWS.com.au.

“They have been hit on multiple fronts from large natural hazard events, business interruption claims, rising reinsurance costs and falling investment income, so I think repricing is really the only viable option for generating a reasonable return again.”

QBE pre-released results in December warning of a $US1.5 billion ($1.9 billion) loss and a $US785 million ($1 billion) allowance for COVID-19 impacts. The loss compared with a year-earlier profit of $US550 million ($713 million).

IAG reported a $460 million loss for the half-year compared to a profit of $283 million, with the result affected by a pre-tax $1.15 billion expense for potential business interruption claims relating to COVID-19, which was flagged in November.

Suncorp posted net profit of $490 million, down 23.7% from a year-ago result that was inflated by divestment proceeds. The insurer said it had raised its business interruption provision to $214 million compared to a November figure of $195 million, although it appears less affected by potential claims than the other two companies.

Macquarie insurance equities analyst Andrew Buncombe says earlier market updates from insurers meant investors were looking more towards the guidance than at the numbers for the period just completed.

“What is interesting is IAG and Suncorp didn’t give new cost-out numbers and none of them gave margin guidance, which talks to how uncertain the outlook is,” he says. “That is ultimately the difficulty.”

The potential for further pandemic lockdowns remains a risk, while the economic recovery pathway likely faces some bumps as government support measures roll back this year.

S&P Global Ratings Director Insurance Ratings Craig Bennett says premium rates are a positive for insurers but volume growth in personal lines in particular has been muted, partly reflecting affordability constraints. Investment gains looking ahead may also be limited.

“I wouldn’t be expecting any big rebound, in terms of unit growth in particular,” he told insuranceNEWS.com.au. “There is continuing effort in relation to efficiency initiatives so we will see incremental benefits coming through there. Offsetting that, you probably have a higher investment in technology-type spend.”

S&P Director Financial Services Ratings Michael Vine says from a financial strength perspective the insurers are well positioned following recent capital and hybrid raisings, dividends for Suncorp and IAG were solid while the reserving for business interruption claims is likely conservative.

Nevertheless, it remains early days in assessing the final exposures to pandemic-related claims.

“There are a lot of actuarial assumptions on those business interruption reserves because there have been very few actual claims to date,” Mr Vine says.

Macquarie’s Andrew Buncombe says investors are likely to remain cautious while COVID-19 lingers and with court actions continuing after a first test case judgment on Quarantine Act wordings went against insurers.

“Investors look for absolutes and they want the business interruption issue completely done,” he says. “The reality is it is not going to be completely done for, let’s call it 18-24 months. That is why you are really seeing all three of the share prices struggle.”

Uncertainty for QBE includes a lengthy timeline in the recruitment of a new CEO following the departure of Pat Regan at the end of September last year, although the company is seen in safe hands with interim head Richard Pryce and with industry veteran Mike Wilkins chairing the group.

Mr Zaia says QBE’s North America business was an issue again this reporting season after being a regular underperformer in recent years.

“In a low cash rate environment, where the insurer can’t rely on investment income to offset poor insurance margins, improvement is urgently required,” he says.

“If pricing does not reflect the inherent risk of insuring in certain sectors or geographies, QBE should not shy away from selectively shrinking its footprint.”

The broking companies presented a positive picture in their half-year results and were buoyant about the full-year earnings outlooks as they benefitted from the stronger pricing environment.

AUB Group underlying net profit rose 44.2% to $30.7 million and the company lifted its financial year earnings forecast after seeing “strong momentum” in the first quarter.

Steadfast said it would deliver full-year earnings at the top of its guidance range and posted a 19.3% rise in underlying net profit to $60.4 million.

“We see opportunities for Steadfast to take more share of the intermediated insurance market, increase equity interests in brokers already within its network and benefit from premium rate increases,” Mr Zaia says.

COVID-19 was barely on the radar during the year-ago earnings season, and while brokers may feel impacts since then have not been as severe as feared at the height of lockdowns, it’s now an extra issue for insurers and the industry amid more conventional challenges.