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Dear Santa... the industry’s Christmas wish list

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As a challenging and eventful year draws to a close, insurance industry leaders will go to their annual breaks with Christmas wish lists full of gifts to help make 2016 a little less challenging and eventful.

As it happens, Santa’s already on the job. The general insurance industry received an early Christmas present last week when the NSW Government announced it is scrapping the emergency service levy (ESL) on insurance premiums.

The decision, which brings NSW into line with other states, has been lobbied for by the industry for many years. On average it will shave 21% from the cost of insurance.

But Insurance Council of Australia (ICA) CEO Rob Whelan has a few other wishes on his list.

He says ICA will continue holding discussions with federal and state governments, in the hope the ESL is not the only insurance tax removed.

“ICA is heartened by signs the tax reform process is looking seriously at removing insurance stamp duties, and awaits the tax green paper with interest,” he says.

The council believes the removal of insurances taxes will help tackle high levels of non-insurance and underinsurance in the community.

Another way ICA is addressing financial exclusion is through its Effective Disclosure Taskforce. Next year general insurers will start work adopting its 16 recommendations in earnest.

“An action plan is being discussed with members, while research will be carried out in areas such as making product disclosure documents more customer-friendly,” Mr Whelan says.

ICA also “keenly anticipates” the Federal Government’s response to the Northern Australia Insurance Premiums Taskforce final report.

“Strong arguments will continue to be advanced [by ICA] that government intervention in a competitive private insurance market would be a retrograde step,” Mr Whelan says.

“If the Government does choose to use taxpayer funds to address the issue of household premiums in cyclone-exposed areas of northern Australia, ICA remains hopeful it will be through investments in increasing the resilience of housing stock.”

Another major issue for ICA next year is opening up statutory insurance markets to competitive underwriting.

“The launch of SA’s competitively underwritten compulsory third party (CTP) scheme in July will be a tremendous opportunity for the industry to highlight the benefits to government and consumers of general insurers taking over from government monopolies in the areas of CTP and workers’ compensation.”

New Underwriting Agencies Council (UAC) Chairman Lyndon Turner was appointed just this month, but his Christmas wish list is already on the way to the North Pole – via – and includes: continued growth in the underwriting agency sector, further expansion for UAC in New Zealand following its first forays this year, and the first full year’s implementation of the UAC’s 2020 plan to extend its reach into Asia.

Mr Turner also hopes for further strengthening of ties between the broker and agency communities.

“I’d like our broker partners to continue to recognise the professionalism and decision-making abilities exhibited by agencies – something that’s available to them 24/7, 365 days a year,” he says. “Agencies don’t work nine till five, and that’s a great advantage for brokers.”

Anthony Day, CEO Commercial Insurance at Suncorp, has three wishes for Christmas: less red tape, improved investment markets and kinder weather. It’s a tall order for Santa.

The imperative to cut red tape is simple enough. The less there is, the better the service for customers. But the times seem to favour more, not less, red tape.

“It’s important Australia has a strong regulatory environment,” Mr Day says. “But a side effect of this is trying to fulfil the demands of today’s ‘want-it-now’ customers as regulatory requirements become more complex.

“Red tape is strangling us and our customers – 40% of calls to our contact centre are spent on disclosure. From a customer point of view, this is obviously frustrating. They just want their financial services needs met.”

The insurance industry must work with government to seek ways to reduce insurance red tape, while ensuring consumers receive the right advice, he says.

But red tape is not the only problem. Mr Day says the financial environment has “definitely been getting tougher over the past few years”. Traditionally, the insurance industry has relied on its investments to help it grow – but unlike Christmas, it’s a fading tradition.

“Bond markets have stalled for some time now, and with tougher competition in the insurance markets the industry is beginning to struggle to be profitable,” Mr Day says.

But his optimism continues to shine through.

“That’s not to say growth is impossible. The insurance market has always been competitive and it will never stop being competitive. The key is to focus on the fundamentals of good risk management, effective claims management and maximising the distribution reach.”

Mr Day says “a lot of capacity [has] come into the market in recent times”, particularly in the reinsurance space, which has affected many companies’ risk appetites. New carriers have put additional pricing pressure on the local market, particularly in commercial lines.

“But just because rates are coming down a bit in certain lines doesn’t mean the overall market’s softening. In some lines they’re actually going up.

“Some competitors are combating growth issues through price reductions. We don’t view this pricing as a sustainable long-term strategy and we will continue to focus on margin over growth.”

Mr Day’s third wish is as much directed at Mother Nature as it is Father Christmas.

“Communities across Australia have suffered considerably from major weather events in the past year or so. Insurers and brokers have worked tirelessly to help people get back to their normal lives. It would be good to see more benign weather.”

National Insurance Brokers Association CEO Dallas Booth jokes his letter to Santa will be shorter than anticipated.

“We’ve had two gifts within the past week that would have been on our wish list,” he says.

The first is the same shiny box that was found under Mr Whelan’s tree – the decision on the NSW ESL. From July 1 2017 the levy will be replaced by a property-based charge to fund the state’s fire services and State Emergency Service.

“It’s a brilliant result for policyholders in NSW,” Mr Booth says.

The second gift, delivered “in black and white” by Assistant Treasurer Kelly O’Dwyer, is the Turnbull Government’s draft legislation in response to the Financial System Inquiry recommendations.

Specifically, it’s the news that Ms O’Dwyer has exempted general insurance brokers from new education standards for financial advisers, which will require advisers to hold a degree, pass a professional exam and undertake a professional year.

“We are delighted with the outcome, it’s a great result for insurance brokers,” Mr Booth says.

“Our position was that there was no systemic history of poor advice by insurance brokers. We’re grateful the Government has accepted our view that brokers are not part of the problem, so they don’t need to be part of the solution.”

Still on Mr Booth’s wish list is “a sensible industry model” for funding the Australian Securities and Investments Commission, and privatisation of state government workers’ compensation schemes in NSW and SA.

It spells another big year of lobbying and working with governments on industry policy issues. The good news is, the recent regime change in Canberra may make the task a little easier.

“I have the highest regard for Kelly O’Dwyer and I note the very sensible approach of the Federal Government [under Malcolm Turnbull], which is moving away from this binary thing of ‘good’ and ‘bad’ and instead is taking a sensible analysis approach to policy,” Mr Booth says.

Santa, of course, has his own take on the “good” and “bad” axis. Let’s hope the insurance industry is on his “nice” list this year.